By Karen O’Hara
Humana Inc. has agreed to acquire privately held Concentra, a leading national clinic network, for $790 million in a cash transaction that was expected to close in December pending regulatory approval.
Concentra provides occupational medicine, urgent care, rehabilitation, and wellness services through more than 300 centers in 42 states and 240 onsite clinics. The company, with headquarters in Addison, Texas, reports approximately $800 million in annual revenue.
Concentra announced it would operate as a Humana business unit while retaining its brand name, leadership team, Auto Injury Solutions division, and headquarters in Texas. “We are extremely impressed with Humana’s leadership team,” Concentra CEO Jim Greenwood said in an interview. “Of all the organizations we encountered during this process, the cultural fit was the best with Humana. They want to make a difference and are very innovative.”
Humana, based in Louisville, KY, is one of the nation’s largest publicly traded health benefits companies. It offers a broad range of health, pharmacy, and supplemental benefit plans for employer groups, individuals, and government programs, including a large Medicare population. Humana reports it has more than 10 million medical members and 7 million specialty members, approximately 3 million of whom live near a Concentra center. “They are focused on the Medicare space in terms of overall membership but also are big believers in wellness, prevention, and urgent care,” Mr. Greenwood said.
Concentra made a major change in its delivery model in 2008 when the company added urgent care services to its occupational medicine centers. At the time, W. Tom Fogarty, M.D., chief medical officer, said the company wanted to provide a convenient, lower-cost option for personal care and non-emergent cases that often default to busy hospital emergency departments.
Mr. Greenwood said a potential acquisition by a major health benefits organization such as Humana was not envisioned when the delivery model was transitioned. “We added urgent care because there was a real need and there was so much capital flowing into that area,” he explained. “Urgent care is a very fragmented market. In a lot of ways, it reminds me of how occupational health was not all that long ago. The fact that we expanded into urgent care clearly helped Humana be interested in us.”
Expansion Plans
While some changes are expected as the two organizations align processes, the companies offered the assurance that most clients and patients “should not experience any disruption in service.” Humana reportedly wants Concentra to grow occupational health and urgent care market share in a “prudent manner” while further leveraging the expertise of its medical and leadership teams.
Mr. Greenwood said Humana values Concentra’s ability to manage medical practices, along with its focus on evidence-based medicine and outcomes measurement and its geographic footprint. Conversely, the pending sale will relieve Concentra of its equity debt load and open up access to Humana’s deep resources, which will enable the company to invest more aggressively in technological infrastructure, strategic expansion, and product line development.
“For example, as leases expire, we are evaluating every single clinic to see if we can relocate it, keep the core occupational medicine business intact by putting it on a busy street and also grow the urgent care side of the practice,” Mr. Greenwood said. “As a private equity practice, we had financial constraints. (Humana) will give us an opportunity to accelerate more quickly, become more visible in our current markets and follow up on promising acquisitions,” such as in regions where Humana has a strong presence and Concentra does not. Mr. Greenwood said it was premature to discuss specific locations where Concentra could potentially establish clinics.
With respect to wellness offerings, Concentra is experiencing the most traction in companies where it has worksite-based operations. Mr. Greenwood said he anticipates an increase in requests for population health and disease management initiatives from employers, brokers, and consultants. Meanwhile, the company will continue to cultivate relationships with local specialists and hospitals. “Specialists and family physicians want to have close relationships with us because we are a referral source,” said Mr. Greenwood. He also noted that Humana’s positive reputation should be an attribute in dealings with local health systems.
Eye on Diversification
WCompany representatives and analysts said the acquisition is intended to help Humana diversify in response to national health reform and demand for access to primary care providers. In general, health plans improve their profit margin when patients are effectively treated at the primary care level, reducing the need for specialty care and high-end diagnostics.
Revenue diversification will help Humana reduce its exposure to healthcare overhaul regulations, which compress insurers’ profits from the sale of benefit plans, according to Zacks Investment Research (www.zacks.com). A key aspect of Humana’s strategy is to manage medical costs below those of government-run Medicare. Greater involvement with clinics such as those run by Concentra could help it achieve this goal by encouraging members to seek preventive services, analysts said.
Michael McCallister, Humana’s chairman of the board and chief executive officer, said Concentra’s delivery model fits well with Humana’s consumer-driven focus and will allow both organizations to provide “convenient and affordable high-quality health care.”
In a statement, Mr. McCallister said: “We are excited about the opportunity to acquire a strong standalone business that reinforces our core businesses while providing both revenue diversification and opportunities for strategic expansion long term.”
Prior to announcing the acquisition, Mr. McCallister indicated to analysts at the company’s investor day that Humana, which once ran hospitals, may be interested in returning to the business of providing care, Business Insurance reported. The Concentra transaction was expected to add slightly to Humana’s earnings in 2011. VISIONS’ request for an interview with Mr. McCallister was referred to Humana’s public relations department, which agreed to answer some questions in writing.
Q&A With Humana
Q: What percentage of the approximately 3 million Humana members in proximity to Concentra centers do you expect to access them in the first year and subsequent years, i.e., what impact is the acquisition expected to have on patient volumes?
A: We intend to promote Concentra locations to Humana members. This will be a gradual process.
Q: Do you anticipate Humana/Concentra will be acquiring additional clinics in key markets, and if so, how aggressive do you expect that growth to be?
A: Concentra has historically been an acquirer of small occupational medicine practices. We will evaluate the pace and character of future acquisition plans for strategic fit with Humana.
Q: How does Humana/Concentra plan to compete? What will be emphasized in terms of products, services, and marketing messages?
A: Concentra will continue to operate as it does today. Humana will work with Concentra’s management team (which is staying with Concentra) to explore opportunities to leverage each organization’s strengths.
Q: How do you envision the delivery model evolving in the next five years?
A: Concentra will continue to be a leader in the occupational health field.
Q: What impact do you believe the Concentra acquisition will have on the national trend toward consolidating occupational health and urgent care services?
A: Occupational health and urgent care are natural complements. We don’t anticipate that Humana’s acquisition of Concentra would change that market dynamic.
Source: Jim Tucker, Humana’s director of medical and public relations
