May 2, 2018 / 10:41 AM / 6 months ago

Humana CEO emphasizes partnerships, no clues on a major deal

(Reuters) - The head of Humana Inc (HUM.N) on Wednesday said the U.S. health insurer is focused on corporate partnerships and small deals to create health clinics, curbing investor hopes of an imminent major transaction as the sector undergoes a seismic consolidation.

Chief Executive Officer Bruce Broussard was asked several questions about news reports the company had discussed a deal with retailer Wal-Mart Inc (WMT.N) during a 45-minute conference call to discuss better-than-expected first-quarter earnings.

He did not say if the company was seeking a transformative deal, instead saying was pleased with current partnerships, including Humana selling a Medicare prescription drug plan with Wal-Mart and a marketing arrangement for its Medicare Advantage plans for older people and the disabled.

Health insurers are trying to change changing their businesses in a bid to drive down soaring costs. Insurer Aetna Inc (AET.N) is being bought by CVS Health Corp (CVS.N) in a push toward cheaper medical services in CVS stores. Cigna Corp (CI.N) is buying pharmacy benefit manager Express Scripts Holding Co (ESRX.O).

Sticking to smaller deals, it teamed up last week with two private equity firms to buy privately held Curo Health Services for about $1.4 billion, the group’s second such deal in five months.

“We pride ourselves on partnerships in general,” Broussard said, adding that the benefit of partnering with a retailer is to provide to offer customers more places to get health care, he said.

“Today, we are looking at all different ways to build and develop clinics, both standalone and in retail centers,” he said. Currently, the company has clinics in retail centers, next to stores. “We’ll continue to look at that,” he said.

“I don’t think this rules out a deal in any way,” Leerink analyst Ana Gupte said, but investors are likely selling shares because they view the risk of a deal not happening as being higher.

Humana shares fell 1.8 percent to $289.80.

QUARTERLY PROFIT BEATS BUT ...

Humana reported first-quarter profit that beat expectations, helped by nonoperating items including its accounting for lower-than-expected medical claims during the fourth quarter.

Chief Financial Officer Brian Kane said on the call that flu costs came in lower than expected after infection rates peaked earlier than Humana had anticipated. That as well as lower overall medical use helped the bottom line.

The company said its medical benefit expense ratio — the percent of premiums spent on claims — improved to 84.9 percent from 85.2 percent a year earlier.

But the company reported that medical costs in its core direct-to-consumer Medicare Advantage business for seniors and the disabled were higher than estimated.

The medical benefit ratio for the so-called “retail” Medicare Advantage business was 87.4 percent, 80 basis points higher than Wall Street expected, according to Jefferies analyst David Windley.

Larger rivals UnitedHealth Group Inc (UNH.N) and Aetna Inc (AET.N) posted positive reports on April 17 and Tuesday, respectively.

Humana net income fell to $491 million, or $3.53 per share, in the quarter, from $1.12 billion, or $7.49 per share, a year earlier.

Last year’s results included a gain related to its terminated merger agreement with Aetna.

Excluding items, the company earned $3.36 per share, beating the average analyst estimate of $3.19, according to Thomson Reuters I/B/E/S.

Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Saumyadeb Chakrabarty and Jeffrey Benkoe

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