Humana CEO Bruce Broussard shared more about the company’s $600 million joint venture during an earnings call on Wednesday. The company plans to build out its suite of Partners in Primary Care clinics through a joint venture with Welsh, Carson, Anderson & Stowe, which it hopes will double the amount of Humana members that use them.
Opening a new practice can be a risky — and costly — business. That’s why analysts had several questions about Humana’s new, $600 million joint venture that it struck with private equity firm Welsh, Carson, Anderson & Stowe (WCAS) to build out more clinics focused on Medicare patients.
Humana CEO Bruce Broussard sees the clinics as a long-term investment, that can help keep the cost of care down for members in addition to serving as another source of income for Humana.
“We feel that this is a very effective care model. We’ve been doing this for some time and have a lot of proven results from this,” he said in a Wednesday earnings call. “If we could wave a magic wand, we’d want 100% of our members in these programs.”
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Humana, like its competitors, has been seeing record growth in Medicare Advantage enrollment. The company reported 3.59 million seniors had enrolled in its individual Medicare Advantage plans at the end of 2019, up 17 percent from last year. The company expects to add another 270,000 to 330,000 Medicare Advantage members in 2020.
Currently, Humana has a total of 262 clinics that it operates directly or through joint ventures and partnerships. The company serves roughly 250,000 of its Medicare Advantage patients through these clinics.
Broussard’s goal is to double that number in the future. The company plans to add 35 more clinics this year with its various partners.
Humana’s clinics include several in Florida and Texas that it recently consolidated under its Conviva brand, and 47 Partners in Primary Care centers. The joint venture with WCAS would add 50 more Partners in Primary Care clinics over the next three years, which would cater to Medicaid patients and accept other insurance plans.
“We’ve come to the conclusion that this is really working. We’re seeing great star scores, great satisfaction scores and we’re being able to recruit doctors into it. The question is how to scale it,” he said. “Owning and operating physicians is a very difficult task and at times and is also a risky task. We’ve tried to navigate through this to ensure that the organization is not only able to succeed but also able to scale to an end result.”
That’s where WCAS plays a critical role. The private equity firm currently has a majority stake in the joint venture, with Partners in Primary Care collecting a management fee from WCAS. But in 5 to 10 years, Humana will have the opportunity to buy back the clinics through put and call options, similar to a deal it struck with WCAS and TPG Capital in 2017 to buy a minority stake in Kindred at Home.
Humana hasn’t shared how much it expects to see from the clinics. For now, the finances won’t make much of an appearance on Humana’s books.
Broussard said over the first few years, the clinics lose money. But over time, “they earn a nice return on the investment.”
“Partnering with Wells Carson, we believe we’ll be able to scale this model very efficiently, and really get the capital we need to tide us over from where we’re losing money to where we can bring this back on balance sheet if we decide to do that when they’re more profitable,” Humana CFO Brian Kane said.
Broussard added that Humana would still see a benefit from the clinics early on the insurance side of its business, as more members shift to value-based care.
“You’ll see it more on the insurance side than in the actual profitability of the centers themselves,” he said.
The company designs clinics to make them an affordable option for Medicare Advantage members, though they don’t necessarily have to choose them. Location is also an important consideration for the clinics — Humana is scouting out communities that don’t have primary care or a hospital nearby.
Kane said being payer-agnostic is also important to the clinics’ success, not just in being flexible for patients, but also in attracting physicians.
“We’re encouraged by the reception that we’ve seen from other payers and we’re committed to making this payer agnostic,” he said.
Humana certainly isn’t the only payer running its own clinics. Other large insurers have been buying up clinics, including UnitedHealth Group buying DaVita’s physician group for $4.9 billion, and Centene buying Community Medical Group to cater to its growing Medicare population.
What’s interesting is that Humana will be starting many of its clinics from scratch.
“There is a philosophy difference between us and others in the country. Our philosophy is, buying primary care and trying to convert them to a Medicare advantage value-based care model is a highly risky proposition,” Broussard said. “We’ve seen over the years that organizations that have tried to do that have not been totally successful. If you’re going to keep them fee-for-service, or commercial, if you’re going to keep them in that vein, you can be quite successful.”
Part of Humana’s interest in building these clinics, Broussard said, was the continued dominance of fee-for-service care across the U.S.
“Our ability to put seniors in these types of clinics, there isn’t a lot of supply. Over the last few years, we’ve tried to find a way to scale it through joint ventures and alliances,” he said.
Humana’s stock was up more than 6 percent to $364.80 at market close on Wednesday. It reported 2019 revenues of $64.88 billion, up 14 percent from 2018, and pretax income of $3.46 billion, up from $2.06 billion last year. The company’s benefits expense ratio was 85.6%.
Source: MedCity News