Humana Targets $1B From Cost Cuts, Productivity Push
The top executives of Humana Inc. are looking to generate $1 billion in value for the Louisville-based company by cutting jobs and spending, automating tasks and trimming or pausing certain investments. The money generated from these initiatives, they said Feb. 2, will go primarily to growing the company’s Medicare Advantage membership rolls and the group that comprises pharmacy, provider and clinical care services.
Speaking to analysts and investors after Humana reported a small fourth-quarter net loss on revenues of nearly $20 billion – adjusted for various items, EBITDA more than doubled year over year to $425 million – President and CEO Bruce Broussard and CFO Susan Diamond said they are looking to return Humana to what they call “industry-leading membership growth” without hurting its margins. In other words, they’re looking to invest but the money for that push needs to come from elsewhere in the company.
“We have already begun taking action to deliver on this commitment, including engaging external consultants to benchmark Humana's operating structure and initiating a deep dive into processes across the organization to ensure that we identify a comprehensive set of opportunities,” Diamond said.
Of the $1 billion target Broussard and Diamond detailed, about three-quarters will be in the form of savings of various types – the executives didn’t detail personnel cut estimates but did say they plan to trim vendor spending, look to automate a number of tasks and sell of parts of Humana’s real estate portfolio because of how the COVID-19 pandemic has changed work patterns – while the remainder will come from what they called “other value acceleration opportunities.” Those will include focusing on projects with the highest return potentials while cutting back on or altogether ending the funding of other initiatives.
Some of the hoped-for savings will begin to be realized this year, Diamond said, although it will become more apparent next year just how the individual components of the plan are contributing to the $1 billion. As for proceeds, Humana’s Medicare Advantage product, distribution and sales teams will be at the front of the line as will primary care services delivered in the home.
The latter segment ended 2021 with 206 centers, up from about 150 a year earlier thanks to both de novo projects and nine acquisitions. Growth this year and next is expected to push that number to between 280 and 300, Broussard said. As those facilities mature – which typically take three to five years – the Humana team expects them to generate between $2 million and $4 million each in annual EBITDA.
Shares of Humana (Ticker: HUM) rose nearly 3 percent in the regular session Feb. 1 and were up another 7 percent after hours to climb above $430. Over the past six months, however, they are still down about 5 percent.
