Humana to buy Concentra for $790 million to diversify

NEW YORK Mon Nov 22, 2010 1:15pm EST

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NEW YORK (Reuters) - Health insurer Humana Inc (HUM.N) plans to buy privately held Concentra Inc, which runs medical centers and workplace health clinics, for about $790 million to diversify its business.

Humana, one of the largest providers of Medicare plans for the elderly, said the deal for Concentra would provide a new stand-alone business and pave the way for long-term strategic expansion.

The deal, which is expected to slightly add to profits next year, is the latest sign that insurers are looking to broaden beyond the business of providing benefits after the passage of the new healthcare overhaul this year.

Shares of Humana rose 3.5 percent after the deal was announced on Monday, outpacing increases for other health insurers as the group received a lift from the finalization of rules that govern spending on medical care.

The Concentra deal comes after Chief Executive Mike McCallister indicated to analysts last week at the company's investor day that Humana, which once also ran hospitals, may be interested in returning to the business of providing care.

"It's a vertical integration play that should help Humana better manage the medical costs of their existing membership, but it also opens up a new line of business for them outside of traditional managed care," said Chris Rigg, an analyst with Susquehanna Financial Group.

Addison, Texas-based Concentra, which has annual revenue of about $800 million, provides urgent care, physical therapy and wellness services from more than 300 medical centers in 42 states. It also operates more than 240 worksite medical facilities.

A key part of Humana's overall strategy is to manage medical costs below those of government-run Medicare. Greater involvement with clinics such as those run by Concentra could help toward this goal by encouraging members to seek preventive healthcare services, analysts said.

Humana is seeking to manage medical costs "by making sure people are taking the medicine they're supposed to take and visiting doctors when they're supposed to do it," said Joe France, an analyst with Gleacher & Co. "That requires a very hands-on, very proactive approach, and this obviously increases their reach."

The market for providing individual and employee-based health coverage is undergoing significant change under the new law, which could lead more insurers into providing care.

"Over time, it's the direction you're likely to see things go," Rigg said, although he cautioned that the Concentra deal was tantamount to "a toe in the water" compared to buying hospitals.

The Concentra transaction, which is projected to close in December, is expected to slightly add to Humana's earnings in 2011, although its impact was not included in Humana's financial forecast for next year that it gave last week.

Humana last week projected sharply lower 2011 profit as it expects more Americans to return to the doctor's office and sees lower margins on its Medicare plans.

Humana shares rose $1.96 to $57.99 in afternoon trading on the New York Stock Exchange.

(Reporting by Lewis Krauskopf and Esha Dey; Editing by Derek Caney)

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