Q1 2021 Humana Inc Earnings Call
Good day, and thank you for standing by and welcome to the Humana first quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session and Jim.
And I ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
And if you require any further assistance simply press star zero.
With that I would now like to hand, the conference over at your Speaker today, Amy Smith, Vice President of Investor Relations. Thank you and please go ahead.
Thank you and good morning and.
Oh Man, Bruce Broussard, Humana's, President and Chief Executive Officer, and Brian Kane, Chief Financial Officer will discuss our first quarter 2020, one results and our updated financial outlook for 2021.
Following these prepared remarks, we will open up the line for a question and answer session with industry analysts.
Joe Ventura, our Chief legal officer will also be joining Bruce and Brian for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks, and the related Q&A with analysts.
Italy, we have posted supporting materials and to our Investor Relations page related to the kindred at home transaction announced last night.
This call is being recorded for replay purposes that replay will be available on the Investor Relations page of Humana's website Humana Dot com later today.
Before we begin our discussion I need to advise call participants of our cautionary statement.
Certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties and.
Actual results could differ materially.
Investors are advised to read and detailed risk factors discussed in our latest form 10-K, our other filings with the Securities and Exchange Commission and our first quarter 2021 earnings press release and as they relate to forward looking statements and to note in particular that these forward looking statements could be impacted by risks related to the <unk>.
And response to the COVID-19 pandemic.
Our forward looking statements should therefore be considered in light of these additional uncertainties and risks along with other risks discussed and our SEC filings. We undertake no obligation to publicly address or update any forward looking statements and future filings or communications regarding our business or results.
Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site.
Call participants should note that today's discussion includes financial measures and are not in accordance with generally accepted accounting principles or GAAP management's explanation from the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.
And finally any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share with that ill turn the call over to Bruce Broussard.
Amy and good morning, and thank you for joining us.
Today, we reported adjusted earnings per share of $7 67.
For the first quarter of 2020, one and reaffirmed our full year 2021, adjusted EPS guidance of $21 25.
$21.75.
Our first quarter results reflect solid performance across each of the company's segments fueled by strong individual Medicare advantage and state based membership growth and improved profitability and the group and specialty and healthcare services segments.
As we continue to navigate the pandemic, we also meaningfully advanced our strategy during the quarter.
I want to congratulate our Medicaid organization on this significant contract award and Ohio, which when combined with recent additions of Oklahoma.
South Carolina, and West concept brings our Medicaid footprint to seven states.
These additions affirm our capital efficient organic growth strategy and further demonstrates the strength of our Medicaid capabilities built on our Medicare advantage chassis.
We also continue to deliver compelling dual special needs plan membership growth.
These net membership increased approximately 23% and the quarter and we now serve more than a half a million decent net members.
We remain committed to proactively addressing disparities and health care for underserved populations and recognize that Medicare advantage and Medicaid plans are uniquely positioned to address the needs of these members.
Data shows that Medicare advantage is continuing to grow as the preferred option for those who are low income and for a racial and ethnic minorities with more than 28% of Medicare advantage beneficiaries being racial and ethnic minorities as compared to 21% and traditional Medicare.
Sure.
Currently 55% of Latina and 39% of African American beneficiaries have actively chosen to enroll and MAA and there is growing diversity and enrollment because of the value provided to beneficiaries.
The ability of MAA plans to adapt to change and drive innovation and better clinical outcomes is wide today nearly 27 million.
Million seniors have chosen MAA over original Medicare.
Our ability to drive innovation and improve clinical outcomes is enabled by our strong energy created care delivery platform and in recent years, we have significantly expanded our healthcare services capabilities from primary care to pharmacy to homecare and more in order to <unk>.
Better serve our medical members and to significantly strengthen our payer agnostic care offerings.
These services help deliver on the promise of better quality and health outcomes lower costs, and a simpler and more personalized experience for the people they touch.
These advancements and also provide a solid foundation and ultimately serve individuals' beyond our MA membership base, including original Medicare fee for service members.
As we continue to evolve and expand beyond managed care to a broader clinical services orientation with the ability to manage risk and coordinated care outside of M&A.
During the quarter, we took the next step and this evolution and introducing center well as the new brand to unite our broad range of payer agnostic health care service offerings and the center well brand speaks to how we put our members and patients at the center of everything we do.
The first Humana, one services to adopt the brand and our partners and primary care and family physician Group named Center Wells Senior primary care.
We're also accelerating our strategy around the home and as I will discuss in a moment the home will be the next service to adopt the center well brand.
We see the home coupled with our primary care strategy is the next meaningful opportunity to improve access to quality proactive care for a broader senior population.
Such we continue to invest and assets that allow us to better manage the holistic needs of our members and patients by expanding care and the home including primary care.
Telehealth and emergency room care, while also addressing social determinants of health.
And the home health industry is among the fastest growing health care industry and the U S. As a result of an aging population a prevalence of chronic disease and growing physician acceptance of care and the home.
This need is only been accelerated by COVID-19.
However, we recognize for some time that the current volume base fee for service model has limited the innovation and home health.
Accordingly, and 2018, we acquired a 40% interest and kindred at home and embarking on a journey to test and learn innovative clinical models and the home with a goal of evolving home health to value based payment models.
Today Kindred at home employs approximately 43000 caregivers, providing home health hospice and community care services to over 550000 patients annually.
And they have locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with humana as individual Medicare advantage membership.
Yesterday, we announced that we signed a definitive agreement to acquire the remaining 60% interest and kindred at home.
As detailed in the press release, we issued last night, the kindred at home transaction and represents an enterprise value of $8 $1 billion, including the value of Humana as existing 40% equity interest.
This acquisition, which is expected to close and the third quarter of this year is the largest and humana's history and comes at a pivotal time and health care. When a worldwide epidemic has exasperated the existing disparities and health care for underserved populations and highlighted the power.
We're a telehealth and and in home care and addressing those disparities.
Further the pandemic has reinforced patient increasing desire for convenience and personalized delivery channels, requiring innovative home care offerings.
The acquisition of Kindred at home will provide us with an extensive network of nurses.
Critical distribution channel from delivering care and the home.
However, we recognize the need for and innovative home care offering at scale.
Through our successful partnership with Kindred and <unk> management team and our private equity partners over the last few years, we have proved that altering the nurses clinical interaction and the home improves care.
We've demonstrated that we can reduce the cost of care and provide value to shareholders through additional referrals to kindred.
Advancing effective clinical interventions and the home and supporting higher acuity patients by leveraging other home based assets we've assembled.
And home health episodes served by Kindred at home has increased from 8% to 19% overall and markets with geographic overlap.
Reaching penetration is highest and 49% and certain key markets.
In addition, kindred at home continues to demonstrate superior patient outcomes, including reduced hospitalizations and admissions and ER utilization.
Management and successful transition of kindred at home to an independent home health and Hospice company, the strong and growing core business as reflected in kindred solid historical EBITDA compounded annual growth rate of approximately 20% since 2017 are.
Demonstrated ability to deliver savings to health plans through reduced hospitalizations and the ability to drive increased referrals to kindred at home provides us the confidence to accelerate our 100% ownership of tender.
Full ownership allows us to move from market testing to full scale implementation over time.
We recognize the significant value, we can deliver to members and patients by integrating this asset into our holistic approach to care.
Fully integrating at home kindred at home, while and enable us.
To more closely align incentives to focus on improving patient outcomes and reducing the total cost of care.
This is critical to deploy at scale are valued based advanced home health model that makes it easier for patients and providers to benefit from our full continuum of homebase capabilities.
By leveraging the best channel to deliver the right care and needed at the right time, we believe we can deliver outcomes and value beyond what is and possible and traditional fee for service models.
As shown on the slide deck that we posted to our Investor Relations website. This morning.
Home health to utilize ours are five times more likely to have and inpatient admission within 120 days of the started their home health episode as compared to an individual and May remember that does not utilize home health.
This speaks to the significant opportunity we have to continue to improve outcomes and lower costs for this population.
We look forward to sharing additional details about the value creation, we plan to drive with our home health strategy at our Investor Day in June.
While the acquisition includes the operations of Kindred hospice and community care operations. Our intent is to ultimately only maintain and minority interest and this portion of the assets.
Our experience with hospice demonstrates the integration of palliative and traditional hospice care improves the quality of life for patients transitioning from restored of care to hospice. However.
However, we have been successful delivering the desired patient experience and outcomes through partnership models, demonstrating we do not need to own a majority interest and the hospice asset long term.
Kindred at home will be integrated into Humana at home solutions business under the leadership of Susan Diamond and.
When combined our home solutions geographic scale and clinical brass will provide the opportunity to offer care beyond Humana members and as a result, we will transition to our center well brand as center well home health.
Luckily Kindred care services will be integrated and coordinated with other care offerings included including center, well senior primary care and convenience veeva as well as our primary care and emerging care offerings, and the home via our investment and heal and dispatch and health.
Before turning the call over to Brian I want to acknowledge that this will be his last earnings call at Humana and thank him for his valuable contribution to humana over the last several years among his many contributions Brian and brought rigor to his role and the creation of a strong financial capability not only.
True sophisticated physical and ongoing operational discipline, but also by developing a deep bench of talent within our finance organization to drive this discipline for.
We wish Brian and the very best and his next chapter as previously announced Brian will remain and his current role through June 1st and then serve and in an advisory role through the end of the year.
On June 1st Susan Diamond will assume the role of interim CFO, while we complete our search for a permanent replacement.
Given Susan strong knowledge of our business and financial expertise I have great confidence and her ability to lead the finance team as we recruited a new CFO.
Susan Susan will also continue to lead the home solutions business.
With that I'll turn the call over to Brian. Thank.
Thank you Bruce and good morning, everyone. Today, we reported adjusted EPS of $7 67, reflecting a positive start to the year across our segments, particularly in light of the impact that the pandemic has had on our results, which we outlined on our fourth quarter 2020 earnings call in February.
While the first quarter came in modestly ahead of our previous expectations. It is early and we are continuing to work through uncertainty related both to our revenue and claims due to the pandemic.
Specifically as it relates to revenue given our significant exposure to Medicare advantage, we are disproportionately affected by COVID-19 impact and Medicare risk adjustment or MRA and our risk adjusted revenue is determined by 2020 dates of service medical utilization and resulting documentation, which as previously discussed was <unk>.
Its yearly depressed last year and particular, we're focused on monitoring the impacts on utilization from the late surge of COVID-19 cases, and <unk>, which occurred following the communication of high level 2021 guidance on our third quarter earnings call, while the extension of sequestration and helps mitigate any potential pressure against.
Our estimates I would remind investors that a critical indicator of 2020, one revenue relative to our initial expectations, we will be the midyear MRA payment, which we expect from CMS anytime and the next one to three months the.
And the mid year payment, which effectively rolls forward. The dates of service used for 2020 one payment. So year end 2020 from midyear 2020 and incorporates the impact on risk adjusted revenue of our new members is meaningfully more uncertain. This year given the <unk> dynamics I mentioned as this payment requires significant estimation even.
And in normal times.
As it relates to benefits expense non COVID-19 utilization is running largely in line with our previous expectations and as anticipated is still depressed relative to baseline.
The first three months of inpatient admissions were down approximately 20%, 15% and 10% in January and February and March respectively relative to baseline with the first few weeks of April seeing non COVID-19 inpatient trends moderate to around 5% depressed.
Separately non inpatient spend is also depressed although it appears to be rebounding a bit faster than previously expected with the caveat that the completion on non inpatient claims is much slower and therefore, there were significantly more uncertainty around the service categories in terms of exactly where we stand.
And finally, COVID-19 admissions, which tend to have higher unit cost and those are non COVID-19 came down more quickly than expected in the quarter.
The COVID-19 case deceleration moderated in late March and seems to be holding flat and early April.
Certain geographic locations have become hotspots, we expect utilization to continue to rebalance a par as we move through the second quarter and to slightly exceed baseline towards the end of the year.
Given that we remain in a period of heightened uncertainty we are reaffirming our full year 2021, adjusted EPS Guide of 21, 25 to 21 75, as well as the best and expense and operating cost ratios notwithstanding the favorable first quarter results.
This represents adjusted EPS growth of 16% above the 2020 baseline of $18 50.
At the midpoint of our guide nicely above the high end of our long term EPS growth target of 11% to 15%.
I would note that we have been consistent and our expectation of adjusted EPS growth above our long term target since we provided our initial 2021 commentary on our third quarter 2020 earnings call in November.
Additionally, we expect our second quarter adjusted EPS to reflect a low <unk> percentage of our full year adjusted EPS.
As we look ahead to 2020. Two we are pleased that our members appear to be engaging and more routine interactions with their providers, which we anticipate will result in more normalized Medicare advantage revenue next year as providers are able to ensure that our members are receiving an appropriate level of care and that the conditions are being documented.
While it is of course too early to provide 2020 two guidance I would note that as we think about our Medicare advantage bids for 2022, our intention is to reflect the continued uncertainty associated with COVID-19, and our premium and claims assumptions.
In addition, I would like to reiterate that the appropriate baseline for calculating 2020 two adjusted EPS growth is 21 50, the midpoint of our 2021 guidance range.
I will now briefly discuss each of our segment's performance and the quarter and the retail segment and addition to the revenue and claims dynamics I discussed our Medicare advantage growth remains comfortably on track and consistent with our previous expectations with individual MA growing solidly above the market and an expected 11% 12% increase.
As Bruce indicated in his remarks, we experienced robust growth and D. SNP membership, adding 95000 members and the first quarter with an additional 12004 hundred added effective April one.
I also want to Echo Bruce's congratulations to our Medicaid team on their state contract Awards, and Ohio and Oklahoma.
Along with our application approval and South Carolina during the quarter.
And incredible achievement, demonstrating the strength of our Medicaid capabilities.
And our group and specialty segment consistent with our commentary on line on our last earnings call and February medical membership declines on account of COVID-19 were less severe than initially expected coming into the year.
The segment performance continues to improve and we continue to execute on the first phase of a multi year plan to grow our group commercial and specialty products bring and strong new talent, increasing our local presence and certain key markets and deepening our partnerships with innovative companies, our dental network expansion and.
Proceeding ahead of plan, our small group commercial medical pipeline volume is back in line with pre COVID-19 levels and our net promoter scores for a large group medical accounts were at a record high for first quarter performance fee.
And finally, our health care services operations remain on track with our previous expectations and our pharmacy operations. We continued to pursue pharmacy initiatives that we expect a further increased mail order penetration as the year progresses.
I would note that this anticipated spend to accelerate growth coupled with labor related overtime and shipping costs due to weather related disruptions and February did modestly impact of pharmacy business results and the court.
Center, while senior primary care and can vivo are performing well and we continue to execute execute on our clinic expansion with Welsh Carson.
Kindred at home is also delivering solid results and as Bruce indicated in his remarks, we are accelerating our full acquisition of kindred at home.
With respect to Kindred last night, we announced that we signed a definitive agreement to acquire the remaining 60% interest and kindred at home for a total enterprise value of $8 $1 billion, including $2 $4 billion associated with our current and 40% equity interest.
We do not anticipate a material impact to non-GAAP or adjusted earnings in 2021.
We expect the transaction to provide modest additional financial flexibility as we set targets for 2000 22022 earnings.
Although I would note that buying and kindred has long been a part of our financial planning process, which is included and providing capability to build out our clinical capabilities and value based care model.
In addition, we intend to exclude onetime transaction and integrated costs related to the acquisition from non-GAAP earnings Keefer.
Key financial terms are outlined in the slides available on our website accompanying todays earnings call.
The innovative partnership we created with Welsh Carson and TPG will deliver significant strategic and financial value to Humana.
Executing on the kindred at home transaction now versus waiting for the contracted sponsor put option.
That would likely not be exercised and sold mid 'twenty 'twenty two given the assets strong EBITDA growth.
Not only accelerates the strategic benefits as Bruce described.
But importantly allows us to acquire the nation's largest home health and hospice company for multiple meaningfully lower than where comparable public companies are trading today.
Additionally, we expect that we will be able to capitalize on the robust market for hospice assets by divesting by divesting a majority stake and that portion of the business and what we anticipate will be and attractive valuation.
And so the EBITDA multiple we are paying for kindred at home and investors should consider the $5 7 billion to our purchase price for the remaining 60% interest plus our initial investment of $1 $1 billion for our 40% stake in 2018, which went grown at a reasonable 8% weighted average cost of cash.
<unk> for present value of $1 $4 billion.
<unk> to a total cash purchase price of approximately $7 $1 billion all in.
When using a normalized full year 2021 estimated EBITDA for kindred at home inclusive of hospice and community care and the transaction EBITDA multiple is approximately 11 times.
It is important to note that the normalized EBITDA excludes expected homecare and hospice investments and clinical capabilities and value based care models.
Onetime costs, including transaction and integration expenses and any potential synergies.
Expected synergies will primarily result from a meaningfully enhanced clinical capabilities, Bruce has described which will materialize overtime and.
In addition to the EBITDA benefit of in sourcing further home health episodes from other home health providers.
One other important note regarding the financial value created that I would mention.
After adjusting for our intended divestiture of a majority interest and the hospice and community care assets at a reasonable market valuation the implied transaction EBITDA multiple for acquiring the nation's largest home health business would be in the mid to high single digits based on the roughly 50 50 split of EBITDA between the whole.
And <unk> and hospice community care segments.
As far as the transaction financing is concerned we expect to fund the $5 7 billion of our purchase price, which again is net of our existing equity interest with a mix of parent company cash and debt financing.
The transaction is expected to close and the third quarter of 2021 subject to customary state and federal regulatory approvals.
Immediately following the closing of the transaction, we expect our consolidated debt to capital ratio to be and the low forties and with significant deleveraging expected post divestiture of the majority stake and hospice and community care.
We expect the debt to capital ratio, including assuming a customary level of share repurchase to return to a more normalized target leverage level during 2020 to freeing up the balance sheet for further capital deployment we.
We anticipate maintaining our investment grade credit rating as a result of this transaction.
Before we open the lineup for questions I want to take a moment to thank our associates shareholders and sell side analysts for their support over the last seven years and this.
This will be my final Humana earnings call.
I'm very proud of what the company has accomplished in a period of rapid transformation and I know that under Bush's leadership and with the support of the outstanding team across the organization. The company is well positioned to key to execute on our strategic plan and deliver significant shareholder value and the years ahead.
It's been a true honor to serve the millions of Humana members and I'm grateful to have worked with so many talented colleagues I remain fully committed to a seamless transition and the coming weeks and months and I'm very excited that Susan Diamond will serve as interim CFO.
Susan and someone I have worked with extensively over the last seven years and is one most talented people I know.
With that we will open the lines up for your questions and fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.
Thank you at this time I would like to take any questions and my conference today and as a reminder to ask a question you will need to press Star then the number one and your telephone line can we draw your request you may press, the pound or housekeeping.
We have our first question comes from the line of Matthew Borsch from BMO capital markets. Your line is open. Please ask your question.
Yes, hi, good morning, I was hoping maybe you could elaborate.
On the.
That increased competition that you're seeing and the group Medicare advantage.
Aerie at what you think is driving that and how you think that Mike satellite.
Sure I'll take that good morning, Matthew good morning.
And as we mentioned it really on <unk>.
Several several calls the group M&A market, particularly on the large scale accounts has continually become more competitive and there are several players who you know well who are pursuing these accounts and there are obviously attractive pieces of business, they're large membership significant revenue.
And there are.
Positive knock on effects as well so to winning these accounts and the local markets and which we operate with respect to providers et cetera, and visibility and so there's a lot of competition for these accounts, we remain very well positioned there.
Our group and May team has really been very smart about how they have underwritten. These accounts and we're not going to chase accounts down to profitability levels that we don't think are sustainable and so we're being prudent and thoughtful as we pursue these opportunities, but again feel very good about how we're positioned to group and a notwithstanding that the competition. There I would note one thing though.
And that at the sort of smaller group accounts size sort of mid level accounts and smaller will accounts the profit margins are better and and.
More.
More attractive from a pure from profitability perspective, we are trying to just add.
And to Brian's comment we are trying to differentiate through.
The service component of that and we do find that as a result of employers.
And being responsible for the selection of this that's an important differentiation and.
It's not always going to win when overpriced, but we've found on a number of of accounts and as has won over price.
Thank you.
We have our next question comes from the line of Robert Jones from Goldman Sachs. Your line is open. Please go ahead.
Great. Thanks for the question I guess, maybe just one on on the headwinds and tailwind and I appreciate the qualitative commentary around utilization and and COVID-19 testing and treatment just wanted to see if those range as you had laid out last quarter around those headwinds are still kind of how youre seeing the world.
One quarter in and then on the tailwind side I know you were looking at sequestration relief.
I think just one quarter last quarter, and and now with it being pushed out to the end of the year just wanted to get your latest thoughts on how that's being contemplated within the updated guide. Thanks.
Sure.
Well I would say that the ranges that we've laid out.
The fourth quarter call are consistent with what we're seeing today and so we remain within those ranges and again, that's I think.
And why.
And obviously reiterating the guide that we that we put forth today, the sequestration and clearly is positive from a <unk>.
<unk> perspective, but I think we have to conserve out and the context of the overall headwinds and tailwind that that we see over over the coming nine months and so while it certainly and as we mentioned and our remarks.
Positive tailwind to offset any potential pressure that we that we might see.
<unk> over the coming months.
It's still very early and so that's why we reaffirmed today.
Got it I appreciate it and best of luck Brian.
You bet.
We have our next question comes from the line of Justin Lake from Wolfe Research. Your line is open. Please go ahead.
Thanks, Good morning, first let me wish Brian and good luck as he moves on and thanks for everything over the last seven years, Brian it's been a pleasure.
And then my my I wanted to follow up basically Bob's question here, just kind of to narrow it down a little bit my read of kind of your updated view on 2021.
Is that do you feel more comfortable about offsetting the headwinds that you've kind of lined out and January given where trends probably good plot that benefit of sequestration.
And that the remaining swing factor here is that risk adjustment true up in June and my thinking about that correctly burst and then and if so any thoughts on how wide the outcome could be on that true up and then lastly can you tell us how youre doing with recapturing risk scores from 2022.
Well first of all adjusted Thank you for thank you for the comments.
With respect to.
Let's start with the risk adjustment.
Obviously, there are ranges of outcomes and there could be it could be material and so.
I'd say as we think about it.
And the potential headwinds and tailwind that is one that we're very mindful of and it's something that.
I said to the last question the sequestration.
Is helpful, but it's still it's still early and so.
I would say that we're absorbing and similar posture as we were last quarter. At this time. There are there are headwinds and tier ones that we that we look at and we want to be I think pretty cautious as we head into the last nine months and a year because theres still a lot of uncertainty and clearly mras and important and whether that but there's also the claim side, which we have to see unfold over the next nine months and we obviously.
Do you have assumptions about how claims are reverting to baseline levels, which they which they seem to be doing sort of in line with with largely as we expected I would say non inpatient and maybe a little bit faster, but but sort of in the range and and inpatient and line COVID-19 coming down faster. So that's obviously a positive. So there are a few puts and <unk>.
Takes and those numbers, but I think there's a bit of a ways to go before obviously, where we're fully comfortable there.
As it relates to the documentation for 2022.
As I mentioned, we are feeling reasonably good about what we're seeing so far it still is early but the documentation codes do seem to be coming in.
And a way that makes us feel good about about 2022, we've been effective and getting into the home door and home assessments program, we've ramped those up pretty meaningfully and so that I think is a positive sign for 2022, but we also will be cautious as we priced 2022 and.
Run in a range of scenarios to to understand what the various eventualities may be on both revenue and claims as a result of the pandemic.
And just maybe I can just reiterate what when Brian and saying that we obviously had a good quarter and.
But I would say that we as Brian and says we're early into this week.
And looking at the assumptions, we made and setting out a year and this is where this is a good growth year for us is can be in excess of 15% and we just want to make sure that we see how the rest of the year plays out more before we adjust any of our and any of our.
Estimates there and I think that's that's probably the best thing that investors should take away from us that is still are confident and what we've we've put out there as an assumption side, but.
It's the first quarter.
No.
Four quarters here.
Thanks for the color.
We have our next question comes from the line of AJ Rice from Credit Suisse. Your line is open and please go ahead.
Hi, everybody and best wishes, Brian as well, it's been great working with you.
Just maybe I'll go and ask you about the kindred assets.
As you described the way you calculate that 11 times purchase price I may not be thinking about it right but.
It was $3 2 billion of revenues and other it's alive and multiple.
<unk> paid given your purchase price it would imply sort of operating.
EBITDA of about 645 million and I'm wondering if that was the right way to think about it and then you got clarity on.
How youre going to get rid of the hospice visit our businesses and opened for sales at a spinoff and will that hospice business, then be able to get back into adulthood, homecare and compete with the kindred are there limitations on that hospice business.
Hey, Jay.
I'll take the latter question and then Brian can to certify the multiple side.
We are and the early stages of spinning it off so there is a and there is definitely a commitment of us.
To spin it off where our intentions would be to to move down the road of AR.
Possibly and IPO, but there's a long ways between here and there and we understand that this is a this is a great asset and asset as a leading hospice assets asset in the marketplace. It is the.
It's got great operations from a from an operating point of view, a strong management team and so I think it is going to be an asset that is going to have a lot of interest from from multiple different.
Buyer so to speak.
And we haven't worked out the contractual terms of can they reenter into the home home business I think even if they.
Where to do that is it is a fragmented industry, but it is also an industry that as you all know because of the legalities of life.
Licensure issues and being able to get.
Our home health license isn't the easiest thing and the world specialty boats and C O N states and and to get and Medicare.
Reimbursement side, so and so we do believe that there is barrier century, and just getting into the business. So we're less worried about that yeah.
Yeah, and I would say a J on the EBITDA, that's you're broadly thinking about it right.
In terms of the numbers okay.
Okay. Thanks, a lot.
Yeah.
We have our next question comes from the line of Kevin Fischbeck from Bank of America. Your line is open. Please go ahead.
Okay, great. Thanks, and thanks, Brian for all your help over the years.
But I guess I'm supposed to be a little bit with this guidance number.
The.
We were coming up with the sequestration benefits being maybe as much and the dollar and half or so.
And so I guess.
This lower visibility.
Billy I guess today than when you had.
Last year or were you provided guidance with Q4.
There's a little bit surprised to me, it's not necessarily something that I'm hearing from the other managed care company. So I just wanted to hear a little bit more about why you think there is still so much.
You know.
The lack of visibility and that number at this point, even though Q1 came in better but there was good PPD and now you've got a big sequestration tailwind it seems like.
That uncertainty would have to be significant and then if it is significant.
And you're still reaffirming this number as your base for things.
Thinking about 2022.
How can you feel comfortable that you would be able to fully repriced that interest.
And into next year.
Well I guess.
There's a lot and that question out.
I'd say first off in terms of our confidence for pricing next year and we are.
And my remarks, we're going to reflect any uncertainty that we see in our bids to ensure that there are.
And he issues that we can contemplate here with respect to various scenarios that may play out we would have considered and are bit. So I think that's that's the first thing so 21 50.
And from a from a pricing perspective, we feel very good about.
We also feel good about the reiterated guidance that we and we provided today I would say relative to perhaps some of our peers, we have a much higher concentration of Medicare revenue.
And and Medicare claims, which I think in many respects, particularly and the revenue side have more volatility, but on the claims side as well youre, making assumptions about how seniors who have not used to health care system for a long time, how theyre going to respond and the next call back half of the year and in that regard.
Just want to and we think it's appropriate to be cautious about how they might use the system and the back half of the year.
Especially as we saw again, the depressed utilization and the fourth quarter, how does that all play through and so that's I think appropriate caution as we said the sequester benefit is beneficial.
And for obvious reasons, and so that is clearly a tailwind, but understanding how impactful on our revenue numbers. The last for the fourth quarter was still out there in particular, because the way the midyear payment works as it rolls forward to the last six months of the year in terms of how we get paid and understand.
Any other the documentation codes that were collected is is something that we really need to understand.
Both are existing members as well and strictly new members and we get a lot of new members every year remember, it's not just the the net growth, but it's just a number of new sales that we have and so from that perspective. There is uncertainty there again I feel pretty good about where we are today, but we don't think it would be appropriate to change our guys. The last point I'd make is.
We came into the year committed to our 16% growth rate, which was above our target.
And that's that's where we continue to be weak versus perhaps some of our other peers are those numbers have not and not modified and we actually obviously you put out a number of ranges on a number of variables here, which.
And bill.
Reasonable amount of uncertainty starting from from the fourth quarter and as I mentioned that that continues but again I think the first quarter is a good quarter, but there's still there's still a ways to go.
Okay, Great and just real quick when you say that you'll know the number when you get the payment from CMS mid year does that mean with Q2 results.
And have the answer.
Coating benefit will be known and then sequestration would come in and we would expect and update our guidance for Q2, then is that how to think about it well it depends I mean.
Possibly I mean CMS changes.
Each each year exactly when they give that mid the mid your payment.
Mike I guess is we will have visibility by the second quarter call.
<unk>.
But.
Theres no guarantees, but I would say most likely by the second quarter call. We will have some visibility into our midyear MRA payment yes, okay. Thank you.
From.
We have our next question comes from the line of Josh Raskin from Nephron. Your line is open. Please go ahead.
Thanks, Good morning, I'll Echo the congratulations as well so thanks for Brian as well.
So my question is just on the segmentation and what is it look like what is the you know the segments for Humana look like if we think you know sort of three years out I'm interested in both sort of organizational operational structure of the company, but also reporting and and I'm really concentrating on kind of what businesses you're going to be included in <unk>.
And I don't know what youre closer to that non insurance segment. It sounds like most of the branding and it's going towards care, well and sort of what sort of disclosures and and thoughts you guys have on that.
Let me start and then ask.
Brian.
As we are building a health care services Division and I think of it a simple us component, which will now have start out with our pharmacy business, which is the largest part of the business.
Our primary care business will be part of that and our home health business will be a part of that and and.
And then we'll have some other health care services area there.
Over time, those will be the three primarily large driving.
Profitability profitable arms of the organization there.
And they will serve multiple different markets. They will serve our existing members I mean be integrated with our existing members through technology and the service component of that they will also serve them when and the appropriate area Medicare fee for service areas such as direct contracting wouldn't be an example of that and they will serve.
Other providers and other payors as we do today and value based payment models and we'll take full risk.
And so the opportunity we have is to take advantage of the and the the organic growth of each of those markets to be able to them and integrate those together and take advantage of offering a value based offering two different.
Payment mechanisms, whether it's with an MAA to other other payers or within a direct contracting area and then and in addition, and it's also the opportunity for us to serve our existing members there and so I think you'll see the center well segment and the evolving to be the our health care services segment.
And other short term thoughts on increased disclosures or rebranding our re segmentation.
I think with the an entre and two with Kindred I think we all have to bring in other other.
And <unk>, there and I think that probably as we close on kinder and you'll probably see and or the.
2022, you'll probably see more enhanced statistical side.
Of the operational aspects of our health care services Division and I would just add that just in terms of what we disclosed today on the health care services side as Bruce said, you know a lot of our revenue today is and our company because of the the the pharmacy segment.
And obviously central primary care has a payer agnostic business and has external revenue, which youll see and kindred those because it's not only payer mouse. It but also obviously serves the fee for service program will be a lot of the.
$3 $2 billion of revenue a good portion of that is obviously non humana, so youll see more disclosures there and.
And we will provide more operating metrics around that as well. So so I think you'll you won't get enhanced disclosure, we try and be very transparent with investors and our various businesses and I think you'll continue to see that going forward.
Perfect. Thanks.
We have our next question comes from the line of Dave Windley from Jefferies. Your line is open. Please go ahead.
The question I wanted to just focus on utilization looking.
Looking specifically and the retail segment.
We're estimating that that maybe the impact of the here.
And the net increase and T y D. This year may be about the same size and so if I neutralize those out.
Your MLR on kind of the.
Apples to apples basis for the first quarter would have also been up about 100 basis points is that right and then as you think across across the balance of the year. How are you thinking about utilization coming back in terms of acuity and then any permanency in terms of site side of service shifts and things like that that would impact.
Intensity and medical costs and the year progresses.
Yes, So let me let me start with the MLR question.
I would think about it year over year.
We were about 110 basis points above last year, the difference and Kiwi E was about 110, and coincidentally also 110 basis points. So call that two 'twenty the hip and remember you have to tax affected because we did give some of that back to members.
Encompasses a good portion of that of that 220, and I would say the group phenomena that we and we called out and the PDP mix.
It was not as significant in terms of impacting the MBR. So I would if you wanted to on an apples to apples incurred basis I would actually say the MBR got better year over year. If you exclude prior periods and you just do it on and incurred basis.
Other than like I said, you know the group the group and we are as we expected and as we as we price for it.
I think that does have an impact on the overall margin in the retail segment is I think we've discussed on the last call.
With respect to utilization bouncing back.
We do assume as we mentioned that there will be a we expect a bounce back utilization we are starting to see that again in line with what we what we've expected, particularly on the inpatient side as more people are using the the hospital facilities in particular, but they are still below par and we do expect.
The utilization of the system to run at or perhaps a little bit above par.
As the year continues and we're not seeing increased acuity as yet although as I mentioned with respect to 2020 one but also 2022, we just want to be mindful of how the acuity or quote long haulers and Mike might play into our cost base, particularly for later this year and next year and.
So we are we are definitely mindful of that as well as any just general bounce back and utilization and the system and then on the side of service side, we'll see where it goes we have seen decline and sniff usage and that's moved into the home, which I think also frankly helps validate the thesis behind the kindred transaction.
Just as more and more care is taking place it into the home and as Bruce outlined in his remarks doing everything we can to make the home and much more comprehensive setting where care can be delivered and so I think our belief is that that will that will continue whether members are more shy shy away from the institutional setting where prudent.
Cash flow.
See I would say that that's.
Yes.
Still with you.
Excuse me and see operating I apologize, but there will be and cycling and today's conference. Please hold and decline from similar from Charlie. Thank you for your patience.
And ladies and gentlemen, I apologize that there will be and segue and today's conference. Please hold.
And Brian principally from shortly thank you for your patience.
Okay.
David are you still there we on the call.
I was on the yes, I am still here about that we were in a copper all from here and some just haven't reported it.
So I'm not sure where I got cut off we are going to be but I think it was right around that which I'm outside of service set of carriers that we're we got got all other service yet your.
And I tell you what I said was actually very profound solved and and see if I can repeat it again and hope is this time with feeling so and.
And you were on a roll.
Okay.
Gone out with a bang here so.
On the side of service side of it.
And we'll see what happens in terms of weather.
Net seniors are less comfortable about using institutional setting we think its possible other.
That could happen.
Certainly not something that we're going to underwrite and our and are either assumptions this year or orbit assumptions next year, but it's possible.
Did you hear this Oscar and why.
And to make sure that wasn't cut off.
Okay.
Yeah, what I would I say.
What we are seeing I think you would've heard the comment that I was high and now we are seeing lower <unk>.
Killed nursing claims and that people are using home and that regard that validated and I think one of the validation points of of the kindred transaction, hopefully you heard that part as well.
Got it very good thank you and best of luck, Brian. Thanks, Thanks, Ed I appreciate it.
Next question please.
Operator.
And then last question comes from the line of total from Stephens. Your line is open. Please go ahead Jim.
Hi, Thanks, Good morning, and I'll, just add my best wishes and thanks to Brian as well.
And.
Question I know, it's been a theme throughout the call just around some of the trends that you saw in the first quarter, and then and keeping the guidance unchanged, but did want to just grow and a bit to group and specialty since.
Looks like you actually achieve considerably more earnings and the segment and the first quarter relative to the full year.
Our reaffirmed guidance for that segment. So I think that particular looks just pretty conservative right now so and obviously that's a segment that's not really exposed to this uncertainty around the risk adjusted dynamic and Medicare. So just maybe a little insight into that in terms of is it still just wanted to see how utilization will ultimately.
Develop so are you planning on sort of leading and to that tailwind to increase your investment sat within that sector.
Well thanks for the question Scott. Thanks for the comments I mean, I think you're I think you're reading it right I mean, we're very.
Pretty bullish on how group and specialty is doing this year is it is it is early and they do not have the same types of.
Headwinds that that Medicare does is certainly on the revenue side, but it is early the prior development was a positive note the incurred results that we've seen we feel good about.
And the specialty results are also doing well specialty meeting dental and I think the military business is having a good start to the year. So really all elements of our strategy are on course, and the financial performance I think is showing but as you rightly point out it's still it's still very very early and so we want to see a few more quarters develop.
Got it and Brian.
Are there targeted investment that you would look to lean in on and idle or is it a scenario, where where the trends continue to look like thats, where and where you could ultimately revise the guidance around that for the year.
I would say that we're probably more leaning towards more earnings and this segment, then and investments that we've built and investments into the into our guide already and in there and if there are things around around the edges that we would always do in it and a good year just to shore up the segment for future success, and it's something that we really want to do because we think there's.
We think there's really a lot of growth and this segment potential and really and opportunity to disrupt the current market as it exists there's a lot of appetite to do that among our customer base and so so we will be prudent as we look to make investments, but I think.
And he sent there are meaningful outperformance and the earning side and we would imagine that that would flow through.
Okay Alright.
Thank you.
We have our next question comes from the line of Ralph Giacobbe from Citi. Your line is open. Please go ahead.
Great. Thanks, Good morning, I was hoping to just flush out the group and May commentary, a little bit more hoping you could frame the magnitude of the pressure from that alone if I heard right, Brian and I think you said Mike.
Core MLR was actually better year over year. So.
And pretty be pretty sizeable jump and group and then it sounds like that's more of a premium issue that it cost issue. So I guess, how does that get fixed at this point. Thanks.
Well again, I wouldn't I wouldn't characterize it as a problem I would just say to Matt's initial question that that the market is more competitive at the high end of the range and these are large accounts so and.
And just given the high P. M. P. M premiums you could have a pretty pretty significant revenue dollars here at lower margins and so I wouldn't call. It a problem I would just say when you look at the over retail overall retail segment and we are I think it's important to normalize for some of the some of the impacts there and.
So if you sort of strip that out and you look at sort of year over year, I think were from Amy our perspective, and a pretty good pretty good position.
And so I wouldn't want to quantify it specifically are then to say I think you know anything not made up by E. P.
And <unk>, including the tax benefits some of which we pass through.
And with your group the group.
And B R impact because of the lower bidding on the lower margin levels for these from these large accounts as well as frankly, the continued decline of PDP, which also as we've talked about has the way the MBR dynamics works with and they impact the first quarter and a way that would also effectively more.
World right that the two year over year. So we feel good about the year over year over year comparison, but again I wouldn't get too too caught up and the group M. E. N E R specifically, but rather just and overall commentary on the competitiveness in that one segment of the market and so it is something that we're mindful of and we continue to be very thoughtful.
And how we priced there.
Okay fair enough. Thank you.
We have our next question comes from the line of Ricky Goldwasser from Morgan Stanley. Your line is open. Please go ahead.
Yeah, Hey, good morning.
Question around sort of from how you think about build versus partner.
Home is clearly closely in line with telehealth and remote monitoring so when you step back and you think about company investment that you need to make and that area do you think the telehealth hurdles that you should buy our debts.
So something that you can you can.
Partner with someone on.
Yeah.
On the telehealth side, we'd first we want and.
And by or.
Technology I think the technology side, we would be a lease.
Leasing and a avia someone who had vendor to us we feel that that technology is this frankly will be a commodity over time, so that I just wanted to sort of break down the different parts of tell out the second aspect of this from the who and who the providers are and that and we were always say there's different channels there one.
And the partners and our provider value based relationships that we have.
Most of them already have telehealth and and so we don't need to provide that to them.
And our clinics, we today have telehealth and we are utilizing a few different technology platforms and and so we are offering that and that's from now.
And so we're in that business.
But it's through our provider base businesses and and providers that are needing telehealth, we will partner on a blended basis with some technology company to offer that that's probably less than a minority part of our telehealth business. The first two will be the majority and so I would answer that question and.
We don't need a partner I would it would be more of a vending solution to offer the technology, where we will offer our partners wore off her through our contractual relationships the provider side.
And my second follow up question is on the synergies from.
The acquisition and I think you talked to one of the areas as the in sourcing.
The home health episodes from from other providers know that any day can you talk about one 1 billion in spend for Humana MA members and it overall, it's kind of 19% of episodes are currently managed by could grant and.
45% in some select markets. So should we think about the opportunity of in sourcing kind of like going from kind of a good 19% overall to 45% and that sort of a good proxy to think about that.
And that that could be a proxy I would say that we're not putting any estimates out there, but it but our intention is to continue to penetrate and the markets and the markets that we operate and the nice thing about the kindred.
Assets has 65% overlap with for the organization. So we have a lot of markets that we can go into.
But but your math is up and.
And then as an estimate but I would also just like a tick the our capacity to cover that because of the way, we're not we're not and 100% of our markets.
Thank you. Thank you.
We have our next question comes from the line of George Hill from Deutsche Bank. Your line is open. Please go ahead.
Yes, good morning, guys, and Brian and I'm excited to see where you pop up and your next endeavor and I want to wish you well I guess, just as we think about the kindred and several well initiatives stepping back can you guys talk about your outlook from a regulatory environment and provide a risk sharing.
Politically speaking, it's going to be a more benevolent regulatory environment and the core MA business and it should create a better opportunity for returns and in your medium term Mike.
I think from about that right.
I would say from a customer point of view the regulatory side, because it's just there's a significant amount of.
Regular regulation around how we approach that customer and and certain rules and and compliance around how we service the customer. So I would say from the insurance component you would be right, but within each of the of the care models. There's there is regulatory I mean, theres compliance regulatory there's now there's obviously a lot.
Persons or requirements billing and et cetera, So I would say and it follows a more traditional provider oriented fashion.
Regulatory environment, but but I would inc.
And I would say that I went and say, it's a free range here I would say that it has the proper caveats around them.
Thank you.
Next question please.
Our next question comes from the line of Lance loss from Bernstein. Your line is open. Please go ahead.
Yeah, certainly wanted to think big.
I think Brian as well and on the home health business could you just.
Talk a little bit about how you're looking at the home care delivery models with physicians like the heel and dispatch and sorts of models and would that be the sort of thing. If you expanded into that that would be integrated into that business or would it be separate and I guess similarly, it's frail elderly and programs like pace kind of.
Something you'd contemplate within this home health segment are those.
Other sorts of business loans.
And what the nice thing about the home.
Channel that were developing they have multiple different markets to go into and they are just so.
If at the appropriate time pace makes sense and then we could we can make that mark and I think I'd go into that Mark and our big Big focus was how do we get geographic coverage and obviously, the kindred and distribution.
Distribution and nurses really provides us that opportunity is certain and different markets.
Where where they reside and the organization today.
And he on dispatch relationship resides within our home solution group, but it is closely aligned with both from the plan and closely align with our primary care strategy because what we find is and the vet best best solution and are the ones that are integrated together where.
And the plan is integrated with the provider side the provider and the primary care is integrated with with both going into the home the clinics and.
Homecare silly other home care offerings that we have so I would I would say that it does reside and the home solutions area, but the way we operate it is really and the goal is to have it integrated and the markets that we serve.
Great. Thanks.
Our next question comes from the line of Frank Morgan from RBC. Your line is open. Please go ahead.
Good morning.
Just curious as part of your capital strategy around this spin off would you contemplate put placing leverage on the spin I mean, it looks like if you're.
300, and some odd million of EBITDA and the hospice side of the business you could put.
Quite a bit of data on a couple of turns a day. So just curious your philosophy about how you would capitalize spin go and then secondly.
And what is it about the hospice and personal care business. It makes it more suitable for a partnership arrangement as opposed to ownership is it is it.
Just geographic overlap is it.
And just valuation.
And what specifically could you say about the reason for that.
Why don't I take the first one and Brian can talk about the capitalization side.
What we find is the palliative.
The integration and palliative and hospice is very powerful and and being able to offer both of those in and integrated fashion really creates the opportunity for us to partner across the hospice.
As I said as opposed to having one one vendor so to speak and that the second thing hospice is much more fragmented than than home health. Although home health is quite fragmented hospice is much more fragmented so our ability to offer hospice and multiple markets youre going to have to partner anyway, and so what we have fat where I think we.
We found a very day solution here, where we can still be have a significant relationship with.
Kindred hospice through a minority ownership.
And be able to then utilize that as a opportunity to integrate and the markets that they're at and integrate palliative and as part of that but still have the flexibility to offer it and a broader and broader fashion obviously.
Obviously, as we think about the and where our priorities of capital and where we put capital.
And we were going to put it in the areas that have the most impact and where we can have the most opportunity for growth and we see home having a platform that has multiple different platforms to grow with zone, and we think about capital deployment and efficiency of capital and I frankly have been following us a long time I. Thank you and say that that is the area that we're constantly looking.
That is not only the businesses and we're in but also how do we continue to generate above average returns and the way and where we deploy that capital is as important to that.
Yeah, and just to at all on the capital question Theres No doubt that that hospice is a company that we can leverage and so it's not something we'll disclose today, but we do intend to put that on the hospice co before spin it and so so stay tuned for that but you're you are correct.
Thank you very much and congratulations.
Thank you.
And there are no further questions at this time I will turn it back to call the call over to Bruce Broussard.
Sir Please go from alone.
Thank you and just to conclude the call I'd like to just make a few comments I think I think first theres been a consistent question around.
And basically why didn't we raise earnings to be completely honest.
Honest with you the direct here.
We have had a strong first quarter, but we are early in the year I just want to reemphasize that we continue to see the trends that we put in the first quarter as being.
And are continuing but we want to make sure that we are able to see those trends through a longer time frame before we make any kind of adjustments and our and our estimates there and I hope the investors take that ill take that away. It's much more round and it's just earlier as Brian has said earlier and the game here.
The second thing is many of you have said.
Tank and Brian for Us.
And just wonderful contribution over the seven years, he's been here and I know he'll show up someplace, and and health care and I think you're wrong.
And I'm sure that each one of you invest and what he does dip and his next next yellow there. So because he has delivered a lot of value to our shareholders and to our members and to our associates there and then third the the.
Quality of our earnings our strategic advancement this quarter and over the many quarters previous to this couldn't have been accomplished without our 50000 associates that are working and every day on behalf of each one of you and our and our and our providers and our customers there and I want to thank them for that so.
So thank you and I hope everyone has a great day.
This concludes today's conference call. Thank you all for participating and you may now disconnect have a great day.
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