Humana to shell out $550M to buy clinics from PE partner

Humana is ramping up its focus on primary care. The insurer plans to shell out between $450 million and $550 million to buy the first group of senior-focused primary care centers it built through a joint venture with a private equity firm.

Humana first joined forces with New York-based private equity firm Welsh, Carson, Anderson & Stowe (WCAS) in February 2020 to launch senior-care-centric primary care clinics. That partnership aimed to invest $800 million toward opening 67 clinics by early 2023.

As part of that agreement, the two parties included several put and call options that would either allow Humana to buy out WCAS’ stake in the venture or allow WCAS to force Humana to do so, in stages, over the next five to 10 years. 

"We are planning for the full acquisition of centers built in partnership with Welsh Carson through our put and call options beginning in 2025,” Humana's chief financial officer Susan Diamond said Thursday during the insurer’s investor day.

The health insurance company will use a mix of debt and cash to purchase 20 CenterWell Senior Primary Care clinics, executives said.

In mid-May, Humana and the PE firm announced a second joint venture that will spend $1.2 billion to develop 100 new senior-focused primary care clinics between 2023 and 2025 under the CenterWell Senior Primary Care brand and then operate these locations to ensure they reach profitability. 

CenterWell Senior Primary Care is the largest provider of senior-focused primary care in the country, and it is actively working to expand through multiple strategies. Humana's primary care business operates 222 clinics across the CenterWell and Conviva Care Solutions brands, including 37 under its initial joint venture with WCAS.

These clinics serve about 180,000 Medicare Advantage enrollees through value-based care arrangements, Humana said.

Humana expects to have 250 clinics open by the end of 2022. Through the partnership with WCAS, Humana has now opened 40 joint venture centers with an additional 25 to open between now and early 2023.

Humana plans to add 30 to 50 clinics per year through 2025, with up to 15 to 25 of these clinics being added through acquisitions, she said. The remaining 30 per year will be added through Humana's joint ventures with WCAS.

"We will continue to be focused and strategic in considering M&A opportunities as we look to extend our CenterWell capabilities with a particular focus on growing our primary care and home businesses," Diamond said.

Humana expects its primary care operations to generate up to $100 million to $200 million in earnings before interest, taxes, depreciation and amortization by 2025, Diamond said. At that time, Humana will operate between 400 and 450 staff centers either wholly owned or in the JV, she said.

The company projects that primary care will grow to contribute $1 billion in EBITDA by 2032.

"Our CenterWell portfolio compromising primary care home and pharmacy are all strong businesses poised to become increasingly important contributors to earnings growth," Humana CEO and President Bruce Broussard said during the investor call.

Humana plans to invest $2.5 billion to $3.5 billion from 2026 to 2030 on clinic expansion as it ramps up its level of annual builds, Diamond said.

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