Humana’s CenterWell Clinics Gaining Margin Momentum

Nov. 2, 2023
Senior Humana Inc. executives have raised their expectations for the growth and profitability of the company’s CenterWell primary care clinics for the second quarter

The leaders of the Louisville-based Humana Inc. health insurer have lifted the growth and profitability goals of the company’s CenterWell primary care clinics business for the second consecutive quarter and now expect nearly 45 percent of the unit’s clinics will be running at better than breakeven by year’s end.

Speaking to analysts Nov. 1 after the Humana team reported third-quarter earnings, CFO Susan Diamond said CenterWell Senior Primary Care has topped executives’ forecast thanks to a combination of higher patient volume and lower-than-expected utilization. The division ended September with 296 centers in 15 states that worked with about 285,000 seniors.

That last number is up from 272,000 in June, when Diamond and president and CEO Bruce Broussard lifted their full-year growth forecast to a range of 27,000 to 30,000 patients from their previous outlook of 20,000 to 25,000. They’re now looking for CenterWell Senior Primary Care to finish 2023 with growth of 34,000 to 36,000 patients.

CenterWell clinics also are outpacing expectations when it comes to contribution margin: Diamond said 130 of the nearly 300 centers will be making money from their operations by the end of the year. That’s up from 110 at the end of 2022 and an increase of five from Q2’s forecast.

Looking longer term, Humana’s leaders want each center to generate $3 million in contribution margin. Of the 130 expected to be in the black by Dec. 31, Diamond said 44 should clear that $3 million hurdle. Three months ago, she and Broussard expected that number to be 40; it was 31 on Dec. 31, 2022.

Helping drive those bottom-line gains are positive patient outcomes: Medicare Advantage patients in the CenterWell network in 2021 are hospitalized about 30 percent less often than members who aren’t. In addition, they are 25% more likely to visit at least once per year with their primary care physicians, which helps Humana’s teams address care gaps, assess future needs and better connect members to community and other assistance programs. In return for those improvements, CenterWell gets to keep a larger share of Centers for Medicare and Medicaid Services reimbursements.

Humana, which owns outright about 180 of the 296 centers, is building out its clinic network with help from private-equity firm Welsh Carson Anderson & Stowe. The two companies first partnered in early 2020 via an $800 million joint venture and in the spring of last year committed to another $1.2 billion push that aimed to open 100 clinics by the end of 2025. Welsh Carson has a majority stake in the JVs while Humana earns a management fee; the two parties have agreed to options that would have Humana acquire the centers over time.

CenterWell Senior Primary Care is part of a broader CenterWell business unit that also includes pharmacy and home care services. The division posted an operating profit of $400 million in the three months ended Sept. 30, up from $300 million in the prior-year quarter. Its total revenues, of which internal Humana business accounts for about 80 percent, grew to nearly $4.7 billion from about $4.3 billion a year earlier.

Shares of Humana (Ticker: HUM) were changing hand about $482 on the afternoon of Nov. 2. Over the past six months, they have lost about 10 percent of their value, cutting the company’s market capitalization to about $60 billion.

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