Humana Inc. (HUM) Earnings Call Transcript & Summary

Well, great. Let's just go ahead and get started. Good afternoon, everyone. This is Whit Mayo. I'm UBS' health care facilities and managed care analyst. It's my pleasure this afternoon to have Bruce Broussard, the Chief Executive Officer of Humana, with us. So Bruce, thanks for joining. I think Amy may be on the -- she is on the line as well.

Maybe just to start, Bruce. Humana, in my mind, has really led the industry in their response efforts as it relates to COVID-19, eliminating co-insurance, adding additional benefits. Can you maybe just talk a little bit about how you guys have been responding and how you continue to respond to address from a member and provider standpoint just to adjust to COVID-19?

I would say just to start out. I mean when we entered the containment phase, we've been very oriented to how do we ensure people get the proper testing and, if necessary, the proper treatment. [ And with that, this is all ] around this concept of how do we continue to look at an individual's health holistically. As we went into that, we waived co-pays. We wanted [ to ensure ] treatment and testing. We also wanted to ensure that individuals were capable of getting any kind of gaps in care filled during that time since the health care system was, for the most part, closed. So we actually set up a 3,000-person nursing outbound [indiscernible] call and [ help them whatever ] way we could, including serving over 600,000 member -- meals to individuals. As we moved from the stage of containment to the stage of reentry, we then looked at how our members need assistance there, and we began to say we really need them to [ have medical barriers ] there being able to use the health care system. So the first thing is we felt on the primary care area, the behavioral health and telehealth that we waived off co-pays there. In addition, we're providing close to 6 million safety [ kits ] to our members to ensure that they can go into public with some confidence. We've also looked at anything we can do in the area to ensure that people get their health care if they don't get comfortable out there, so not only waiving co-pays but actually being very proactive in ensuring that they get the ability to access telehealth services by a number of different vendors. So I say all that because it has really started from our members and working back and really ensuring that they're getting the best health. On the provider side, we also wanted to ensure that they were getting support in this time, when -- especially when the health care system was shut down. So we've advanced a significant amount of cash, about $1 million, to our providers to ensure that they are able to have cash flow during this downturn and at the same time have tried to ensure administrative burdens don't get it in the way of being able to take care of the care of the individuals for -- especially with the COVID virus.

No, that's really helpful. CMS, I think, has implemented a -- maybe a temporary special enrollment period now. And I've just been wondering whether or not we're going to see any MA members switch midyear. And I don't know how all your competitors are adjusting to this, whether or not they're adjusting benefits. And just wondering if there are any market share implications, anything you're seeing with members switching. Or is this not something that you would expect to see?

Well, I -- it's too early to see. I mean we've seen a [indiscernible] sales process over the last month or so as a result of not being able to engage fully with our members. But at the same time, we've also seen our retention offset a lot of that impacts. So I would say right now we're early in the process. If it's going like it is today, I would suspect that our retention will continue to be strong. And at the same time, we'll have to find ways to engage with them on their -- on the different aspects of the sales side. I would say all the activities that we've done on behalf of our members, the outreach program and the various different programs that we've established in [indiscernible] and that addition just closing the gaps in care continues to build our brand and continues to advance the trust with our members and so I feel confident that we will, I think, have strong retention during the year even though it is a little more difficult to conduct sales.

Yes. And I've been thinking a lot about fast forwarding to open enrollment and the challenges that the industry is going to have engaging with consumers. And obviously, this sets up a lot of interesting new challenges for the retail broker channels. How do you expect to adapt in this environment? Maybe what investments you may need to make into technology or solutions and tools to help your -- either your captive brokers or the independent brokers.

Yes. Over the last number of years, we've made a lot of investment in technologies to allow our -- both our brokers but also our members be able to utilize the technology as an enrollment vehicle. Because I think of the complexity of the enrollment and just -- and all the decisions that you make and, [ as we said ], continued confidence that we want to have in their decisions. It's always been helpful to have somebody engaged with them. Engagement in the historical has been through face-to-face engagement, but over the last number of years, it has evolved to a telephonic sales [indiscernible]. They've got a number of reasons for that, including the amount of marketing that is done today on the telephonic side. And we have been investing a significant amount of dollars over the last number of years in the telephonic sales area, both internally being able to continue to utilize our internal sales force but, as importantly, making key partnerships with organizations outside. And we have continued to see more and more of an increase in the telephonic component of our sales over the last few years. And we continue to think that will continue in the going forward, and in results, I think we will be positioned well on this AEP from -- if it is forced to be more telephonic. It's we will leverage the existing investments we've had. And we will continue to invest in that. I know [indiscernible] planning as we [indiscernible] other ways that we can invest then more in virtual versus face-to-face.

What percent today of your members enroll face-to-face versus online or telephonic? Do you know those numbers off the top of your hand? And maybe where you would expect that to go over time.

I would say -- yes, I don't think we've given an exact number, but I would say there's very -- less than 10% or so is [indiscernible]. The rest is going to be between telephonic and from face-to-face. And again, I would say the growing number, and I don't think it's hit the majority but it's approaching there, would be telephonic.

Got it. Are there any areas that you need relief from CMS to ensure that you're well prepared for open enrollment or really just enrollment throughout the year. Your -- I mean is there anything that you're asking CMS from that you need?

At this time, no, not on the -- not so much on the AEP process. There's a number of things on the clinical side that we are engaged with them. On the AEP side, I think we continue to feel comfortable with that. But that being said, we're always engaged with them to try and make it simpler for our members to engage and, at the same time, to be much more convenient. But today, I wouldn't say that will be the biggest area of concern for us with CMS.

Yes. Then social media. I'm just wondering if that's going to be another area of focus more so this year to marketing those channels, engaging with families that are oftentimes making these decisions for their parents and with their parents. Is that an area that you think you'll focus more on or not?

We've been very active in the social media side. And when you look at that as more of [ free blogs of ] the benefits of being a Humana member and specifically around our clinical programs -- and we do that through a lot of storytelling, a lot of examples of members and how they've progressed in their health and dealing with the complexities of chronic conditions. So we do it actively throughout the year, and we would continue to do it in the AEP process. So I would say it's a growing part of our marketing and our engagement strategy. It has been like that for a number of years. I would say that this year, it will grow, but I don't think it's going to be much different than the way we approached it in the past. We continue to believe that's one of many channels that individuals will use as an educational tool.

Got it. I know this is an impossible question to answer but one that we as investors think a lot about, and that's just the pace and the shape of a potential recovery. And there clearly will be some long-term implications on the delivery system as it relates to COVID. What's the internal view from Humana today on how we may see or at least maybe thinking through how trend may evolve as the year develops?

I think you're right. That's a little difficult. I mean, going into the virus, we were very confident in where we were as an organization. I think the medical [ pos ] continue to be aligned with what our expectations were, and the clinical programs were being very effective, and documentation was really going as planned. As we think about 2021, we continue to think that those trends outside of COVID would continue. We see some very impressive improvement from our -- a number of our trend benders that we've been looking at over the last number of years. And so we continue to have a lot of confidence in that. We have a lot of confidence in our capabilities and being able to continue to advance our provider relationships and value-based payment models. And we have a lot of activity going on in areas that we think long term will -- the way care is delivered. And that's in the home. That's telehealth. And our advancements over the last few years have prepared us for that. I think this particular virus advances that. I think the area that we continue to wrestle within but very managed is how long does the virus continue. When does a vaccine come out in some of the testing areas there. And I would say that's an area that's we've done a lot of sensitivities around and looking at what was that came out of these last 8 weeks and utilize that as a base to both think about 2021 and at the same time to also consider what the ranges were. And as I think you guys have seen over the last number of years, we are very thoughtful in the way we go to bid. We try to manage both the membership growth and the margin there and albeit more complex than some of the years in the past, but I think we feel good with the bids that we will be filing over the coming weeks.

Got it. And CMS has made a number of modifications to the program in light of the practical challenges of obtaining proper coding right now, getting the documentation, all the face-to-face time with members, Star ratings. Can you maybe just discuss some of the changes in the program and what this means for Humana?

Yes. Just -- and I get confused about this, so I just want to make sure the investors put this in proper context. Today, we are very -- we know the 2020 and 2021 Star ratings, and that really doesn't have any impact on the -- from COVID. The 2022 ratings are -- can be impacted as a result of some of the inability to get into people's homes, pull charts and other headers like that. So CMS has agreed to -- in certain areas, especially HEDIS scores, is to keep the same scoring as the 2021. And so they've made that adjustment and so we feel comfortable with that approach and have taken one complication out of the -- what [ went as ] the COVID side. In 2023 is probably the area that we're more oriented to and working with CMS. First, they have delayed the [ HAPS ] until -- I guess, which is important in that, that measurement is [indiscernible] that is completed for 2021 or 2022, and it would delay the impact for 2023. On the HEDIS areas and other areas like that, we are working hard to continue to close gaps together related to those areas under the existing environment but still, at the same time, being engaged with CMS on the what they would -- could possibly do for 2023. So in summary, obviously we feel really good about 2021, 2022. And the adjustments they've made brings -- takes a lot of complexity out of the circumstance. 2023, we're -- is an area where we're engaged with CMS on.

Helpful. Maybe just on ESRD. It's a topic that gets a lot of investor attention, maybe too much attention. And I'm just maybe more curious just how your strategy evolves around kidney care in general. And do you think about designing special needs plans that would be attractive for these members? Do you think about not designing plans that would be attractive, to incentivize them to go somewhere else? Just any views around just the whole ecosystem around kidney care and how Humana is approaching this.

Yes. I think, in the long run, we are very -- we think it's [ likely to do ] to allow ESRD members to participate, whether they're an ESRD member today or an ESRD patient. They transition into Medicare Advantage, or at the same time, there is -- they obtained ESRD while being a Medicare Advantage member. So we think [ of that ] differentiation, and eliminating that's appropriate. It's the transition that we've been managing through, and we really look at it in 3 areas. First is the different members that we attract by our plans. The second is the unit price that we're able to obtain during that period of time and then the third is clinical programs that we are able to offer them. And we've become more comfortable, as our strategy has evolved, in how we look at 2021 and the transition in there. We think the network adequacy rules helped in that and gave us some flexibilities in the choice of providers that we can contract with. And so that's been one area. As we've developed the plans, I can't really comment on if we're going to do a D-SNP or anything around that. But I would say that we feel confident that the plan will attract the right level of risk and be able to manage that risk in the markets that we're in. So we feel comfortable with that. And then the last thing is we're actively working with some partners on the unit price and feel comfortable that we're able to get the unit price that would allow us to manage through that, the transition, and as we enter 2021. So today, we feel more comfortable than we did 6 months ago. It's still going to be somewhat of a difficult transition, but we think in the long run it would be appropriately, and we feel that we have strategies that box in the risks for our shareholders.

So when you refer to getting the unit price right. I mean we obviously have 2 large players and creating a duopoly in the industry. Does it mean partnering outside of those 2 providers? Or is there -- are you referencing something else? I just want to make sure I understand these, the unit -- yes.

I would -- yes. There's -- yes, there's a few things there. First is around the type of contract that we obtained with [ them and the vehicle ]. So there's a risk sharing involved, I mean, in the company. And so I think within I can't name both one, but we are working with them on the risk-sharing concepts and the data share and the risks of the members, which I think would be great for the members because they will get the best care but on a proactive basis and at the same time in treating the disease. And then the second thing is just continued delivering alternative mechanisms, I mean, delivery models, and that will be more in the home going forward and we're working with the larger partners, but also there are some innovative [ players ] that are coming to market that will offer another option too.

Yes. Maybe just sticking on the topic of the special needs market. I mean we've seen tremendous growth in the last few years, specifically within the D-SNP area. Just can you spend a minute just talking about how you've evolved your strategy around this opportunity and what your outlook is as you think about maybe the next 3 years or so within the special needs market?

We've actually done quite well over the last number of years in developing programs for the SNP market overall. And we continue to look at that as a great market for our competencies, and that's really helping complex chronic members and especially complex chronic members that are also in need of assistance, certain lifestyle issues. So we continue to be bullish on that. And through '20, the first quarter, we've grown at 54,000 compared to 30,000 the year before that. And the year before that, it was 1,400. So you've seen some really strong growth in -- by us in this market. We continue to see that growth going forward. I think there's an opportunity for us to continue to take market share but also expand the market as -- in other areas that offer maybe not necessarily a D-SNP model but maybe some areas like in the VBID and some of the supplemental benefits that are offered in a broader offering.

Okay. I wanted to transition a second to your primary care business and Kindred, I mean, 2 very distinct provider platforms that are pretty differentiated from what a lot of your other MA peers are doing in many ways. Can you just maybe talk about the strategic decision process that chose you to -- drove you to invest in those clinical capabilities? I mean I think you guys sort of refer to it as the 2 primary choke points in the system that you'd like to control. Maybe just elaborate a little bit on the clinical partnership with Welsh, Carson.

Yes. Well, first, we believe there is really 5 areas that are really important when we think about downstream costs within the health care system. One is primary care. Home [indiscernible], which is really not institutional based. Pharmacy is another area; behavioral health; and social determinants. And we don't talk a lot about social determinants. Obviously, we have a very strong pharmacy program. Then the behavioral health is an area that we're continuing to look at and how as -- how do we take ground on that. The areas that are maturing and maturing nicely are in the primary care area and in the home area. And we believe those 2 areas offer significant opportunity to engage with a member in a more convenient environment dedicated to a more elderly population that also allows us to have deeper clinical interaction with them. So we believe that it's a wonderful [ step to address ] choke points but also a very easy way for our members to act, both from a convenience point of view and from a holistic point of view. Our approach has been a little different, especially on the primary care area. We have chosen to be more dedicated to seniors, [ more dedicated to ] value-based payment models and more dedicated to clinics as opposed to -- and building them from start-up as opposed to going out and offering. I know United and -- has been more in the acquisition of practices. We have been more build and organize them around members that we serve. So our strategy has been different even though we both are going into the clinical area. On the home side, we wanted to be able to get scale so that we had the ability for us to touch many of our members. And over the last few years, we've been working on transitioning the home sort of test-and-learns from a fee-for-service kind of model to more of a value-based model that's focused on clinical outcomes as opposed to activity. And we've seen a lot of great success to that, not so much scale as it is sort of test-and-learns of what clinical models work in the home, and we'll -- you'll see us continue to do that within the Kindred area. And then the second area is really it's [ catering ] to the primary care area where [ we are able to ] offer services into the home, leveraging nurses and doctors, with telehealth doctors and nurses that go into the home or doctors going into the home. That offers more acute services that would be a substitute for institutional care and also office visits that, obviously, is much more convenient for our members. So what you see is both of these are really taking home and taking the primary care, again, much more catered to value-based payment models, with outcomes and at the same time to a senior [indiscernible].

So as you think about the primary care partnership with Welsh, Carson, what is the internal target for the number of members that you think you can have a practice around? Is there a 3-year target, a 5-year target? I don't know if there's anything that you shared or would care to share.

I don't think we've shared. I would just say that today what will be [indiscernible] between [ 2,500 and 4,000 ] members really make a clinic profitable and with proper returns and at the same time also continues to drive good clinical care. So I would say that's our target for a per unit basis. And on an aggregate basis, obviously, we would love to have more and more of our members in total value-based payment models. Today, as you well know, mid-30% of our members are in value-based payment models, and we continue to see -- like to see Humana and -- clinics to be and affiliate clinics to be more and more part of that totality.

We've only got a few minutes here. I wanted to quickly talk about Kindred. I think it's going to go down as one of the more forward-thinking transactions when we just reflect back on at least what the multiple was you were able to secure the platform for. And as I think about post acute -- it's not pre acute. And thinking how you would like to take that platform and reposition the business to focus a little bit more on the pre acute side, is there -- I'm just sort of thinking more strategic how you think about, over the long term, what does the Kindred business look like in terms of -- or how -- let me rephrase: maybe how kindred is different 3, 4, 5 years from how it's operating and how the incentives are today.

I would say in general that Kindred would continue to have a Medicare service platform, which today is their largest -- most of their revenue is treating patients in the traditional home health side. Now we've seen it evolve as a result of the reimbursement model that has -- came effective January 1 to be more oriented to both outcomes but also nursing and more of the chronic conditions within the nursing area. And so we see that reimbursement is going to continue to evolve and to be more health outcomes oriented, more multi-chronic condition oriented, which we see as a positive. But we also see that Medicare fee for service today and probably for the foreseeable future will continue to be based on volume and activity. What we do see is Kindred and our home business will continue to grow to be more offering a value downstream. How do we eliminate ER visits? How do we -- hospital visits? How do we slow the disease progression down? And so we -- and payment models that are wrapped around that. I don't think that will be the majority of Kindred's business, but I think it can be a growing part of Kindred's business over time, whether it's contracts with us or contracts with other payers, because this platform is agnostic. Complementing Kindred is going to also be this continued growth of providing more acute services inside the home through what I mentioned before around physicians in the home and physicians using telehealth with the assistance of nurses, social workers, CNRAs (sic) [ CRNAs ], et cetera. And so we see the Kindred being at the core of this, but at the same time, we see it continuing with the traditional fee for service and the evolution that, that business model will take but at the same time growing in value-based payment models with downstream risk. And then third is being able to continue to serve more acute services inside the home.

Well, great. Well, we are just at the top of the hour and out of time, so Bruce, Amy, thank you guys so much for joining us today. And if you have any questions, feel free to reach out to myself or my team and we'll try to be as responsive as we can. So thanks again, guys. Really appreciate you joining us today.

All right. [indiscernible] Thank you, and well done. Bye-bye.

Thank you.

Thank you.