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Humana said Wednesday that higher-than-expected medical costs haven’t let up and are likely to continue through the second half of the year, in the company’s first quarter with new CEO Jim Rechtin at the helm.
The national health insurer, which is the second largest provider of Medicare Advantage plans behind UnitedHealthcare, said it’s dealing with higher inpatient hospital admissions among seniors, likely due to a policy change that’s driving up costs for hospital stays. Its shares $HUM fell 9% on Wednesday, even though it boosted revenue guidance for the year.
In all, Humana reported revenue of $29.5 billion in the second quarter, up 10% over the same period a year ago, and net income of $678 million, down 29%. Its membership decreased 5% to 16.3 million year over year.
Humana in January warned investors that 2024 would be challenging. It slashed its profit projections that month because of rising medical costs, and said it would need to cut benefits and shut down health plans in certain geographies, potentially denting membership by a “few hundred thousand” in 2025. Humana’s stock price is down about 21% since the beginning of the year.
Rechtin on Wednesday acknowledged “frustration with the volatility” Humana has been experiencing.
“The external environment has certainly been difficult,” he said. “However, the message I want to keep driving home is that we need to see the external environment for what it is: It’s context. We need to shape it to the degree that we can, and we otherwise need to be focused on the things that we control within that context. That’s our product, it’s our pricing, it’s our clinical capabilities, it’s admin costs and it’s growing our business.”
He hasn’t yet laid out any sweeping changes for the insurer, but many of his comments on the earnings call had to do with cutting costs, largely through using technology to automate specialty pharmacy and insurance processes, and getting the company in the habit of measuring performance over several years to deliver more consistency.
“When you think about the nature of this business and what technology can do to take cost out over time, there is still more opportunity,” he said.
Rechtin pointed to a new partnership with Google Cloud to leverage artificial intelligence to reduce costs and improve members’ experience, though details on the initiative were sparse. Humana also recently invested in Healthpilot, a startup that uses AI to help people shop for Medicare Advantage plans.
Though Humana has pushed deep into delivering medical care directly to patients through primary care clinics and a home care company, Rechtin gave only a passing mention of those efforts when he reminded analysts of Humana’s agreement to lease 23 former Walmart Health centers.
In prepared remarks published to Humana’s website, the company said those locations were chosen because they complement the insurer’s existing footprint and had similar floor plans to its other clinics, making it a capital-efficient investment. It expects the clinics, which will serve only seniors, to open by the first half of 2025.
Humana expects its Centerwell clinics to bring on as many as 50,000 new primary care patients this year. As of June 30, Humana had 299 clinics serving nearly 268,000 patients.