December 21, 2017

Humana, private equity firms to buy Kindred for $810M

Daily Briefing

    Read Advisory Board's take.

    Humana and two private equity firms have agreed to buy Kindred Healthcare for $810 million.

    Accounting for debt and other costs, Humana and the private equity firms—TPG Capital and Welsh, Carson, Anderson & Stowe—will pay about $4.1 billion for the home and long-term care operator. The deal is expected to close next summer, according to Modern Healthcare.

    Reflecting on ACO success: Kindred Healthcare and the Silver State ACO

    About the deal

    Kindred, based in Louisville, Kentucky, currently operates in 45 states and employs roughly 86,400 people. Under the deal, Kindred would separate into two companies: one, called Kindred at Home, that would focus on home health and another, called Kindred Healthcare, that would focus on long-term acute care and rehabilitation.

    Humana, which is also based in Kentucky, would pay $800 million in cash for a 40% stake in Kindred at Home. The two private equity firms would own the rest of that venture, as well as all of Kindred Healthcare. The equity firms would also have the right to require Humana to buy out their shares of Kindred at Home by the end of the third year, according to Modern Healthcare.

    Kindred at Home would employ about 40,000 caregivers who care for about 130,000 patients daily, Reuters reports. Under the deal, Kindred CEO Benjamin Breier will serve as CEO of Kindred Healthcare.

    According to a press release, the transaction is expected to close in the summer of 2018. The agreement is subject to regulatory approval, as well as approval by Kindred stockholders, the press release stated.

    Implications

    According to Reuters, for Humana—which focuses largely on Medicare Advantage—the acquisition would further the company's efforts to bring providers into members' homes to improve outcomes and reduce costs.

    Humana CEO Bruce Broussard said, "Interwoven with our provider strategy, we continue to be very focused on the home, as home is often a superior clinical environment to deliver care and reduce high-cost hospital admissions." He added, "In its current state, care in the home is often disconnected from primary care physicians, challenged with issues on timeliness of care, lacking in robust data exchange, as well as based on a Fee-for-Service-driven business model." Humana said it expects the deal to "slightly" boost earnings per share in 2019 and thereafter. According to Broussard, officials for both companies have not assessed whether the deal would involve layoffs.

    Separately, Breier said the deal is "just going to be an incredible leg up for [Humana] in terms of their ability to really manage their population in way that no other payer in America is going to be able to do." He noted that Humana's focus on MA and interest in caring for patients at home is well-position to transform home health care, especially for patients with chronic conditions.

    That said, Wall Street analysts said the Humana-Kindred deal does not put a close to speculation that Humana could be bought amid the wave of consolidation in health care. Earlier this month, CVS Health announced plans to buy Aetna, while UnitedHealth Group's Optum said it would buy DaVita Medical Group. Daily Briefing is published by Advisory Board Research, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group (Livingston, Modern Healthcare, 12/19; Reuters, 12/19; Japsen, Forbes, 12/19).

    Advisory Board's take

    Kristen Barlow

    Kristen Barlow, Post-Acute Care Collaborative

    This deal is further evidence of the intense interest across the industry—on the part of both providers and payers—in developing and expanding service offerings for care delivered in the home. Payment reform and the transition to value-based care have incentivized home-based care delivery, due to its lower cost profile compared with other, facility-based post-acute care settings. Interestingly, Kindred had been aggressive in capitalizing on what they saw as an opportunity in the market, significantly shifting their business away from skilled nursing facilities and toward home-based care management services in recent years. This latest deal recognizes that Kindred was successful in developing a value proposition and portfolio of services that were very attractive to Humana and the private equity firms involved in the deal.

    For post-acute care providers, the major takeaway from this deal is that M&A activity continues apace. This is the second major deal involving home-based care services we've seen in the past month, with LHC Group, Inc. and Almost Family, Inc. announcing a merger in mid-November. Post-acute care providers must develop a strategy to determine their optimal footprint in the continuum and consider their own value proposition to referrers and payers. Our 2018 National Meeting focuses on these questions and more, specifically detailing how to develop the optimal post-acute service footprint and communicate your value proposition. Learn more and register.

    Rachel Sokol

    Rachel Sokol, Health Plan Advisory Council

    Humana's investment in Kindred's home care practice highlights another avenue payers are using to integrate with the community. Similar to Aetna's acquisition by retail provider CVS and UnitedHealth Group's investment in DaVita, plans are looking to integrate with low-cost provider assets that can help them provide care to members outside the hospital. Some plans have chosen to vertically integrate with a small number of hospitals through joint venture insurance products, but the return on those is thus far unclear. Other plans are hoping tighter integration with a larger number of providers may help reduce utilization.

    In our 2017 national meeting, we talked about how plans should flood the market with low-cost options rather than narrow networks around a few high-cost providers. Specifically, plans need to introduce new actors into the network (such as community and home health workers) to provide another layer of support for at-risk members. For the highest-risk members, this is even more critical as many have non-clinical factors that make care in the home more realistic.



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