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Our Take: Humana to buy remaining stake in Kindred at home for $5.7 billion

May 03, 2021

Louisville, Ky.-based insurer Humana announced its largest acquisition yet last week when it signed an agreement to acquire the remaining 60% interest in Kindred at Home from private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe for $5.7 billion.

The 40% minority stake in the company that Humana already owns has an equity value of $2.4 billion.

Based in Atlanta, Kindred at Home is the nation’s largest provider of home health and hospice services, with locations in 40 states.

Humana intends to integrate Kindred at Home’s home health business into its own Home Solutions business. At that time, Kindred at Home will adopt Humana’s new payer-agnostic brand, CenterWell, and will be called CenterWell Home Health. The rebranding will help Humana market its home health services to people other than its own plan members. CenterWell also includes pharmacy and primary care segments.

Humana said it plans to maintain only a minority interest in Kindred at Home’s hospice and community care operations and is considering options to divest that part of the business, possibly through a sale or as a spinoff led by Kindred at Home’s CEO, David Causby.

The acquisition is subject to regulatory approvals at the state and federal levels and other customary closing conditions. It is expected to close in the third quarter.

Separately, Humana released its financial results for the first quarter on Wednesday, reporting a profit of $828 million — an increase of 75.1% relative to the first quarter of 2020. The company’s revenue for the most recent quarter was $20.7 billion, up 9.2% from the $18.9 billion reported in Q1 of last year.

Our Take: Those of us who follow health care M&A activity expected this to happen eventually. When Humana and the two private equity firms bought Kindred Healthcare back in 2018 for $4.1 billion, they made Kindred at Home a standalone and divvied up its ownership. At the time, Humana retained the option to buy out the private equity firms’ ownership stakes.

Even before the pandemic, the trend toward aging in place among the country’s swelling senior population had already increased the demand for home health care. The coronavirus no doubt accelerated Humana’s plans to take full ownership of Kindred at Home.

While most home health providers receive much of their revenue through fee-for-service payment arrangements with Medicare, Humana’s status as one of the largest Medicare Advantage (MA) insurers in the U.S. will facilitate the transition of more of Kindred at Home’s home health business into value-based care.

”Humana embarked on a journey with Kindred at Home in 2018 with the belief that a key component of the next generation of its integrated care delivery model was the ability to provide care to consumers, including Humana members, in their home at scale, meeting them where they want to be, in a preferred lower cost setting, while also recognizing that the traditional volume-based, fee-for-service model limited innovation in home health,” said Susan Diamond, president of Humana’s home business segment.

“Our work with Kindred at Home allowed us to learn more about the advanced clinical models needed, proved that we can execute on the needed innovation, demonstrated that we can drive penetration, and gave us confidence we can support a higher acuity patient by leveraging the other home-based assets and capabilities we’ve assembled,” she remarked.

Like UnitedHealth, CVS Health/Aetna, and Cigna, Humana has been expanding its health care service offerings in recent years, blurring the distinction between payer and provider in the process.

“We continue to invest in assets that allow Humana to better manage the holistic needs of our members and patients by expanding care in the home, including primary care, telehealth, and emergency room care, while also addressing social determinants of health,” Humana’s CEO, Bruce Broussard, said in a statement.

“Since our initial investment in Kindred at Home, in partnership with the [private equity firms] and Kindred at Home management, we’ve learned a great deal about the home health space and recognize the significant value we can deliver to members and patients by integrating this asset into our holistic approach to care.

“Fully integrating Kindred at Home will enable us to more closely align incentives to focus on improving patient outcomes and on reducing the total cost of care. This is critical to deploying, at scale, a value-based, advanced home health model that makes it easier for patients and providers to benefit from our full continuum of home-based capabilities,” he added.

Humana noted in its announcement of the acquisition that Kindred at Home’s geographic coverage has approximately 65% overlap with Humana’s individual MA membership. Kindred serves more than 550,000 patients per year.

According to Humana’s 2020 annual report, the insurer provided coverage under CMS contracts to nearly 4 million individual MA members and approximately 613,200 group MA members as of the end of last year. At the end of the first quarter, the company had almost 4.3 million individual MA members (but had lost 9.2% of its group MA members). Humana said it expects to grow its individual MA membership by 425,000 to 475,000 members this year.

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