Humana will sell a majority stake of Kindred at Home's hospice business to private equity firm Clayton, Dubilier & Rice for $2.8 billion in cash, the company said Thursday.
The insurer will divest a 60% stake in Kindred at Home's hospice, palliative care, community services and personal care divisions. Once the agreement is finalized, the services will be restructured into a standalone business led by David Causby, president and CEO of Kindred's hospice and personal care divisions. The deal values Kindred's hospice arm at $3.4 billion, Humana said.
The transaction is expected to close in the third quarter.
Humana said it does not expect the sale to have a material impact on its 2022 earnings and intends to use the proceeds for repaying debt and repurchasing company shares.
Humana acquired the remaining 60% interest in Kindred at Home from TPG Capital for $5.7 billion in April 2021, after previously investing $2.4 billion in the home health provider.
The sale of Kindred's hospice services isn't a surprise. During Humana's fourth-quarter earnings call, CEO Bruce Broussard said the hospice division was on the chopping block, with the potential sale a part of the insurer's $1 billion "value creation plan" focused on growing its Medicare Advantage and healthcare services businesses.
The announcement of a cost-cutting strategy came after increased competition led Humana to halve its expectations for new Medicare Advantage members gained during open enrollment at the end of the year.
Humana is the nation's second-largest Medicare Advantage insurer with 4.9 million members. UnitedHealthcare is the largest carrier.
Partnering with private equity will help Humana offset some of the labor pressures Kindred at Home has faced. Broussard noted the tension during the company's fourth-quarter earnings call, saying the insurer planned to make investments to better recruit and retain nurses to staff the home healthcare business.
"The labor market remains challenging, and there is more work to be done to further improve nurse satisfaction," Broussard said.