Dive Brief:

• Humana has agreed to divest a majority interest in Kindred at Home's hospice business to private equity firm Clayton, Dubilier & Rice for about $2.8 billion in cash, the Kentucky-based payer said Thursday.
• Humana will sell a 60% stake in Kindred at Home's hospice, palliative, community and personal care divisions. Once the deal is finalized, the divisions will be restructured into a standalone business.
• The transaction is expected to close in the third quarter of this year.

Dive Insight:

The divestiture doesn't come as a surprise, as Humana has expressed its intent to sell a majority stake in the divisions when it acquired the remaining interest in Kindred at Home last year. The payer explored a variety of alternatives before landing on the transaction with CD&R, according to Humana CFO Susan Diamond.

The payer is selling 60% of its stake and will maintain a strategic minority interest.

Humana has been pursuing the home as part 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 acquired the remaining 60% interest in Kindred at Home from private equity firm TPG Capital last April for $5.7 billion — the largest acquisition in Humana's history.

At the time, then-CFO Brian Kane noted Humana planned to sell a majority interest in the hospice and community care portion of the business, calling it "a dainty solution" allowing the payer 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.

Humana first bought a minority stake in the homecare company in 2017 along with TPG Capital and Welsh, Carson, Anderson & Stowe.

In the fourth quarter, Kindred's home health admissions were up on a year-over-year basis, but hospice admissions were down, both in the low-single digits, Diamond said on a February call with investors.

Additionally, labor is a stressor for the division. Though Humana improved home health and hospice nurse retention in 2021, "we acknowledge that the labor market remains challenging, and there is more work to be done to further improve nurse satisfaction and retention," Diamond said.

The deal values Kindred's hospice arm at $3.4 billion. In the release, Diamond highlighted CD&R's established physician relationships and experience with value-based care as positives for the relationship.

According to its website, CD&R has 16 portfolio companies in healthcare, including value-based primary care providers Agilon Health and Vera Whole Health. One of its portfolio companies — Envision Healthcare, a national physician group — was sold in 2015.

Humana said it planned to use proceeds from the deal to repay debt and share repurchases and doesn't expect the transaction to materially impact its earnings this year.

Humana's ongoing strategy to drive value is to grow its health services and Medicare Advantage businesses, CEO Bruce Broussard said on the fourth-quarter call.

MA plans are growing in popularity among seniors, leading MA plans to jockey for larger slices of the increasingly lucrative market. That rising competition led Humana in January to slash its membership expectations for new MA members this year.

Humana is currently the second-largest MA insurer by membership, behind UnitedHealthcare.