Humana to spend $550 million on private clinics

Humana will spend up to $550 million to acquire the first clinics built with a private equity firm, chief financial officer Susan Diamond said at an investor meeting on Thursday.

Beginning in 2025, the health insurance company will use debt and cash to buy 20 CenterWell Senior Primary Care clinics built in a joint venture with Welsh, Carson, Anderson & Stowe, Diamond said. The investment is the first of many Humana will make to expand its primary health care services for the elderly, she said.

“We are planning to expand our primary care platform to consolidate our leadership position in this area, with the expectation that our revenues from this business will be a meaningful contributor to the business as additional cohorts are acquired from the JV and the business continues to grow. and scale beyond 2025,” Diamond said.

In February 2020, Humana launched its first $600 million joint venture with a private equity firm to build 67 primary care clinics for the elderly in 2023. In May, the company announced a second joint venture with Welsh, Carson, Anderson & Stowe. over 100 new CenterWell clinics.

Welsh, Carson, Anderson & Stowe owns a majority stake in these clinics that serve Medicare recipients. Each joint venture comes with a delivery agreement that allows Humana to fully acquire the facilities after five years of operation. “After 2025, when each subsequent cohort is fully staffed, we expect a significant increase in the contribution of the primary health care organization with the possibility of self-funding new new clinics starting in 2026,” Diamond said.

As of June 30, Humana owned 222 primary health care clinics. The company aims to build up to 50 new clinics annually through 2025, with about half of them coming from acquisitions and the rest built in partnership with Welsh, Carson, Anderson & Stowe. Between 2026 and 2030, Humana will spend up to $3.5 billion to expand its presence in primary health care, Diamond said.

Primary care is a critical part of the company’s $1 billion value-creation plan, which Humana launched in February after rival Medicare Advantage insurers captured most of its members during open enrollment. Humana is the second largest Medicare Advantage operator with 5.1 million members behind UnitedHealthcare with 6.9 million.

Providing medical care offers Humana a new revenue stream that goes beyond federal medical loss rate requirements. By referring its Medicare Advantage members to a provider also owned by Humana, the company can, in effect, pay for its services. Humana expects its primary health care operations to generate up to $200 million in earnings before interest, taxes, depreciation and amortization by 2025, Diamond said. In the next 10 years, primary health care will grow and generate $1 billion in EBITDA, she said.

The company also invested in Cano Health, a primary care start-up that Humana has a right of first refusal should competitors show interest in acquiring. The insurance company has also helped set up primary care clinics for Oak Street Health, Iora Health and has a separate joint venture with ChenMed.