(Story updated at 12:30 p.m. ET.)
Health insurer Humana will sell Concentra, its occupational medicine and wellness arm, for more than $1.05 billion in cash to Select Medical Holdings Corp. and a private equity firm, Humana announced Monday.
The joint venture transaction between Select Medical, a specialty hospital operator, and Welsh, Carson, Anderson & Stowe is expected to close in the second quarter this year. Select Medical will own 50.1% of Concentra, while Welsh Carson will own the remaining 49.9%.
Humana bought Concentra in 2010 for $790 million. Concentra operates more than 300 medical clinics throughout the country, specializing in urgent care, occupational medicine and other primary-care services. Most are onsite employer clinics.
Rumors of a Concentra divestiture first came to light last October after Humana hired Goldman Sachs to explore options for Concentra. Goldman Sachs is Humana's financial adviser in the deal. Humana CEO Bruce Broussard did not directly comment on the issue during the third-quarter earnings call last year, but he told investors that Louisville, Ky.-based Humana was broadly looking at all of its assets.
“What shareholders should take away is that we are constantly looking at our portfolio, both in businesses that are not strategically aligned and, in addition, businesses that are not returning the returns that we are looking for,” Broussard said. “And this is going to be a constant evaluation.”
Humana's acquisition of Concentra was one of the first instances of an insurer moving into the provider space during the Affordable Care Act era. Experts viewed such moves, which add physicians and convenient-care locations for millions of workers, as creating primary-care “access points” for members.
But Concentra never materialized into the health insurance complement that executives envisioned in early 2011. Concentra brought in about $1 billion in revenue in 2014, or a little more than 2% of Humana's total revenue. Other financial details were not disclosed.
“Though Concentra's operations did not ultimately align with Humana's strategy as well as we had originally anticipated, we believe Humana and Concentra have gained valuable insights into consumer behavior over the past several years that will serve us both well moving forward,” Broussard said in a news release Monday.
Medicare Advantage is Humana's core business. Humana still has several other subsidiaries that are not directly related to health insurance, such as a pharmacy benefits management company and a home-based services unit that remotely cares for seniors. Broussard and Chief Financial Officer Brian Kane, a former Goldman Sachs executive who came to Humana last year, have said on numerous occasions that Humana will not sell its pharmacy business.
“We continue to evaluate each of our businesses to ensure they are exceeding their cost of capital and are strategically significant,” Broussard said late last year.
Ana Gupte, a managing director at Leerink Partners, said Monday that the cash from the transaction could spur Humana to buy a Medicaid health plan. Humana has shown an interest in adding more Medicaid lives, specifically to boost its presence in the dual-eligible market, Broussard said at the J.P. Morgan Healthcare Conference in San Francisco this past January.
For Select Medical, the acquisition builds on the company's outpatient segment. Select Medical operates 113 long-term acute-care hospitals and 16 inpatient rehabilitation facilities, but it also owns more than 1,000 outpatient rehab clinics and is a rehab-care contractor for some workplace clinics.
Welsh Carson, a private equity firm with about $20 billion in assets, previously owned both Concentra and Select Medical. The Concentra deal marked a busy day for the firm, which also agreed to sell two portfolio companies to Tenet Healthcare Corp.