Humana to Bank Kindred at Home Hospice Spin Off, Sale


Following the closing of the Kindred at Home acquisition in the third quarter, Humana Inc. (NYSE: HUM) plans to separate and sell the company’s hospice business to capitalize on high market valuations. The company also expects to see substantial savings from reduced hospitalizations and skilled nursing admissions as more care is transferred home.

Insurance mammoth Humana in April announced plans to acquire the remaining 60% of Kindred at Home for $ 8.1 billion. This includes Humana’s existing equity value of $ 2.4 billion from its current 40% stake in the business. Humana acquired the 40% stake in 2018, with private equity firms Welsh, Carson, Anderson & Stowe and TPG Capital owning the remaining 60%.

“We expect that we will be able to capitalize on a robust market for hospice assets by selling a controlling stake in this part of the business to what we expect to be an attractive valuation,” said Humana’s CFO, Brian Kane, during a first trimester call for earnings. “Immediately after the closing of the transaction, significant deleveraging [is] planned after the divestiture of majority stake in palliative and community care.

Investors and strategic buyers have had a huge appetite for hospices in 2020 and 2021, making them the most active sector in healthcare mergers and acquisitions. Valuations have soared. Palliative care multiples hit a record 26x in 2020, according to the PWC Research Institute. Overall healthcare multiples hovered around 13.9x, up slightly from 13.8x in 2019.

With Kindred’s scale, Humana has everything to gain from divesting its hospice segment, likely seeking a substantial price for the asset. Across its three service lines, Kindred at Home cares for 550,000 patients in their residences each year, employing nearly 43,000 clinical staff in 40 states.

Kindred at Home’s home care operations will be integrated under the CenterWell brand of Humana’s Home Solutions business segment. CenterWell is an independent entity from the payer, which means the organization cares for patients even if they are not members of a Humana plan.

Favorable demographic winds and growing demand for palliative care will likely make Kindred at Home an attractive acquisition target, and Humana is expected to reap significant gains from the potential deal, a recent report says. report of the Mertz Taggart mergers and acquisitions consultancy.

“After you do the math, the EBITDA multiple of the deal is about 11 times, a relative theft for a Kindred-sized home care business,” Cory Mertz, managing partner of Mertz Taggart. “The multiple of 11x was negotiated when they acquired Kindred in 2018. Back in the day, if you looked at home health and hospice care combined, a multiple of 11x was considered a ‘deal’ for an agency. of this size. Looking back, it was a good deal for Humana for both trades.

The 2018 deal included a “built-in option” for the two private equity firms to sell their 60% stake to Humana after three years at a multiple of between 10.5x and 11.5x, Mertz reported.

In addition to the revenue generated by Kindred at Home or an upcoming palliative care sale, Humana is likely to achieve significant cost savings. Better access to home and palliative care services can help reduce costly and high-acuity care in hospitals or skilled nursing facilities. This was an important factor in Humana’s decision to proceed with the acquisition.

Going forward, Humana has indicated that it would prefer to partner with hospices through a network of preferred suppliers rather than offering these services through an affiliate. This includes the company’s participation in the United States Centers for Medicare and Medicaid Services (CMS) Value-Based Insurance Design (VBID) demonstration, which will test hospice coverage through Medicare Advantage. Stakeholders often refer to the program as the “Medicare Advantage hospice carve-in”.

Humana operates more participating health plans than any other insurance company. These plans are focused on five markets that include Atlanta, Cleveland, Denver, metro Louisville, Kentucky (including southern Indiana), and the Richmond-Tidewater area of ​​Virginia. Kindred at Home’s footprint straddles approximately 65% ​​of individual Humana Medicare Advantage members.

“Our full suite of clinical capabilities, which will now be even broader with our recently announced acquisition of Kindred at Home, [will] uniquely positioned to help improve the health of our country’s most vulnerable populations, ”said Bruce Broussard, President and CEO of Humana. “The home is very effective not only in making it easier for people to access care, but it also allows us to understand their surroundings and help them overcome other barriers that limit their ability to improve their health. “

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