UnitedHealth Group's Optum announced Tuesday it plans to purchase in-home healthcare provider LHC Group for an estimated $5.4 billion.
The deal is expected to close in the second half of 2022, a news release said.
"Working together as organizations committed to caring for the most vulnerable in society will help us more effectively and efficiently deliver high quality and increasingly value-based care in the home," LHC Group Chairman and CEO Keith Myers said in the news release.
LHC Group leadership will remain on after the acquisition. Co-founders Keith and Ginger Myers also will purchase $10 million in UnitedHealth Group stock after the deal closes, the companies said.
UnitedHealth Group agreed to pay $170 per share for LHC Group. The home care company's stock on the Nasdaq exchange closed at $166.56, a 5.9% increase from the prior day; the Nasdaq composite index grew 1.8% Tuesday. UnitedHealth Group shares declined 0.48% to $510.73 on the New York Stock Exchange, which rose 1.3%.
The deal strengthens UnitedHealth Group's home health and hospice business and enhances its presence in more than 30 states, the investment bank Cowen wrote in a research note.
Optum and LHC Group declined requests to interview company executives.
The combination of Lafayette, Louisiana-based LHC Group and Eden Prairie, Minnesota-based Optum, which works with more than 100 health plans and is the healthcare services arm of UnitedHealth Group, will better allow the companies to "deliver integrated care, improving outcomes and patient experiences," the UnitedHealth Group-LHC Group news release said. LHC Group has 964 locations in 37 states and reported revenue of $2.2 billion in 2021.
The LHC Group acquisition will "greatly enhance the reach of Optum's value-based capabilities along the full continuum of care, including primary care, home and community care, virtual care, behavioral health, and ambulatory surgery," Optum CEO Dr. Wyatt Decker said in the news release.
To start, LHC Group will be run as a standalone company and its operations will remain largely unchanged, an Optum spokesperson said. "We will continue to put the needs of LHC Group's patients at the center of everything we do," the spokesperson said.
The LHC Group deal is the latest in a series of moves by health insurers looking to diversify their offerings by entering the growing home health market. Last year, Humana bought the remaining 60% of shares of home health and hospice provider Kindred at Home, for example.
UnitedHealth Group has been expanding into other healthcare sectors via its Optum subsidiary. Last year, Optum added 100,000 medical practices, making it the nation's largest employer of physicians. Optum was expected to close a $13 billion acquisition of health information technology company Change Healthcare in February but the Justice Department halted the deal, citing concerns about health insurance market competition. Optum rejects the government's reasoning.
The LHC Group transaction is the "latest piece in UnitedHealth's quest to become a 'payvider,'" Joel Theisen, CEO and founder of home health provider Lifespark, wrote in an email. "The big insurers are putting their companies in much stronger positions because they have the insurance revenue side of the equation and now they want to redesign the delivery or cost system," he wrote. "The challenge for these big companies is whether they can really integrate insurance and health services around the client. It's fair to question whether they are doing this as a financial play or because they really want to improve the consumer experience."
LHC Group will meld well with other care delivery assets UnitedHealth group has acquired over the years and will aid the insurer in providing services to its Medicare population, said Brad Ellis, senior director of North American insurance ratings at Fitch Ratings. The home care company's technological capabilities also are valuable, he said.
The LHC Group deal also adds home health to Optum's assets under which medical groups manage risk, said Anne Tumlinson, CEO and founder of consulting firm ATI Advisory. "You'll see a lot more tight networks with LHC and the Optum-owned physicians," she said.
The Optum-LHC Group deal is "very positive" for the home health sector, said Bill Dombi, president of the National Association for Home Care and Hospice. "It does is send a strong message out there that people are recognizing the value of healthcare services at home," he said.
Large home healthcare providers control only about 20% of the market, so there's room for further consolidation in the industry, Dombi said. In the past, big home health companies such as LHC Group absorbed smaller providers but the UnitedHealth Group deal indicates "a new step in that consolidation," he said.
Optum's earnings rose nearly 10% to $3.4 billion during the fourth quarter. Overall, the unit represented half of UnitedHealth Group's $24 billion in operating earnings last year.
Mari Devereaux contributed to this article.
This article has been updated with background information and comments.