Dive Brief:

• Humana has inked an agreement to acquire the remaining 60% interest in Kindred at Home, the biggest home health provider in the U.S., from two private equity partners in a deal valuing Kindred at $8.1 billion, the payer announced Tuesday.
• The acquisition — the largest in Humana's history — will beef up the health insurer's services division and at-home care offerings as a growing number of payers segue into medical delivery.
• Humana also released first quarter financial results premarket Wednesday, beating Wall Street expectations for earnings and revenue on individual Medicare Advantage and state-based membership growth, and growing profitability of its group, specialty and health services segments.

Dive Insight:

On Tuesday, Humana announced it had signed a definitive agreement to acquire the remaining stake in Kindred, after buying a minority stake in the massive homecare company in 2017 along with private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe. The move was expected but still represents a significant investment in at-home care for the Louisville, Ky.-based payer, with a price tag of $5.7 billion in cash and debt.

CEO Bruce Broussard said on a Wednesday morning call with investors that Humana sees the home as the next step of its health services strategy, due to the aging population, growing prevalence of high-cost chronic conditions and acceptance of care in the home accelerated by COVID-19.

The payer's health services division, recently rebranded as CenterWell, includes pharmacy, primary care and home health segments, which will be the core of the business moving forward. However, Humana plans to build out CenterWell to serve multiple different markets, including Humana's members and other payers and providers in both value-based and fee-for-service models.

Bringing all of Kindred into the fold makes sense for Humana, given the increasing focus on health services. Kindred has a massive footprint, operating in 40 states with more than 550,000 patients a year, with a 65% geographic overlap with Humana's individual MA membership.

Humana plans to divest a majority interest in the hospice and community care portion of the business. CFO Brian Kane called the move "a dainty solution," allowing Humana to retain a relationship with Kindred Hospice through minority ownership and integrate in their markets, but still offer the service more broadly to other parties.

The deal, expected to close in the third quarter, comes as traditional health insurers increasingly blur the line between managing care and delivering it.

Cigna bought telehealth provider MDLive this year for an undisclosed amount, while UnitedHealth plans to acquire data analytics giant Change Healthcare for $13 billion to add to its health services business, Optum.

Acquiring Kindred will more directly set Humana against UnitedHealth and its behemoth payer arm UnitedHealthcare, as Optum's delivery network, OptumCare, has a broad network of 56,000 doctors, while Kindred employs about 43,000 clinicians.

Following the close, Kindred will be rebranded as CenterWell Home Health.

Humana said the deal won't materially affect earnings in 2021, and will "provide modest additional financial flexibility as we set targets for 2022 earnings," Kane said on the Wednesday call — his last as CFO. As part of a leadership transition, Kane is being replaced on a temporary basis by Susan Diamond, who currently runs the payer's home business.

In the first quarter, the payer took in revenue of $20.7 billion, up more than 9% year over year, reporting profit of $828 million, up a whopping 75% year over year. The insurer saw especially strong membership growth in private MA plans, ending the period with about 4.3 million individual MA members, a net increase of 12% year over year.

Humana's state-based contract business, which includes Medicaid and dual-eligibles, also saw significant growth, with membership up 36% year over year to almost 840,000 beneficiaries. Humana recently nabbed Wisconsin, Oklahoma and South Carolina contracts, swelling its Medicaid footprint to seven states.

Revenue was also helped by higher per member individual MA premiums, as a result of a more favorable CMS benchmark rate for 2021 and Congress pushing back Medicare sequestration cuts. However, that was partially offset by Medicare Risk Adjustment headwinds resulting from COVID-19-related utilization disruption last year, and declining year-over-year stand-alone prescription drug plan, group commercial medical and group MA membership.

Management said utilization was nearing normal levels, boding well for health outcomes but potentially hampering payer profits, which reached historic levels last year as patients deferred non-essential care during the pandemic.

Admissions were down relative to seasonal baselines in January, February and March, but only slightly, Kane said. COVID-19 admissions came down more quickly than expected, moderated in late March and holding flat as of early April.

"We expect utilization to rebound to par as we move through the end of the quarter and to slightly exceed baseline through the rest of the year," Kane said, but noted the payer hasn't yet seen increased acuity of care. That expected bounceback in utilization, and continued uncertainty during the pandemic, contributed to the payer slightly lowering its 2021 earnings guidance.