Humana Is Buying Kindred’s Home Health Business. Here’s Why That Makes Sense
Louisville-based Kindred is being sold in two parts to two private equity companies and to health insurer Humana. The deal is a sign Humana is positioning itself to benefit from aging baby boomers, and from a shift toward preventing serious health problems with cost-effective home health care.
Humana — which, like Kindred, is based in Louisville — is buying 40 percent of one part of Kindred’s business: home health and hospice. Humana CEO Bruce Broussard said in a press call Tuesday that the company hopes to eventually buy these businesses in full within the next five years.
The other part — long-term care hospitals and rehab centers — will be owned by TPG Capital and Welsh, Carson, Anderson & Stowe.
The deal will need regulatory approval and could close next summer.
Humana Branches Out
Humana is a health insurance company. But it already has a hand in managing members’ health costs through its Medicare Advantage plans, which is where the government contracts with Humana to provide Medicare benefits.
But that model means Humana’s role is limited to controlling cost through mechanisms like prior approval for medications, and the ability to dictate if a surgery is elective or not. The move to buy part of Kindred takes the company more into the provider space, where they’ll be able to do more to control costs. That’s according to Kurt Kemper, a financial analyst with Hilliard Lyons in Louisville.
“It’s hard for the insurers to structure and control longer-term outcomes without being closer aligned with the providers,” Kemper said.
It’s a business move that mirrors an aging population. By 2056, baby boomers, are anticipated to be a larger group than those 18 and under, according to the U.S. Census Bureau. And the company already has a large portion of members who have Medicare coverage, the national health insurance program for people 65 and over.
So, with Humana’s acquisition of Kindred, the company is positioning itself to better cover these older Medicare patients. It also means the insurance company will be more free to experiment with payment methods with its own fleet of home health and hospice agencies.
Traditionally, the government reimburses providers for Medicare patients based on the number of services provided. But there’s a shift underway for payment to instead be based on the outcomes and value of care given.
Kindred CEO Ben Breier said in the press call his company plans on doing just that.
“We believe the innovation of payment, going from fee-for-service that’s paid on volume, to a much broader payment model based around value-based reimbursement will better assist the population that has chronic conditions,” Breier said.
Why Buy Only Home Health And Hospice?
Medicare pays for services like having a physical or speech therapist, nurse or other specialist come to a patient’s home. These services, also known as home health, are recognized as a cheaper method of care than going into a nursing home.
Frank Morgan, a health care market research analyst at RBC Capitol in Nashville, says home health services are also seen as a way to prevent avoidable hospitalizations.
“If you can use home health to monitor that population, it’s a lower cost setting, and if you can prevent a hospitalization, it adds significant cost savings,” Morgan said.
In addition to those cost savings, buying a home health company gives Humana the ability to have a bigger hand in what will become a huge driver of costs as baby boomers age.
“We see the home as the way of delivering care in the future in a much deeper way. It allows us to expand that care coordination to offer home health service[s],” Humana CEO Bruce Broussard said Tuesday.
Morgan says hospice, which is used before a patient is expected to die to make them more comfortable, is also more cost effective than dying in a hospital.
No Interest In Hospitals By Humana?
Meanwhile, Kindred’s rehabilitation hospital and long-term care hospital business is being sold to the two private equity firms. These two types of hospitals are a less well-known, but they’re both meant for patients who need more intense and longer-term stays and services than a standard hospital, according to the Medicare Access and Payment Commission.
Rehab centers or hospitals might be for people who are recovering from a stroke, or a really severe health condition that needs extra care. Around 373,000 people in 2013 stayed at these rehab centers, according to Medicare. Long-term care hospitals are for people who’ve been in the intensive care unit in a hospital or perhaps need a ventilator for a short period of time.
These are exactly the kind of places an insurance company wouldn’t want a patient to end up.
“I think a lot of the insurers are going to keep acquiring specialized and focused providers of health care and steer them away from higher cost areas,” Kemper with Hilliard Lyons said. He does not cover Kindred or Humana.
And that’s why, for a company that’s still in the business of providing insurance and paying for health coverage, investing more in keeping people out of hospitals may be a better business bet than buying long-term care facilities.
Disclosure: Kindred Vice President Susan Moss is a Louisville Public Media Board Member.
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