In the wake of the announced $4.1 billion acquisition of Kindred Healthcare (NYSE: KND) by Humana Inc. (NYSE: HUM) and two private equity groups, a direct line has been drawn between managed care and home health care.
Humana, in consortium with private equity groups TPG Capital and Welsh, Carson, Anderson & Stowe, announced it was acquiring Louisville-based Kindred on Tuesday. Kindred’s hospital and rehabilitation business will be acquired by the private equity groups alone, and run as a separate company.
Humana is the nation’s second-largest Medicare Advantage plan provider, and, while it already had some home health care operations, the acquisition of Kindred gives it an ownership stake in the largest home health provider company in the nation. The deal solidifies home health care as a vital piece of managed care, according to Paul Kusserow, CEO of Baton Rouge-based Amedisys, Inc. (Nasdaq: AMED).
Managed care accelerant
The deal came as no surprise to Kusserow, who served as senior vice president and chief strategy and innovation corporate development officer at Humana for five years, prior to joining Amedisys.
“They’ve been out looking for years,” Kusserow said of Humana’s plan to acquire home health care. “Kindred has a huge presence and is [based] in Louisville [like Humana]. And there were some people willing to take the other assets away, which was a huge factor in getting this deal done.”
Humana plans to leverage Kindred’s operations to manage its Medicare Advantage population at home, keeping them out of the hospital. A significant portion—65%—of Humana’s individual Medicare Advantage membership overlaps with Kindred, according to a press release.
Amedisys in particular is one home health care provider looking to gain more ground in managed care and Medicare Advantage contracts. Currently, managed care comprises about 25% of Amedisys’ business, Kusserow said.
“Home health belongs in managed care,” Kusserow said. “If home health is going to start to take risk and do more, you’ve got to find somebody and take that risk.”
As a risk-bearing entity in managed care, home health care payments are tied to metrics, such as readmission rate and the ability to closely manage costs and outcomes, with those involved sharing in the savings.
“Humana has done population health management before using home health assets, and they’ve done a very nice job,” Kusserow said. “My hope is they can do it again. It will be nice to have two people in the industry taking a risk, not just us.”
While the deal could help open the flood gates of home health care integration with managed care, Humana’s management of Kindred at Home’s operations will come with some challenges, as well.
Namely, fee-for-service could prove to be problematic simply because Humana is a managed care payer, according to Kusserow.
Another challenge lies in Kindred’s hospice business, which could prove problematic for Humana, according to Kusserow. As a payer, Humana doesn’t want to be perceived as pushing its customers off its plans and onto the hospice benefit, which is outside managed care plans.
Overall, however, the deal is “a bold move” that could lead the industry, he stated.
Written by Amy Baxter