Humana to spend $550M on private equity clinics

Humana will spend up to $550 million to acquire the first set of clinics it built with a private equity firm, Chief Financial Officer Susan Diamond said during a meeting with investors Thursday. 

Beginning in 2025, the health insurance company will use a mix of debt and cash to purchase 20 CenterWell Senior Primary Care clinics erected through a joint venture with Welsh, Carson, Anderson & Stowe, Diamond said. The investment represents the first of many Humana will make to grow its primary care services for older adults, she said. 

“We plan to expand our primary care platform to build on our leadership position in this space, with the expectation that our earnings from this business will become a meaningful contributor to enterprise earnings as additional cohorts are acquired from the JV and the business continues to mature and scale beyond 2025,” Diamond said. 

Humana launched its first $600 million joint venture with the private equity firm in February 2020 to build 67 primary care clinics for older adults in 2023. The company announced a second, $1.2 billion joint venture with Welsh, Carson, Anderson & Stowe in May to develop more than 100 new CenterWell clinics. 

Welsh, Carson, Anderson & Stowe owns majority stakes in these clinics, which serve Medicare beneficiaries. Each joint venture comes with a put-and-call agreement that allows Humana to fully acquire the facilities after five years of operation. “Post-2025, as each subsequent cohort is fully acquired, we expect to see a meaningful increase in the contribution from the primary care organization, with the potential to self fund new, de novo clinic expansion beginning in 2026,” Diamond said.  

Humana owned 222 primary care clinics as of June 30. The company aims to build up to 50 new clinics annually through 2025, with about half coming through acquisitions and the remainder being built with Welsh, Carson, Anderson & Stowe. From 2026 to 2030, Humana to spend up to $3.5 billion to expand its primary care footprint, Diamond said. 

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

Care delivery offers Humana a new revenue stream that is not limited under federal medical loss ratio requirements. By referring its Medicare Advantage members to a provider also owned by Humana, the company can essentially pay itself for providing the care. Humana expects its primary care operations to generate up to $200 million in earnings before interest, taxes, depreciation and amortization by 2025, Diamond said. Primary care will grow to contribute $1 billion in EBITDA over the next 10 years, she said. 

The company has also invested in Cano Health, a primary care startup for which Humana holds the right of first refusal if competitors show interest in acquisition. The insurer has also helped develop primary care clinics for Oak Street Health, Iora Health and has a separate joint venture with ChenMed.