Kindred was just the beginning.
After a big week, it’s clear that insurance giant Humana (NYSE: HUM) is not content with owning a stake in the nation’s largest home health provider, but is quickly creating a care delivery platform with a wide range of home-based services.
On April 23, Louisville-based Humana announced that it would acquire hospice provider Curo Health Services for about $1.4 billion, in partnership with private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS). Just one day later, Humana announced it is teaming up with home-based care company Landmark to offer medical, behavioral and palliative care coordination for certain Medicare Advantage (MA) beneficiaries. Then, last Wednesday, came news that Humana is launching a national hospital incentive program, which will tie compensation to how well hospitals coordinate care across the continuum.
These moves are all part of a strategy that Humana laid out last December, when it announced the acquisition of the nation’s largest home health provider, Kindred at Home—a deal that was also done in partnership with TPG and WCAS. Humana’s goal is to create a platform of care providers to help better manage costs and outcomes for the company’s population of seniors on Medicare Advantage. With that MA membership at about 3.3 million people, the Humana model could make a big impact in shifting health care toward seniors’ homes.
Seizing a hospice opportunity
In buying Kindred at Home—the home health arm of Louisville-based Kindred Healthcare (NYSE: KND)—Humana and its PE partners will own the largest home health and second-largest hospice provider in the United States. The intention is to merge Curo with Kindred’s hospice division, to create the largest hospice operator in the country.
The Curo acquisition might seem like a no-brainer, considering Humana’s desire to control more of the senior care continuum. However, as recently as last summer, hospice was “not a key focus” for Humana’s leadership, a banker with knowledge of the Curo deal told Home Health Care News. It was not until meeting with the Curo team and considering potential synergies with the Kindred business that Humana executives recognized a good opportunity.
Those synergies will largely be achieved through back-office labor reductions and the ability of Curo to open hospice locations in overlapping markets with Kindred’s home health services, the banker said.
Although there are indications that this might change in the near future, Medicare Advantage plans are currently not allowed to offer hospice as a benefit. However, by having a stake in a large hospice provider, Humana could more effectively ensure that beneficiaries are in the most appropriate care setting. This should help manage costs and boost health outcomes and patient satisfaction.
“The acquisition continues the recent theme of MCOs [managed care organizations] moving toward a more vertically-integrated model to provide more efficient care,” RBC Capital Markets analyst Frank Morgan wrote of the Curo deal.
UnitedHealth Group (NYSE: UNH) is another MCO to make a similar play, through its Optum health services division. Strong numbers from Optum helped boost UnitedHealth’s most recently quarterly earnings.
One obstacle to achieving operational efficiencies could be that Humana will only have a 40% stake in Curo under the terms of the transaction, Cantor Fitzgerald analyst Steven Halper wrote in a note about the deal.
However, Humana likely has options to increase its ownership position over time, as it does in the Kindred at Home deal, according to the banker who spoke with HHCN.
And, despite reservations over the minority stake, Cantor Fitzgerald does believe the acquisition is “financially prudent” for Humana.
The $1.4 billion pricetag represents about a 15x EBITDA multiple, according to RBC’s calculations. That’s based on annual earnings in the range of $80 million to $100 million for Curo, derived from credit statistics from Moody’s. Curo does have a high leverage ratio of 6x, RBC noted, due in large part to recent investments in start-up locations.
By way of comparison, Encompass’ (NYSE: EHC) recent home health and hospice acquisition, of Camellia Healthcare, had an estimated 13.5x EBITDA multiple.
This Curo transaction should also quell current rumors that retail behemoth Walmart (NYSE: WMT) will acquire Humana, according to Halper.
“Typically, we would not expect to see target companies completing acquisitions such as this if they were in the process of being acquired, but anything can happen,” he told HHCN.
Enhancing home care
In addition to the home health and hospice capabilities that it has gained through the Kindred and Curo deals, Humana will be offering specialized in-home services through the collaboration with Landmark.
Landmark employs physicians, advanced practice providers, pharmacists, nurses, social workers, behavioral health clinicians and others to provide support and care coordination in the home for people with chronic conditions.
“Landmark does not replace [a] patient’s regular doctors, but augments their care plans in the home,” the company stated in an April 24 press release announcing the Humana partnership.
The program will roll out next month in certain counties in Washington state, and then over the course of the spring and summer it will be introduced in Kansas, Missouri, Kentucky, Ohio, Louisiana and Mississippi.
Services will be available to eligible beneficiaries in Humana’s Medicare Advantage HMOs and PPOs. Diabetes, coronary heart disease, and cancer are among the conditions that could qualify a beneficiary to take advantage of Landmark services, which will include urgent house call visits and maintenance visits to monitor health indicators.
The wrap-around care created by Landmark fits into the value-based approach that Humana is increasingly taking in its MA plans. This approach ties payments more to quality outcomes rather than volume of services, and incentivizes management of health conditions to prevent hospitalizations and other costly interventions.
As of 2017, 66% of Humana’s 2.9 million individual MA members were seeing a primary care doctor in a value-based arrangement, according to the press release. The number of beneficiaries in a value-based model should increase further with the rollout of the hospital incentive program. This will link payments to how well hospitals do on various metrics, incorporating the Integrated Care Certification and Hospital-Based Palliative Care Certification standards developed by The Joint Commission, an accrediting organization.
“These key Joint Commission certifications require that participating hospitals engage patients more seamlessly across the entire continuum of care, and we’re pleased to work with Humana to create additional value for the hospitals that achieve them,” Brian Enochs, executive vice president of business development and marketing at The Joint Commission, stated in a press release.
It stands to reason that the Landmark services and Humana’s ownership of home health and hospice providers should help in-network hospitals in their care coordination efforts, but Landmark had not responded to requests for comment from Home Health Care News as of press time. Humana is currently in a quiet period in advance of its upcoming quarterly earnings announcement.
Investors appear to be happy with Humana’s moves. As of market close last Friday, HUM shares were trading at $296.89, up from $293.31 a week prior.
And at least one person representing hospice providers is striking a positive note.
“I think Humana recognizes that now they need to be responsible for providing supports and services,” Edo Banach, president and CEO of the National Hospice and Palliative Care Organization, told HHCN. “They’ve been in this game a while longer than many, and they recognize they either have to have their own delivery system or they have to have a really good partner. We welcome them to this area and look forward to further discussion and collaboration.”
Written by Tim Mullaney