Dive Brief:
- Humana on Wednesday reported revenue for the fourth quarter of 2019 of $ 16.3 billion, a 15% year over year increase that was above Wall Street expectations, and revenue for the full year rose 14% from nearly $ 57 billion to $ 64.8 billion.
- The payer touted Medicare Advantage membership reaching nearly 3.6 million at the end of 2019, a 17% year-over-year increase CEO Bruce Broussard told investors was the largest the company had seen in a decade and beating the 15% growth reported in the third quarter.
- Humana executives said on the earnings call Wednesday morning primary care centers will be a major focus for this year and beyond, building off a joint venture announced this week with the payer’s subsidiary Partners in Primary Care. The company will look for continued growth as the centers still cover a “relatively small portion” of the overall MA book.
Dive Insight:
Humana shares were trading up more than 5% Wednesday morning as the payer exceeded expectations on earnings and revenue for the quarter.
Broussard and Humana Chief Financial Officer Brian Kane fielded multiple questions on the growing primary care centers. Earlier this week, the payer announced a joint venture to expand the network of clinics for seniors run by Partners in Primary Care. The $ 600 million project is with private equity firm Welsh, Carson, Anderson & Stowe.
“We believe we have an operating model that can be replicable and scalable across multiple markets in the U.S., so it’s really a function of how do you fund this expansion,” Kane said. The centers take time to become profitable, he warned, but said they will be “valuable form a shareholder point of view.”
Humana wants to double the membership in those clinics over the next few years.
It’s important for the centers to be payer agnostic to share risk, keep the clinics full with patients and attract physicians, executives said, adding they were encouraged by reception from other payers.
Broussard said a challenge for the centers is continuing to operate in a system still dominated by fee-for-service reimbursement.
The medical loss ratio for the fourth quarter was 86.6%, up year over year from 83.4%. For the full year, the figure was up from 83.5% to 85.6%. Humana said the MLR was negatively affected by the suspension of the health insurance tax last year and shift in MA membership as stand alone prescription drug plan members were lost.
MLR has been a key factor in other payers’ fourth quarter reports. Anthem last week blamed a year-over-year increase on a changing payer mix and early flu season. Centene also attributed its MLR miss to a number of factors including flu costs in a Tuesday call with investors. Cigna is the last major payer to report its financials for the fourth quarter, scheduled for before the market opens Thursday.
Humana’s healthcare segment reported revenue of $ 6.7 billion for the quarter and $ 25.8 billion for all of 2019, both year over year increases. Group and specialty segment revenue for the year was down slightly to $ 7.5 billion while retail revenue jumped to $ 56.5 billion for the year and $ 14.2 billion for the fourth quarter.
Net income for the quarter increased to $ 512 million and for the year was up to $ 2.7 billion.
Executives also gave an update on Humana’s tech partnerships, saying the focus going forward will be migrating to the cloud and boosting internal and external interoperability.
Humana is working on cloud conversion through its partnership with Microsoft, announced in October. The process is expected to take about five years and will include work on creating longitudinal health records for members.
A deal with Epic, also announced last year, is allowing the payer to work with a number of health systems, but executives said they would not discuss specific use cases.
“These are the beginnings of long processes no different than what we are talking about with the clinics,” Kane told investors Wednesday morning.