Kindred at Home Integration More Costly than Humana Anticipated

Humana Inc. (NYSE: HUM) recorded better-than-expected revenue in the fourth quarter of 2018, despite higher-than-anticipated costs associated with Kindred at Home’s operations.

The Louisville, Kentucky-based health insurer’s GAAP consolidated revenues for Q4 came in at $14.17 billion, an increase of about $979 million from the same period a year ago. Annual revenue for Humana’s fiscal year 2018 totaled $56.9 billion, up from $53.8 billion in 2017.

“We’re pleased with the consistency of and ongoing improvement in our performance, which can be attributed to our focus on optimizing our core operations,” Humana CEO Bruce Broussard said during a Wednesday conference call with investors. “The investments we made in 2018 to improve consumer experience, clinical programs and external broker relationships all contributed to our ability to exceed average industry growth in Medicare Advantage for 2019.”

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The home health industry has closely followed Humana ever since the insurer — along with private equity groups TPG Capital and Welsh, Carson, Anderson & Stowe — acquired Kindred at Home toward the middle of last year for $4.1 billion. Kindred at Home is the largest provider of home health and hospice services in the United States.

Humana gained a 40% stake in Kindred at Home under terms of that deal, with an option to acquire 100% of the business within the next few years.

Humana and the same two PE groups also acquired hospice provider Curo Health Services for $1.4 billion, with strategic plans to merge the business with Kindred at Home to build a post-acute care powerhouse focused on the home setting. “Home,” in fact, is one of Humana’s five primary areas of focus, in addition to primary care, pharmacy, behavioral health and social determinants of health.

“Regarding the home, we’ve established an independent home health company, joining Kindred at Home and Curo, providing significant overlap with our Medicare Advantage business,” Broussard said. “We are now implementing care and payment models oriented to patients with multiple chronic conditions in five pilot markets.”

For multiple reasons, Kindred at Home’s operations incurred a higher-than-anticipated cost in the 2018 fourth quarter. Those reasons include investments related to enhancing the clinical and operational capabilities of existing Kindred at Home branches, as well as shutting down branches that Humana deemed unprofitable and other costs related to establishing an independent company.

With Kindred at Home in the fold, Humana’s net income for the three months ended Dec. 31 totaled $355 million, nearly double the $184 million compared to the same period in 2017.

Humana’s 2019 plans for Kindred at Home now include the implementation of Homecare Homebase as the electronic medical record and practice management system for both home health and hospice services.

“We’ve optimized our ability to exchange key medical information with Kindred at Home,” Broussard said. “We use this information during the home health admission process to inform the patient’s treatment plan as we deploy evidence-based, disease-specific care plans to identify and prioritize the most impactful clinical interventions.”

Humana’s Medicare Advantage outlook

One of the main highlights for Humana in Q4: MA growth for individual plans that outpaced national trends and exceeded the company’s own expectations. Overall, Humana added about 340,000 MA members in 2018. It has ambitions to add far more than that in the year ahead, according to Broussard.

“We are projecting individual Medicare Advantage membership growth of 375,000 to 400,000 members, or 12% to 13% [growth] for the full year,” he said.

Federal policymakers have increasingly expanded the Medicare Advantage program of late, further opening the door for telehealth and in-home care opportunities that aren’t necessarily medical in nature. That’s made health plan partnerships even more important for home-based care providers.

National home care franchise company Right at Home, for example, struck a preferred partnership arrangement with Humana’s Kindred at Home in August. ComForCare followed suit in October.

Humana’s stock was down slightly and trading at $301.04 per share as of mid-day Wednesday.

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