Humana Inc. (HUM), the second-biggest private Medicare insurer, agreed to buy medical provider Metropolitan Health Networks Inc. (MDF) for about $500 million as the company expands beyond paying claims into delivering care.
Humana also reported third-quarter profit that fell less than analysts estimated, raised its earnings forecast for the year and said President Bruce Broussard, previously announced as the incoming chief executive officer, will take over Jan. 1. Humana will pay off $350 million of Metropolitan debt, valuing the deal at $850 million.
Stockholders of Boca Raton, Florida-based Metropolitan Health will receive $11.25 a share in cash, the companies said in a statement today. The price is 3.7 percent above Metropolitan Health’s closing level Nov. 2. Louisville, Kentucky-based Humana also will buy a company that helps doctors share patient records and a stake in another medical provider.
The purchase of Metropolitan Health is Humana’s latest foray into providing medical services, as the insurer seeks more levers to control rising costs in Medicare, the U.S.-backed program for the elderly. The company bought Concentra Inc. for $790 million in 2010, adding 300 health clinics in 40 states, and since then has also invested in urgent-care clinics, a home- care company and other providers.
The deal is “strategically the right move” and showcases Broussard’s growth strategy, said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, in an e-mail. “All the moves drive Humana’s prowess further up in coordinated care management and delivery which in our view is critical for the success” of private insurers covering Medicare patients.
Shares of Metropolitan Health, already a contractor with Humana, had risen 45 percent this year through last week, and investors had likely “priced in” some type of acquisition, Gupte said. The stock gained 2.7 percent to $11.14 at 9:41 a.m. New York time.
Humana fell 1.4 percent to $74.18. The shares had lost 14 percent this year through yesterday.
Metropolitan Health had $323.5 million in long-term liabilities (MDF) and debt as of June 30, according to data compiled by Bloomberg.
The acquisition gives Humana a company with experience coordinating care for 87,500 customers mostly covered by Medicare and Medicaid, the joint state-federal program covering the poor. Both are expected to grow as the U.S. population ages and government services expand under the 2010 health-care law passed by Congress.
The three deals announced today “significantly advanced our strategy of aligning physician pay to quality,” Broussard said in a statement. Combined with previous acquisitions, “Humana will soon employ or have strategic investments in medical practices that include nearly 2,300 physicians nationwide.”
The purchase of Metropolitan Health is expected to close in next year’s first quarter.
Humana also agreed to buy (HUM) San Jose, California-based Certify Data Systems, a health-information exchange company that helps doctors share electronic medical records, and purchased a non-controlling equity interest in MCCI Holdings LLC, another care provider that primarily serves Medicare and Medicaid members in Florida and Texas. Terms of those deals weren’t disclosed. Humana said the acquisitions would increase earnings “modestly” in 2013.
Third-quarter profit fell 4 percent as Humana continued to grapple with higher-than-expected medical costs.
Net income (HUM) fell to $426 million, or $2.62 a share, from $444.8 million, or $2.67, a year earlier. The results beat the $2.05 average of 20 analyst estimates compiled by Bloomberg.
The company raised its 2012 profit forecast to $7.25 to $7.35 a share, after cutting its outlook in June due to rising costs. Analysts had estimated an average of $7.11.
Humana said last year that Broussard, 50, would succeed Michael McCallister, who is retiring after 12 years as CEO.