Humana Inc. (HUM) Earnings Call Transcript & Summary

Hi, everyone, and thank you for joining us today at day 1 of Morgan Stanley's Global Healthcare Conference. I'm Rivka Goldwasser, Morgan Stanley's healthcare services analyst. And before we get started, please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. The webcast is not for members of the press. And if you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley's sales representative. And with that out of the way, I'm very pleased to have our first speaker of the day, Bruce Broussard, CEO, of Humana who's here with me.

Bruce, Humana has been one of the best-performing stocks in our coverage universe and the best performer managed care. You have a unique perspective, both when you think about the Medicare Advantage market and also a very unique perspective during COVID. As we serve the population that is at a higher risk for COVID. And despite all the challenges, you've really demonstrated an ability to quickly adapt to the changing environment and to deliver services and care in different settings and to maintain key relationships. So with that in mind, I'll start the conversation with -- sort of if you can give us some color and context around where we are today in terms of utilization?

The -- we obviously saw a very significant decline in March and April, for that matter, down to 30% or so. And as we made our comments in the second quarter, we talked about that we saw continuing into mid-May. Then subsequently to mid-May, we began to see it starting to increase. And today, what I would say is our utilization is still a little below par, but still way above to where it was in the March and April time frame. And we continue to see that in, specifically, our Medicare area. Commercial is a little bit higher than that. But for overall, we see us getting just a little bit below what par was originally.

So when we think about utilization trends compared to pre-COVID baseline, you're saying a little bit below, how is it compared to your expectation? There's a lot of discussion in the marketplace in what type of recovery we are seeing. So with the information that you have to date, what do you expect recovery -- now with more information, recovery would look like?

I would say we continue to -- it is within the range that we articulated in our second quarter call. So we don't see a lot of surprises there. And so I would say, as we've managed through this, that it's meeting our expectations.

And then when we think about 2021 enrollment, how is COVID shaping your open enrollment go-to-market approach? And maybe a good place to start there is first of, how do you think about the 2021 bids? You talked about the prudent approach for trend in 2021, but what's the baseline that you are using to determine what is trend? And how do you think about it kind of like growing?

Interesting question, to be honest with you. But for us, what we've done is we've taken a lot of the historical aspects prior to COVID and really studied those trends and utilized a lot of our bid assumptions around what we would sort of forecast off of pre-COVID trends. And then what we did is we did a lot of scenario planning around if COVID was to remain, what it would do for utilization, what it would do for testing, what it would do for circumstances around treatment. And we came to the conclusion in many different ways that if we utilize our historical information and be able to trend that forward, it would be a good position to go from -- as we'd like to touch all the different angles there. And we were very prudent in our pricing. I would say that we were very oriented to pricing that was more conservative as we thought about the approach.

And when we think about the go-to-market approach, kind of like the fact that it's more difficult to have that interaction...

We, over the last number of years, have been investing in an omnichannel approach. What I mean by that is being able to leverage telesales and partners that have telesales and our internal telesales, our -- obviously, our ability to go in the home and into the community is another and then digital. And we see all 3 of those being some avenues, depending on the geographical location as being an opportunity. Obviously, telesales and digital will be more -- probably a larger channel this year as a result of some of the concerns individuals have around the safety of someone going into their home and going out to the community. But we are very prepared. We've made a lot of investments in both the digital side and telesales side, we've really created the ability to allow it to be customized to the needs of our customer. And so we are we -- we actually think that this circumstance is accelerating a lot of trends that we saw in the past, and it really has both encouraged us but also reconfirmed the strategy that we have had that an omnichannel approach with our customers is the most effective.

Just to pause here. [Operator Instructions]. So Bruce, you talked about digital in innovative ways to reach individuals and that's actually an area of topics that I think we're going to address later on in our conversation today. You really kind of like touched about how -- what you're seeing recently has just reaffirmed your strategy. So really, when you think about COVID and the profound impact that it's having on the U.S. health care system, how have the last 6 months shaped your views in terms of, not necessarily changes to strategy, but what are the strategic priorities?

Yes. I would say, it's amazing what it's done. I mean this conversation that we're having today is a great example of that. And -- but the impact overall on health care, just as you said, has reconfirmed our strategy, big believer in value-based payment models. And we've seen in this particular circumstance, where providers had a value-based relationship with us, their cash flow is much better, much stabler. But more importantly, their motivation to be outreaching to the member, to have a relationship beyond the treatment was really profound in how they were able to navigate through the health care system. That outreach has evolved as we were just talking about our distribution side to be much more digitally enabled. So it's -- telehealth, obviously, was a large part of that. Remote monitoring is another part of that. Home is another part of that. And what we've seen is, is that the convenience of noninstitutional care and, for this particular circumstances, the safety has really accelerated this ability to reach beyond normal institutional line. As I mentioned, the Home has become another place where it once was this Home Health and it was traded in the fee-for-service environment. We're seeing home as being an accelerator to bring care to them that is maybe a little more acute in services that's been -- versus in the past. And then the last we saw is the social determinants. We served them over 1 million meals during this period of time. We had a significant outreach on social isolation. We've had a lot of assistance in being able to fill prescriptions, not only in the mail order and getting them home, but also just ensuring that they can afford them. And so we've seen this acceleration of the use of social determinants, which I do have to say, Medicare Advantage has been advanced in that, and including that in the ability to design and the motivation to include it in the design of the plans.

So when we think about all these different areas, whether it's Home Health or help with prescriptions or telehealth, partnerships have been a cornerstone of your long-term strategy. I think that is really one of the things that is a differentiator when you think about Humana. So how do you see senior care being delivered longer term? And what is the criteria that you're using when you think about build versus buy versus partner?

Yes. We have a very -- when we think about the orientation, I think we think about 2 things. We think about where it's being delivered and who it's delivering by. And we believe that over time, continues to move from a specialist-based health care system to continuing to push lower level. And then in addition to being institutional to being delivered in the home or being delivered digitally. So that trend continues to be what we orient to. In that, what we continue to believe in is the ability in our areas that we have focused on that have the long most -- the biggest impact on health care cost, and that's around primary care, around the ability to do it in the home, around social determinants of health, behavioral health and pharmacy. And we we're spending a lot of money and time on that and also being able to do that in a way that's integrated together. And so our investments in clinics, primary care clinics around the senior, where it's dedicated to them as opposed to just primary care and sometimes people get confused about our primary care strategy. It's much more senior-oriented, much more built from the ground up because these are value-based clinics that are also oriented to the needs of the senior. The ability to build the Home and have a distribution channel of nurses, being able to go into the home and also physicians are 2 primary areas that we see; and then the third is technology. And so you've seen us try to maybe punch a little bit above our weight level here and that to look at the ability to utilize other people's both skills and capabilities as well as capital. So you see on the technology side, a lot of partnerships around Salesforce, Microsoft and Amazon and Google. And we have a lot of those assistants. IBM is the ability for us to leverage technology, leverage their skill sets, obviously, leverage things like cloud and so on, to bring more contemporary and quicker technology to the table. On the partnerships, you've seen us utilize private equity firms for 2 reasons. One is a little bit of capital. I think capital is 1 opportunity. Obviously, these earlier startups also incur losses and it allows us to keep the losses off the income statement and the risk profile of that investment. But third is also it allows us to utilize a governance structure that's much more dedicated and we're able to utilize the knowledge of Board of Directors to be able to keep focused. Because what we find in large organizations is that innovation sort of gets pushed aside as a result of the here-and-now of the short term. And by keeping a self-contained unit, whether it's Kindred, our partners in primary care platform and some of the other -- Heal is another example of that. These have allowed us to be able to be innovative, be able to keep it away from the large sort of engine of the main organization and at the same time, to be able to scale it by utilizing others' capital.

And we got some questions coming in here. I'll start with the first question, it relates to the technology side. Can you talk a little bit about data privacy when it comes to increasing usage of digital in tele?

On telehealth specifically? Or just in general?

In digital, as we think about these digital platforms.

Yes, yes, yes. Well, I would say the privacy is utmost important for health care as we think about both inside the walls of the organization and external to -- through interoperability of the organization. We have spent a lot of time in -- both in partnership with Microsoft, but in addition, more specifically, internally, leveraging some of the other industry-wide technologies out there that are specific for health care. And what we have found is that it is greater than what the standards are on security sort of in the general business world, and we have had to invest much more significantly to allow that privacy to happen. Currently, we also are very concerned about how much we put in the cloud versus how much we keep on-premise. And so what you see the organization working on is sort of a split where the important information is kept on-premise, while the cloud information is less important, and the security is allowed to be maybe a little less than what you would do on a very HIPAA-compliant area. But what we're seeing is this technology is really advancing in the ability to utilize security and wrap around the elements of the individual's information. Second part is what information do you collect? And what information do you share? And I think a lot of the regulations around HIPAA have helped set that up. But some of that is restrictive in today's world. And I think you'll see a continued evolution of what those laws look like, specialized interoperability becomes more and more important in what -- in how we interface within the health care system.