Humana's Centerwell, WCAS commit $1.2B to value-based primary care

Humana's CenterWell Senior Primary Care and Welsh, Carson, Anderson & Stowe formed a second joint venture to invest $1.2 billion behind 100 new primary care clinics for older adults.

Why it matters: The deal is a validation of the unmet need for access and attention to value-based primary care, even as public comps — all of a different flavor — witness massive volatility.

• It's also a testament to investors' long-term confidence around the category, and the role that the payors will play in delivering care.
• The build-from-scratch playbook reflects the scarcity of opportunity to invest in existing scale players in the space, or rather, rationally deploy capital. (Heritage Provider Network a notable exception.)

Details: The $1.2 billion earmarked for new clinics follows a previous JV between the parties, which is currently putting to work as much as $800 million to open 67 clinics by early 2023 — amounting to a combined $2 billion commitment.

• The clinics will operate under the CenterWell brand, receiving performance-based incentives.
• WCAS will have majority ownership of the JV, with Humana taking a minority stake.
• Humana has the option to buy out WCAS's stake in the JV starting in 2028, whereas WCAS may require Humana to buy its interest in the JV beginning in 2030.

Be smart: This is a clever way for Humana to double down on primary care for Medicare patients, without eating the losses, while being in a position to control the assets once profitable.

• The reality? It takes a long time for new clinics to reach profitability, and WCAS essentially provides a way to fund and scale the capital investment in this business. "The capital intensity of these businesses is not to be taken lightly," as one source puts it.
• If Humana, for example, were to try and buy an existing player like Oak Street, it would have to eat major operating losses — and the public market is sensitive to that.

State of play: The COVID-fueled evolution towards hybrid in-person and virtual care models means physician networks can manage bigger populations.

• Importantly, the JV isn't creating Humana-only clinics. CenterWell partners with multiple payors, such that all insurers benefit from its full capitation model.

By the numbers: The JV with the new capital commitment aims to develop the 100 new clinics between 2023 and 2025 — and operate them to profitability.

• Humana's primary care organization encompassed 214 senior-focused primary care clinics as of the end of March — 37 of which are affiliated with the JV.
• It expects to add 30 to 50 clinics annually, reaching 250 by year-end.
• Humana's 214 clinics today (including both its CenterWell and Conviva Care Solutions brands) serve approximately 180,000 patients in Medicare value-based arrangements, and 58,000 under IPA arrangements via Conviva.

The bottom line: The market can support thousands of value-based clinics, and Humana-WCAS may have found a way to achieve scale.