Our Take: Humana seeks to create $1 billion in additional value to boost its Medicare Advantage business

Feb 07, 2022

After lowering its forecast for 2022 Medicare Advantage (MA) enrollment by roughly 50% earlier this year, and then last week reporting a 27% decrease in net profits for 2021 compared with the previous year, Humana is implementing a value creation plan with the intent of generating $1 billion, which the company will use to fund investment in its MA business and additional expansion of its health care services.

In the news release announcing its financial results, the insurer said it would create the $1 billion in additional value through “cost savings, productivity initiatives, and value acceleration from previous investments.”

Specifically, the company mentioned “optimizing” its workforce, evaluating its real estate holdings, reducing third-party spend — likely through outsourcing and reduced use of vendors, and making its operations more efficient through automation and other digital capabilities.

Humana is also proceeding with plans to divest the hospice business it gained as part of the $5.7 billion acquisition of the remaining 60% stake in Kindred at Home last year. Citing three unnamed sources, Axios reported on Monday that Humana has initiated the divestiture process in collaboration with Goldman Sachs.

Although Humana’s reported revenue was higher in 2021 ($83.1 billion vs. $77.2 billion in 2020), the company’s annual income decreased from $4.6 billion in 2020 to $3.4 billion last year.

Our Take: Humana is the second-largest provider of MA plans in the U.S., after UnitedHealthcare. But with established insurers of all sizes and a more than a few startups all working diligently to increase their share of the lucrative MA market, Humana is finding that it needs to step up its game.

In early January, the company revised its membership growth estimate for individual MA products this year from a previously announced range of 325,000 to 375,000 members to a much lower range of 150,000 to 200,000 members. Humana said the adjustment was due to higher than anticipated terminations during open enrollment.

To spur new growth, the company will focus on making its MA plans more appealing by enhancing the health care services available through the plans. Those services include both pharmacy and provider services. One component of that strategy is to open CenterWell Senior Primary Care clinics in three more states, bringing the total number of clinics to between 240 and 260 by the end of this year.

Humana will also scale its value-based home health model, which includes Kindred at Home, recently rebranded as CenterWell Home Health. The company has set a goal of having nearly half of its MA members under its home health model within five years.

According to Home Health Care News, Humana’s CEO, Bruce Broussard, estimated that eventually approximately 60% to 70% of Humana members “will be served by the comprehensive value-based model,” and the remainder “will be supported by select components [of the model] based on the needs of the market.”

With its emphasis on providing home health care, Humana is diverging from the strategies of other top insurers with regard to the MA space. While competitors may offer services such as telehealth and annual home health visits, Humana has made a much deeper commitment to home health care.

For example, the company signed a definitive agreement last June to acquire onehome, a business based in Miramar, Fla., that served 1 million plan members through a value-based home health model. Humana said at the time that it planned to use onehome’s significant experience with risk-based contracting and fully capitated models in Florida and Texas to expand similar contracting in other states.

Earlier in the year, Humana launched a tech-enabled platform called Humana Care Support that helps MA plan members manage their chronic conditions. A statement announcing the launch said the platform would help members “improve their physical, social, and behavioral health while aging in place.”

With approximately 10,000 people in the U.S. turning 65 every day, according to AARP, and Medicare Advantage plans steadily gaining in popularity, there’s plenty of business to go around. We think Humana has more than enough experience in this market to be able to hold on to its share.

Here’s the company’s outlook, according to CEO Broussard:

“Looking ahead, we are confident in both the fundamentals of the Medicare Advantage industry, and the long-term growth prospects for our company. We expect that improved membership growth, further penetration in our growing and maturing Healthcare Services businesses, and our increased focus on productivity improvements will position us to deliver on our long-term earnings target in 2023 and beyond.”

What else you need to know
Michigan-based health systems Spectrum Health and Beaumont Health completed their merger, launching a new 22-hospital, not-for-profit health system — the largest in the state — on Feb. 1. Temporarily called BHSH System, the new entity also has more than 300 outpatient locations, several post-acute facilities and a health plan called Priority Health, which has 1.2 million members. The new health system employs more than 64,000 people, making it Michigan’s largest private employer. Tina Freese Decker, who was president and CEO of Spectrum Health, now holds those titles at BHSH System. John Fox, formerly the president of Beaumont Health, left the organization as of Friday; a search is being conducted for his successor, who will oversee BHSH Beaumont Health, according to the announcement. The combined health system’s revenue is an estimated $13 billion.

Physician Partners, a value-based primary care physician group and managed service organization founded in Florida in 2006, is the recipient of a $500 million private capital investment led by Kinderhook Industries. The organization partners with national and regional Medicare Advantage health plans, and its network of more than 545 physicians serves over 137,000 members throughout Florida. The capital will be used to open additional locations in Florida and at least two out-of-state markets this year, Fierce Healthcare reported. Financial terms were not disclosed in the press release announcing the investment.

Pfizer is joining the roster of drugmakers restricting sales of their products through the 340B drug discount program. Pfizer’s restrictions, set to take effect in March, will apply to rheumatoid arthritis drug Xeljanz (tofacitinib) and the company’s oral oncology drugs, Endpoints News reported. The move makes Pfizer the 13th pharmaceutical company to implement restrictive 340B policies with regard to contract pharmacies. The drugmakers contend that extending the pricing discounts to community pharmacies that contract with hospitals participating in the 340B program leads, in some instances, to duplicate discounts. The Health Resources and Services Administration has warned several of the drug companies that their policies violate the 340B statute. Hospital advocacy group 340B Health issued a survey report last week on the “growing financial burden” the restrictions are imposing on hospitals, noting that the “impact is especially severe for small, rural hospitals.”

Sentara Healthcare’s CEO, Howard Kern, plans to retire by year-end. Kern has been with the health system since 1980 and has served as CEO since February 2016. The Norfolk, Va.-based health system said in a press release that an ad hoc committee of its board is conducting a search for Kern’s successor, and that Kern agreed to stay on until a candidate has been chosen and is in place.

COVID-19 vaccine update: The FDA approved Moderna’s vaccine last Monday, making it the second in the U.S. to receive full approval. It will be marketed as Spikevax and is indicated for the prevention of COVID-19 in individuals who are at least 18 years old. Also on Monday, Gaithersburg, Md.-based Novavax submitted a request to the FDA for emergency use authorization (EUA) for its protein-based, two-dose COVID-19 vaccine candidate in this same age group. On Tuesday, Pfizer and BioNTech initiated a rolling submission to amend their COVID-19 vaccine EUA to include children ages 6 months through 4 years. The requested authorization is for the first two doses of a planned three-dose primary series; the FDA asked Pfizer and BioNTech to request the EUA now rather than waiting for trial data on the third dose (which would be administered at least eight weeks after the second dose). The firms expect the additional data “in the coming months” and will submit it to support “a potential expansion” of the EUA. A virtual meeting of the FDA’s vaccines advisory committee is planned for Feb. 15 to discuss Pfizer and BioNTech’s EUA request.