How did Humana’s healthcare services business perform in 4Q14?

Healthcare services

Humana’s (HUM) healthcare services segment offers pharmacy solutions, health provider services, home-based services, behavioral health services, and technology services. It mainly caters to other Humana businesses and to external health plan members.

How did Humana’s healthcare services business perform in 4Q14?

The above graph shows that Humana’s pharmacy solutions account for about 85.5% of the segment’s revenue, while provider services, home-based services, and behavioral health services each accounted for 10%, 3.9%, and 0.6% of Humana’s revenues, respectively.

Though the healthcare services segment earned about $5.3 billion in revenue, about $5.0 billion is due to services provided to other segments in Humana. So this revenue is actually a proxy for the additional expenses the company would have to bear if it had not invested in the healthcare services business.

Pharmacy solutions

Humana’s pharmacy solutions business manages prescription drug coverage for Humana’s PDP (prescription drug plans) by entering into contracts with more than 60,000 retail pharmacies, including independent pharmacies and major chains across the US.

Humana also operates RightSource, a mail-order pharmacy that ships prescription drugs directly to customers and eliminates the need for human intervention. In 4Q 2014, about 22.9% of the total prescription drugs required by Humana’s enrollees were sourced from RightSource.

Humana is also encouraging the use of less costly generic drugs instead of specialty-branded drugs. The generic dispensing rate, or the percentage of generic drugs among the total drugs ordered, increased from 85.7% in 4Q 2013 to 87.3% in 4Q 2014.

Provider services

Managed care organizations such as Humana, Aetna (AET), Cigna (CI), and UnitedHealth Group (UNH) also provide health provider services such as primary care, urgent care, occupational medicine, and other wellness services to ensure the overall health and wellness of their enrollees.

The private health insurance industry (XLV), has been acquiring health provider facilities for controlling enrollees’ hospitalization expenses. Humana’s operates medical centers, especially in Florida and Texas, to serve its Medicare and Medicaid enrollees.

Other services

Plus, Humana also provides other services—such as behavioral health services, home care services, and technology solutions—to provide quality care to the company’s enrollees at optimal costs.