Humana : Investor Day Transcript 360 KB

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HUM - Humana Inc Investor Day

EVENT DATE/TIME: MARCH 19, 2019 / 12:30PM GMT

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CORPORATE PARTICIPANTS

Amy K. SmithHumana Inc. - VP of IR

Brent DensfordHumana Inc. - SVP, President, Humana Military

Brian Andrew KaneHumana Inc. - CFO

Brian Phillip LeClaireHumana Inc. - Chief Information OfficerBruce Dale BroussardHumana Inc. - President, CEO & Director

Christopher Howal HunterHumana Inc. - Segment President of Group BusinessGeorge RenaudinHumana Inc. - SVP of Medicare East & Provider

Heather CoxHumana Inc. - Chief Digital Health & Analytics Officer

Renee Jacqueline BuckinghamHumana Inc. - President of Care Delivery OrganizationT. Alan WheatleyHumana Inc. - Segment President of Retail

Vicki PerrymanHumana Inc - SVP, Consumer and Provider Service SolutionsVishal AgrawalHumana Inc. - Chief Strategy & Corporate Development OfficerWilliam Kevin FlemingHumana Inc. - Segment President of Healthcare Services

CONFERENCE CALL PARTICIPANTS

Albert J. William RiceCrédit Suisse AG, Research Division - Research Analyst

Anagha A. GupteSVB Leerink LLC, Research Division - MD of Healthcare Services & Senior Research AnalystCharles RhyeeCowen and Company, LLC, Research Division - MD and Senior Research Analyst

Gary Paul TaylorJP Morgan Chase & Co, Research Division - Analyst

Justin LakeWolfe Research, LLC - MD & Senior Healthcare Services Analyst

Kevin Mark FischbeckBofA Merrill Lynch, Research Division - MD in Equity ResearchMatthew Richard BorschBMO Capital Markets Equity Research - Research AnalystPeter Heinz CostaWells Fargo Securities, LLC, Research Division - MD and Senior AnalystRalph GiacobbeCitigroup Inc, Research Division - Director

Sarah Elizabeth JamesPiper Jaffray Companies, Research Division - Senior Research AnalystScott J. FidelStephens Inc., Research Division - MD & Analyst

Steven James ValiquetteBarclays Bank PLC, Research Division - Research Analyst

Zachary William SopcakMorgan Stanley, Research Division - VP on the Healthcare Services and Distribution Team

PRESENTATION

Amy K. Smith- Humana Inc. - VP of IR

Good morning. Thank you for joining us today for Humana's 2019 Investor Day. We're very appreciative for you all being here in the room, and for those watching on the webcast, we thank you as well.

I have a few housekeeping items for you today. Our agenda is here. It's in the books at the tables. For those of you in the room and online, you should be seeing it on your screen, and I believe you can download the slides.

So this is the agenda of the day. We will have Q&A sessions. So we will pass around some microphones if you want to ask questions after certain of the panels. We do ask that you try to ask questions that are related to the topics the panel discussed, and then Bruce and Brian will be available at the end of the day Q&A as well for some of your more broad questions.

Our cautionary statement, we do include certain measures that are not in accordance with generally accepted accounting principles. And so we encourage you to look at our GAAP to non-GAAP reconciliations that are included in the back of the presentation.

After the presentations today, for those of you that are here with us, we will have lunch available in [Siebert] Hall. And then we'll come back in this room and spread out, and you'll be able to eat lunch with the leaders. So we look forward to that. And as I said, we'll go straight through the day with no breaks, so please feel free to exit the room if you need to.

And I think, with that, we will get started. Thank you.

(presentation)

Bruce Dale Broussard- Humana Inc. - President, CEO & Director

Well, good morning. Thanks for being here. There's -- excuse me, there's 2 words that I want you guys to think about throughout the day that was in that video: health outcomes. As we think about sustainable growth for our business and we think about delivering value for our shareholders, we think about health outcomes because we believe in the industry today that the way you grow and the way you deliver value is by improving people's health.

And so as we think about the industry, we think about it's an industry of great opportunity. It's an industry that has demographic growth, both in population but also significant challenges. The complexity of health care, the cost of health care is driving society's biggest issue. But at the same time, we also would believe we're at a juncture in health care, a juncture that there are convergence happening in the industry that can help solve those problems.

We also believe, and you'll see it through the day, that Humana is well positioned to take advantage of that industry. As you think about our strategy, its first foundation is a long-standing history in treating aging and the ability to focus on complex chronic conditions. That is our heritage, but as importantly, it's our focus. Every day, 50,000 people get up and focus on that one issue, how do we help complex chronic individuals that are aging.

As this video pointed out, it started early in our existence back in the '60s when we were a nursing home organization and has grown over the years, but it is at the heart of what Humana is about but not only our deep, rich understanding of the industry, but also the strategy that we are focused on and oriented to.

First, it is about the holistic health of a member. It's our operating model. But as importantly you'll see today, it's the payment model that incentivizes that orientation.

Second, it is about the ability to personalize and simplify the experience. And what's so important about that is the ability to have trust with our members to engage in their holistic health.

Third is the ability to create personalized and simplified experience through the ability to integrate a health ecosystem across key areas that influence the cost and the health outcomes of our members.

And what you'll see today in these 3 different areas come alive in different aspects, they will come alive in our discussion about our core business and what we're doing and the great improvement we've seen since the last time we got together, to the investments we're making to bring thisalive in technology and clinical capabilities and people. And you all will also see it in the culture of the organization in the way it operates and acts on a daily basis.

We appreciate you being here, and we know you are here for one reason, and that's to understand the investment thesis of our organization. If you can -- as you can see, the last number of years have been great years for Humana, growing at a compounded annual growth rate of about 18% on an earnings per share basis through some tough, tough times, decreasing rates as a result of ACA, a broken merger with Aetna and some further public policy changes that have put stress on the industry.

But our strong position in the industry, our orientation to health outcomes that is the solution for the complexity and the cost of the industry, oriented with a strong operating model have carried us through the day. In addition, as we see the future and what you will take away from today is what we build and are building will carry us not only to the operating model of today, Medicare Advantage, but an opportunity to expand into Medicaid, the opportunity to be able to expand into TRICARE and other payment models that are oriented to delivering health outcomes.

We got together 2 years ago and discussed the strategy subsequent to the Aetna break. That strategy was very consistent, albeit matured in its development, what we've been talking about for the last decade: integrated care. But we've made great progress since that period of time. You will see today our ability to personalize and simplify the experience has greatly evolved. You'll see our investments in our clinical capabilities around these key areas of influence for health care has built a great platform for the future. And you'll see technology that we've invested in and built that enables the integration, the personalization and the proactive care as a platform for the future.

Now I'd like to step back for a minute and talk a little bit about the industry. And you guys are the experts in the industry, but I want to set context of our view of the industry. We all know that health care costs are crowding out consumer discretionary income, are crowding out dollars employers can invest. It's crowding out federal and state budgets as a result of the significant growth from demographic growth, our changes in health conditions and, in addition, the inefficiencies of the system.

The inefficiencies of the system, because of its complexity, because of the incentives around fee-for-service, it's created an industry that is oriented to being siloed, being paid on volume, being oriented to institutions versus consumers and not paid on health outcomes. And as we think about that industry, what we see is there's a shining star inside that industry of Medicare Advantage.

Medicare Advantage has proven significant benefits as an example of a model that can solve a significant amount of the complexity and cost in the health care system. We see that both on who is paying, the government in this particular case, and who's receiving, the consumer. And we see great support, both at the consumer level, congressional level and the administrative level for Medicare Advantage.

What we've seen is there's also people who are voting with their feet. We've seen significant increase in a time of significant change in Medicare Advantage. Whether you look at the numbers from 2014 to now, it has grown by 7 million members, forecasted to grow at a low of 7 million for the next 7 years and a high of 13 million. We've seen great penetration in the industry when there was a forecast in 2010 that you were going to see a reduction in MA.

So consumers are voting with their feet. And the reason why they're voting with their feet is there are some structural aspects of the industry that drive this orientation to health outcomes. First, it's a consumer-oriented model, not an institutional-oriented model. It's a demand versus supply model. The individual that's making the decision is not the employer, it's not the government, it's the individual that is looking for the care.

The second thing is payment is at the holistic health that allows companies like Humana to not only worry about someone's health care journey and the health care cost, but allows them to worry about their lifestyle. So if someone wants to go to primary care or a specialist or a hospital, we are there to assist them. But if they need a bar in their shower for support, we're there to help them. Because we are incentivized for the total health of somebody as opposed to the individual health.

Another key aspect of Medicare Advantage is that it rewards people for taking care of the sick, the vulnerable through the payment model of risk adjustment. It also rewards for quality and cost. And as we see where health care is going, we see that Medicare Advantage proven over many years as a model that allows for population health, allows for consumer centricity and the integration of the health care system.

But what we do see is that there is an evolution going on in Medicare Advantage, first moving from waiting for someone to show up in the health care system and how do we help them navigate through the most cost-effective care model, to assisting them early on and preventing them the need to use the health care system. And this is truly an example of health outcomes, the progression of disease.

The example that we've outlined here is an example of real data from Humana. And the green line is what we know we can do in assisting people and engaging in their health and slowing that disease progression, that their life is better and the cost and the clinical outcomes are better. And there is significant value for society, and there is significant value for our organization in achieving that.

But this operating model is not an operating model that is built on just managing the transaction, it's built on having a relationship with somebody that is personalized and simplified. It's having partnerships and own clinical capabilities that are integrated together that is proactively managed. Interventions are given prior to the need of them showing up at the health care system.

And so as we set our targets of where the organization is going, it's about how do we help people in their disease progression. And what you're going to take away from is the initiatives that we have in being able to manage the holistic aspect of the individual, the technology we're rolling out, the analytics we're oriented to, our partnerships with providers and the integration of that is all oriented to how do we slow disease progression.

I mentioned at the beginning that we're at this juncture in health care that we are very excited about. There is convergence happening in health care that is going to facilitate this evolution. We see customer preferences changing and being more demanding, "[Brian], make it simple for me. Make it easier access points. Know me. Personalize the interaction." We also see providers beginning to evolve to being able to successfully manage value-based payment models.

A few weeks ago, I was with a chief medical officer for a large integrated health system, and we were talking about last year's performance. And they said that 75% of their profits this year came from value-based payment. I was with a primary care group in a large city talking to the leader there who made the same comment about the success that they're seeing in being able to manage through the assistance of Humana populations and being able to take risks.

So we're beginning to see that providers are now making the turn, the more sophisticated ones, when say it would be every provider making the turn to be able to manage population health. We are also seeing through concepts like Blue Button, FHIR API and other mechanisms that interoperability is starting to become more and more part of the conversation and becoming more and more part of the processes in health care.

And the velocity of information is going to reduce the silos in the health care system and the ability to proactively manage upstream in the health care system and downstream in an individual's health and be able to do it in a much more proactive basis. Complementing the interoperability is devices and telehealth, where we can become more proactive in monitoring somebody and be able to respond to them before they need the intervention.

And then lastly, we're starting to see genomics and genetics become more and more an opportunity in being able to personalize the science, make it much more deliverable -- delivered in a way that's important to the individual and the outcomes.

So we're seeing an industry that's broken, complex. We're seeing a system like Medicare Advantage rewarding holistic care. And we're seeing our strategy around managing large populations holistically, engaging on a personalized basis and integrating across the health care system as a platform for us to deliver the sustainable growth that you'll hear about today. But we've been building this for quite some time. This isn't a new phenomena. It's been a phenomenon that has been part of the company for quite some period, but we're seeing great maturity.

This integration of the health care service side with the insurance side, the clinical side with managing risk has shown some great success over the past number of years. Whether you look at our Medicare growth, you look at our Medicaid growth in a de novo way, you look at our growth in TRICARE and even some of our programs in commercial, driven by our health care service side, whether you look at primary care home, behavioral and our social determinants. And you will see today that these are not only at scale, but they're scaling.