Humana Inc.

Good day and thank you for standing by. Welcome to the UMANA 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 to ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Simply press star zero. With that, I would now like to hand the conference over to your speaker today, Amy Smith, Vice President of Investor Relations. Thank you, and please go ahead.

Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Brian Kane, Chief Financial Officer, will discuss our first quarter 2021 results and our updated financial outlook for 2021. Following these prepared remarks, we will open up the lines 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. Additionally, we have posted supporting materials 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.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. Actual results could differ materially. Investors are advised to read the 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 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 spread of 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 in our SEC filing. We undertake no obligation to publicly address or update any forward-looking statements in 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 that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard.

Thank you, 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 2021 and reaffirmed our full year 2021 adjusted EPS guidance of $21.25 to $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 in 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 the significant contract award in Ohio, which, when combined with recent additions of Oklahoma, South Carolina, and Wisconsin, 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. DSNP membership increased approximately 23% in the quarter, and we now serve more than a half a million DSNP members. We remain committed to proactively addressing disparities in healthcare 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 racial and ethnic minorities with more than 28% of Medicare Advantage beneficiaries being racial and ethnic minorities as compared to 21% in traditional Medicare. Currently, 55% of Latino and 39% of African American beneficiaries have actively chosen to enroll in MA, and there is growing diversity in enrollment because of the value provided to beneficiaries. The ability of MA plans to adapt to change and drive innovation and better clinical outcomes is why today nearly 27 million seniors have chosen MA over original Medicare. Our ability to drive innovation and improve clinical outcomes is enabled by our strong integrated care delivery platform. In recent years, we have significantly expanded our healthcare service capabilities from primary care to pharmacy to home care and more. in order to 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, more personalized experience for the people they touch. These advancements also provide a solid foundation to 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 coordinate care outside of MA. During the quarter, we took the next step in this evolution, introducing CenterWell as the new brand to unite our broad range of payer agnostic healthcare service offerings. The CenterWell brand speaks to how we put our members and patients at the center of everything we do. The first Humana-owned services to adopt the brand are Partners in Primary Care and Family Physician Group, named CenterWell 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 CenterWell brand. We see the home coupled with our primary care strategy as the next meaningful opportunity to improve access to quality, proactive care for a broader senior population. As such, we continue to invest in assets that allow us to better manage the holistic needs of our members and patients by expanding care in the home, including primary care, telehealth, and emergency room care, while also addressing social determinants of health. The home health industry is among the fastest growing healthcare industry in the US as a result of an aging population, the prevalence of chronic disease, and growing physician acceptance of care in the home. This need has only been accelerated by COVID-19. However, we recognize for some time that the current volume-based fee-for-service model has limited the innovation in home health. Accordingly, in 2018, we acquired a 40% interest in Kindred at Home, embarking on a journey to test and learn innovative clinical models in the home with the goal of evolving home health to value-based payment models. Today, Kindred at Home employs approximately 43,000 caregivers, providing home health, hospice, and community care services to over 550,000 patients annually. They have locations in 40 states, providing extensive geographic coverage with approximately 65% overlap with Humana's individual Medicare Advantage memberships. Yesterday, we announced that we signed a definitive agreement to acquire the remaining 60% interest in Kindred at Home. As detailed in the press release we issued last night, the Kindred at Home transaction represents an enterprise value of $8.1 billion, including the value of Humana's existing 40% equity interest. This acquisition, which is expected to close in the third quarter of this year, is the largest in humanist history and comes at a pivotal time in healthcare when a worldwide epidemic has exasperated the existing disparities in healthcare for underserved populations and highlighted the power of telehealth and in-home care in addressing those disparities. Further, the pandemic has reinforced patients' increasing desire for convenient and personalized delivery channels requiring innovative home care offerings. The acquisition of Kindred at Home will provide us with an extensive network of nurses, a critical distribution channel for delivering care in the home, However, we recognize the need for innovative home care offering at scale. Through our successful partnership with Kindred's management team and our private equity partners, over the last few years we have proved that altering the nurses' clinical interaction in 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 in the home, and supporting higher acuity patients by leveraging other home-based assets we've assembled. Humana at Home health episodes served by Kindred at Home has increased from 8% to 19% overall in markets with geographic overlap, reaching penetration as high as 49% in certain key markets. In addition, Kindred at Home continues to demonstrate superior patient outcomes, including reduced hospitalizations, admissions, and ER utilization. Management's successful transition of Kindred at Home to an independent home health and hospice company. The strong and growing core business is reflected in Kindred's solid historical EBITDA compounded annual growth rate of approximately 20% since 2017. Our 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 Kindred. 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 Kindred at Home will enable us to more closely align incentives to focus on improving patient outcomes and on reducing the total cost of care. This is critical to deploying at scale a value-based advanced home health model that makes it easier for patients and providers to benefit from our full continuum of home-based capabilities. By leveraging the best channel to deliver the right care needed at the right time, we believe we can deliver outcomes and value beyond what is possible in traditional fee-for-service models. As shown on the slide deck that we posted to our investor relations website this morning, home health utilizers are five times more likely to have an inpatient admission within 120 days of the start of their home health episode as compared to an individual MA member 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's hospice and community care operations, our intent is to ultimately only maintain a minority interest in this portion of the asset. Our experience with hospice demonstrates the integration of palliative and traditional hospice care improves the quality of life for patients transitioning from restorative care to hospice. 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 in the hospice asset long term. Kindred at Home will be integrated into Humana's home solutions business under the leadership of Susan Diamond. When combined, our home solutions geographic scale and clinical breadth will provide the opportunity to offer care beyond Humana members. And as a result, we will transition to our CenterWell brand as CenterWell Home Health. Locally, Kindred Care Services will be integrated and coordinated with other care offerings, including Centerwell Senior Primary Care and Convenient Viva, as well as our primary care and emerging care offerings in the home via our investment in HEAL and Dispatch 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 invaluable contribution to Humana over the last several years. Among his many contributions, Brian brought rigor to his role in the creation of a strong financial capability, not only through sophisticated physical and ongoing operational discipline, but also by developing a deep bench of talent within our financial organization to drive this discipline forward. We wish Brian the very best in his next chapter. As previously announced, Brian will remain in his current role through June 1st and then serve 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's strong knowledge of our business and financial expertise, I have great confidence in her ability to lead the finance team as we recruit a new CFO. Susan will also continue to lead the home solutions business. With that, I'll turn the call over to Brian.