Humana, two private equity firms will buy Kindred Healthcare for $4.1 billion

(Updated at 11:30 a.m. ET)

In the latest in a string of deals pairing insurers with healthcare providers, health insurer Humana and two private equity companies will divide and buy long-term care and home healthcare provider Kindred Healthcare for $4.1 billion, the companies announced Tuesday.

Humana, TPG Capital and Welsh, Carson, Anderson & Stowe will split Kindred into two companies, with TPG and Welsh taking over its long-term care hospitals and inpatient rehab facilities.

The two private equity companies and Humana together will operate Kindred's home health, hospice and community care businesses as a stand-alone company. Humana will own 40% of that company, and the private equity firms will own the rest.

The 40% stake cost Humana $800 million, the insurer said. The private equity firms will have the ability to require Humana to purchase their stake in the home healthcare and hospice company after three years. The deal is expected to close in the summer of 2018.

The announcement comes on the heels of several other proposed mergers and acquisitions between insurers and providers aimed at shifting care away from hospitals and reducing medical spending. The largest is CVS and Aetna, which are combining in a $69 billion deal that hopes to position CVS' retail stores and medical clinics at the center of patients' care routines. UnitedHealth Group's Optum unit also struck a deal to buy dialysis giant DaVita's physician group.

Kindred is the nation's largest operator of post-acute facilities in home and hospice care, rehabilitation services and long-term acute care. Its 2016 revenue totaled $7.2 billion. Its home and hospice care segment brought in $2.5 billion of that, while the hospitals and rehab facilities brought in $3.8 billion. It serves patients in 2,475 locations in 45 states.

The company's board of directors began mulling a sale over the past year. Kindred CEO Benjamin Breier said Humana, with its focus on Medicare Advantage and interest in caring for patients in the home, is a great fit to transform home healthcare, particularly for people with chronic conditions.

"I think it's just going to be an incredible leg up for them in terms of their ability to really manage their population in way that no other payer in America is going to be able to do," Breier said in an interview.

After the acquisition, Breier will continue to head up the specialty hospital part of the company, called Kindred Healthcare, as CEO. David Causby, the current executive vice president and president of the home health segment, Kindred at Home, will serve as CEO of that new company.

Breier said the new capital from the private equity firms will allow him to grow the specialty hospital side into "a formidable company" in terms of size and its ability to care for the most medically complex patients at the best price.

Over the past three years, Kindred has sold off many of its long-term acute-care hospitals as a way to mitigate the effects of legislation passed in 2013 that changed the reimbursement long-term acute-care providers receive from Medicare and put pressure on providers' margins.

In 2016, it sold 12 of those facilities to Curahealth Hospitals for $27.5 million. Kindred also recently sold 91 skilled-nursing facilities in a move to exit that slow-growth business.

As for Humana, the deal with Kindred vastly strengthens the insurer's footprint in home healthcare, giving it a lever to keep patients away from the hospital and lower its medical claims costs. Kindred boasts 609 home health, hospice and non-medical home-care sites of service.

Humana this year has been investing heavily in the provider side of healthcare, including home healthcare, to improve the medical experience and outcomes of its members.

Humana President and CEO Bruce Broussard in November told investors that the insurer was working with its existing home health agencies to figure out how to improve the home care model, which he said is often disconnected from primary care. He hinted that mergers and acquisitions would be necessary to bring Humana's vision of improved home healthcare to life.

In a statement Tuesday, Broussard said he's "confident that these new capabilities will help Humana continue to modernize home health and meaningfully improve the member and provider experience."

Breier said he doesn't expect to run into any antitrust issues in closing the deal. He also said the companies haven't contemplated if there will be any layoffs from the sale. He added that the sale will deliver great value to shareholders, who will receive $9 in cash for each share of Kindred common stock they hold.