Dark Times Ahead

Strange Tony,

Kindred at Home executives will likely impose cuts in the coming months.  New owners prefer painful measures occur before they take over. 

This happened to our hospice when Kindred aggressively pursued Gentiva in 2014.  Gentiva executives undertook a number of initiatives to optimize financials.  A few cost cutting measures harmed employees but most damaged patient care.  Kindred undid many of these absurd moves after taking over in February 2015, but it kept in place employee benefit cuts.

Our new Kindred AVP heard feedback from hospice staff and deduced Kindred at Home President David Causby must be an a--hole.  That was his exact word.  The VP said they'd never met Causby but based on what they'd heard from employees that statement must be true.  Gentiva COO Causby rose to Kindred at Home President and will remain in that role under the majority private equity owned consortium.

In July 2014 a former founder of a for-profit hospice shared his concerns about hospice private equity ownership:

“I don’t think the entrance of venture capital and private equity into the hospice world in a very aggressive way is good for what hospice is about and tries to do,” he said. “I think it’s a threat.”

He saw investor groups eyeing hospices not as he did—“it’s my life’s work”—but strictly for short-term gains: “Programs have been started so they can run for a year and be sold, so somebody can make money flipping them and go to the next place and start again.”  

Generic Hospice wrote about the same threat in November 2014.   Kindred's home health, hospice and community care division will be 60% owned by private equity firms and Humana will hold 40%.

TPG Capital and Welsh, Carson, Anderson and Stowe expect to make significant money from their Kindred stake.  Humana can acquire all of Kindred over a five year period.

Kindred employees may see Humana as the most benevolent party in the ownership group.  That may not be true.  Humana cut nearly 6% of its workforce (2,700 employees)  in the third quarter of 2017.  The company took a $124 million restructuring charge in the third quarter.  They did so in a period of exceptional financial results.  I'm sure the eliminated Humana employees felt differently about the company's outperformance.

In December 2017 Humana announced a $3 billion stock buyback through 2020.  The amount increased from $2.25 billion.

In mid January 2018 Humana announced bonuses and raises of an unspecified amount for an unspecified number of its employees.  

News reports say Humana is also considering passing cash back to shareholders via a special dividend.  The Louisville newspaper reported cash engorged Humana is looking for acquisitions.  It cited the Humana-Kindred deal which creates a transformative clinical model serving Humana's members in the home.

If Humana is flush with cash why did it partner with two private equity firms to buy Kindred at Home?  Why would it take a minority stake and engineer a complex five year buyout scenario for a critical corporate strategy?  It doesn't make sense.

The future of our hospice darkens under majority private equity ownership.  There are no signs of 2018 raises, much less bonuses.  Kindred currently has $250 million in cash that will likely go to executives, board members and our new majority private equity owners.  

Hospice employees hold on.  The ride could turn rough soon.

Anonymous (still waiting for a crumb from the executive table)