Following ‘Herculean’ Integration Efforts, Humana Sees Balanced Growth for Kindred at Home

In 2019, Humana Inc. (NYSE: HUM) recorded its highest individual Medicare Advantage (MA) growth rate in a decade. The Louisville, Kentucky-based home- and community-focused health insurer anticipates more of the same in 2020, with leadership also bullish on Humana’s existing in-home care operations and its soon-to-expand primary care centers.

And when it comes to home health care, specifically, Humana believes Kindred at Home is finally ready to take off. Humana and two private equity firms — TPG Capital and Welsh, Carson, Anderson & Stowe — took control of home health giant Kindred at Home in 2018 following a $4.1 billion deal.

“We are pleased with our 2019 performance, particularly our success in balancing and executing on multiple priorities as we grew membership, improved the quality and productivity of our operations, and continued to invest in the long-term,” Humana CEO and President Bruce Broussard said during a fourth-quarter and year-end earnings call Wednesday.

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Partly due to its 2018 investments in Kindred at Home and Curo Health Services, Humana has grown into a must-follow for home health and hospice providers. Non-medical home care agencies have watched Humana closely, too, looking to team up with the insurer on innovative supplemental-benefit offerings under MA.

Currently, Humana is one of the largest MA players in the country. UnitedHealthcare and Humana alone combined to account for 44% of MA enrollment in 2019, according to statistics from the Kaiser Family Foundation.

After releasing its Q4 results, Humana reaffirmed its 2020 individual MA membership growth estimates of roughly 270,000 to 330,000 members. If accurate, that growth would represent 7.5% to 9.2% growth over Humana’s blockbuster 2019.

In addition to growing Medicaid, Humana also grew its Medicaid business by about 38% in 2019, according to the company. Humana covers about 140,000 Medicaid lives in Kentucky, while also offering coverage for Medicaid beneficiaries in Florida and Illinois in 2020.

“We were able to serve our country’s sickest and most vulnerable population in need of quality care and better health outcomes,” Broussard said.

Humana’s 2019 consolidated revenues totaled $64.89 billion, up from $56.91 billion in 2018. Q4 consolidated revenues totaled about $16.3 billion, up from $14.17 billion in 2018’s fourth quarter.

Kindred at Home ready to take off

In 2019, Kindred at Home ranked as the largest home health provider in the United States, according to LexisNexis. By acquiring a stake in Kindred at Home, Humana immediately beefed up its in-home presence.

But that scale also brought inherent integration challenges that slowed bottom-line potential.

Last February, for example, Humana leadership discussed how the company was converting Kindred at Home and Curo to Homecare Homebase to improve workflows and become more efficient. That task turned out to be “a Herculean effort,” CFO Brian Kane said on Wedneday’s call.

The conversion has concluded, meaning Kindred at Home and Curo should both be primed for solid EBITDA growth moving forward. Humana remains bullish on Kindred at Home despite some of the challenges that naturally come with the Patient-Driven Groupings Model (PDGM) as well.

“Kindred at Home is … performing well,” Kane said. “We hope to continue to see strong EBITDA growth, notwithstanding the change in the payment model.”

As Humana executives have previously stated, the company views PDGM as a positive.

“As you know, we’ve embraced this payment model because it gets us closer to chronic nursing versus a sole focus on therapy,” Kane said.

While Humana also has its legacy Humana At Home operations, Kindred at Home will be the driving force behind its home strategy. Now that the business is fully converted to Homecare Homebase and other integration speed bumps are out of the way, Humana will look to build out its in-home care capabilities even further.

“The next phase, beginning in 2020, is to provide more care services in the home, including acute care and primary care in the home so that we may begin to generate meaningful trend vendors for our health plans in the future while improving clinical outcomes for our seniors,” Broussard said.

Humana’s 2019 health care services segment revenues totaled $25.78 billion, up from $23.81 billion in 2018. Q4 health care services segment revenues totaled about $6.7 billion, up from $6.19 billion 2018’s fourth quarter.

Doubling down on senior-focused primary care

On Monday, Humana also announced it has entered into a joint venture agreement with PE powerhouse Welsh, Carson, Anderson & Stowe (WCAS) to expand its Partners in Primary Care footprint.

Partners in Primary Care is a primary care medical group practice currently operating centers in Kansas, Missouri, North Carolina, South Carolina and Texas under the Partners in Primary Care brand. The practice also operates centers in Florida under the Family Physicians Group brand.

Although the Partners model places an emphasis on primary care to older adults enrolled in Medicare Advantage health plans, it is payer agnostic. The management services organization for Partners is a wholly owned subsidiary of Humana.

Humana opened 29 senior-focused primary care centers in 2019, bringing its total to 262. By joining forces with WCAS, Humana is taking the model from a “proof of concept” to one that is ready for scale.

“Just this week, we announced an exciting strategic partnership with [WCAS] that will accelerate our payer-agnostic center expansion, giving more seniors access to quality primary care built around their unique health needs, especially in geographies that lack that access today,” Broussard said. “This new arrangement is a capital-efficient approach to rapid expansion.”

WCAS and Humana are investing $600 million in the new JV, which won’t include the 104 payer-agnostic, senior-focused primary care centers linked to Humana’s wholly owned Conviva operations. WCAS will have majority ownership in the new JV, with Humana owning “a small minority stake.”

“There is a significant unmet need for value-based, senior-focused primary care in the U.S.,” David Caluori, general partner of WCAS, said in a statement. “WCAS has a 40-year history of successfully building world-class health care companies. This transaction represents another example of how WCAS creatively partners within the health care ecosystem to enhance access to innovative health care services to improve patient care.”

Apart from the Kindred at Home deal and the Partners in Primary Care JV, WCAS’s senior-focused health care investments also include InnovAge, one of the biggest PACE organizations in the country.

Under terms of Humana’s JV agreement with WCAS, Partners in Primary Care will receive a management fee, including performance-based incentives, for the management of all joint venture centers. The agreement also includes a series of put-and-call options allowing Partners in Primary Care to acquire WCAS’s interest in the JV — and for WCAS to require Partners in Primary Care to purchase its interest in stages over the next five to 10 years.

Humana and WCAS aim to open 50 centers in the next three years.

Usually, Partner in Primary Care centers grow along a J-curve, meaning they’re normally not extremely profitable early on, but then see “very good” returns as time passes, according to Kane. That capital-intensive trend is one of the main reasons to bring in WCAS for support during initial expansion.

“We’re trying to be creative with the use of our capital,” Kane said.

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