Susan M. Diamond
Chief Financial Officer at Humana
Thank you, Bruce, and good morning everyone. Today, we reported full year 2021 adjusted earnings per share of $20.64, slightly ahead of our expectations of approximately $20.50. As Bruce mentioned, despite the challenges we faced in 2021 due to the pandemic, our fundamentals remain strong with the underlying core business delivering solid results for the full year. Including the impact of an unmitigated net COVID headwind of $1, our adjusted EPS grew 11.6% off of our 2020 baseline of $18.50 and our individual Medicare Advantage membership grew 11%, outpacing the industry.
I will now take a few moments to discuss our fourth quarter results and underlying trends before turning to our expectations for 2022. We reported fourth quarter adjusted EPS of $1.24, slightly above internal expectations and consensus estimates. Fourth quarter results for the retail segment were largely in line with expectations. Total medical costs in our Medicare Advantage business ran approximately 1% below baseline during the fourth quarter, in line with the forecast we shared in early November.
While COVID utilization remain higher than initially expected due to the Omicron variant surge, we continue to see a corresponding reduction in non-COVID utilization through the end of 2021 and this trend has continued into early 2022. Although a smaller percentage of individuals that are infected with the Omicron variant require hospitalization as compared to previous surges, COVID admissions in recent weeks have been consistent with levels experienced in January 2021 due to the significantly higher rate of transmissibility of the Omicron variant.
With respect to the flu, trends remain favorable to expectations in the fourth quarter and have continued this pattern in the first few weeks of 2022. In our Group and Specialty segment, our results were slightly better than previous expectations for both our group medical and our specialty businesses. All-in utilization and our fully insured group medical business continued to run a bit above baseline but slightly better than our previous expectations. Our Specialty business results also outperformed as utilization particularly for dental services continued to run lower than anticipated. Finally, each of our healthcare services businesses performed consistent with expectations in the fourth quarter.
The integration of Kindred at Home operations remains on track and results post acquisition have emerged as anticipated. Fourth quarter 2021 home health admissions were up slightly while hospice experienced a low single-digit decline as compared to the fourth quarter of 2020. From a full year perspective, we have seen home health admissions up low single digits with hospice admissions down low single digits year-over-year. It is important to note that hospice volumes have been impacted by the higher mortality rates driven by COVID as well as lower post-acute facility volumes.
As I shared last quarter, we are closely monitoring admission and clinical staffing trends and are making targeted investments to sustainably improve the recruitment and retention of nurses to position the businesses for further growth as trends begin to normalize. We improved home health and hospice nurse retention by double digits in 2021, positively growing net nurse headcount in the second half of the year. We also reduced the number of nurses who attrit in the first 90 days of employment in the second half of 2021 for the first time since the pandemic began.
While we are pleased with this progress, we acknowledge that the labor market remains challenging, and there is more work to be done to further improve nurse satisfaction and retention. In our primary care organization, patient growth in our de novo centers exceeded expectations in 2021, increasing 68% year-over-year with these centers now serving over 20,000 patients. We expect this growth to continue into 2022. Finally, our pharmacy operations remain strong with industry-leading mail order penetration.
Amongst our individual Medicare Advantage members, 38% of scripts prescribed in 2021 were dispensed by Humana Pharmacies mail order business, which continues to increase year-over-year. In addition, in more mature center well clinics, we have seen mail order penetration rates for Humana members approach 50%. And when combined with prescriptions dispensed by co-located Humana retail pharmacies, total Humana Pharmacy market share can approach 60%. Our strong mail order volumes continue to highlight that members value the convenience and cost savings mail order delivery provides, which also leads to better medication adherence and health outcomes benefiting our members and health plan.
Before turning to our 2022 outlook, I would like to add to Bruce's earlier comments regarding our commitment to taking significant actions to create capacity for investments in our Medicare products, which will allow us to significantly improve membership growth in 2023 without impacting earnings growth. We have already begun taking action to deliver on this commitment, including engaging external consultants to benchmark Humana's operating structure and initiating a deep dive into processes across the organization to ensure that we identify a comprehensive set of opportunities. We are on a continuous journey of improvement and are confident in our ability to remain a leader in the Medicare Advantage industry and deliver on our long-term earnings growth target in 2022 and beyond.
Now turning to our 2022 expectations and related assumptions. Today, we are providing adjusted EPS guidance for 2022 of at least $24, representing growth of 11.6% over our 2021 baseline of $21.50 and 16.3% over our actual 2021 adjusted EPS of $20.64, consistent with our previous commentary. This guidance contemplates an explicit COVID-related headwind of $1 in adjusted EPS.
In addition, as previously shared, we are assuming medical costs return to baseline levels and the costs related to COVID continue to be offset by the depressed non-COVID utilization in our Medicare Advantage business. To the extent the $1 explicit COVID headwind is not ultimately realized, we will be conservative regarding the timing and pace with which we adjust our full year earnings guidance to ensure we do not get ahead of any potential emerging trends.
Our 2022 outlook reflects topline growth above 10% with consolidated revenues projected to be north of $92 billion at the midpoint, driven by continued growth in our Medicare Advantage business and expansion of our payer-agnostic Healthcare Services businesses, partially offset by expected declines in our commercial group medical, Medicaid and Medicare stand-alone Part D or PDP membership, 2022 EPS also reflects the impact of a reduced share count as a result of the $1 billion accelerated share repurchase program entered into in January.
With respect to the forecasting quarterly EPS, we acknowledge it will continue to be challenging, predicting the timing of additional COVID surges and the related rise in COVID costs and offsetting reductions in non-COVID utilization which generally occurs on a lag. At this time, we expect the percentage of first quarter earnings to be in the high 20s. We will provide updated color on our expected quarterly patterns throughout the year but would encourage investors to focus on the full year results given these COVID-related timing dynamics.
I will now provide additional color on the 2022 outlook for each of our business segments, starting with Retail. As recently shared, we now anticipate individual Medicare Advantage membership growth of 150,000 to 200,000 members in 2022. We added approximately 138,000 members during the annual election period, including approximately 48,000 D-SNP members. Touching on Group MA, we continue to expect membership to be generally flat for 2022 as we do not anticipate any large accounts will be gained or lost as we continue to maintain pricing discipline in a highly competitive market.
From a PDP's perspective, we expect a membership decline of approximately 125,000 members for the full year. As previously shared, the overall PDP market continues to decline as more consumers enroll in Medicare Advantage, and we remain focused on creating enterprise value from our PDP plans by driving mail order penetration and conversions to Medicare Advantage. We are projecting approximately 80,000 of our PDP members to convert to a Humana Medicare Advantage plan in 2022.
Finally, we anticipate that our Medicaid membership will decline 50,000 to 100,000 members in 2022. This change reflects membership losses resulting from the start of redetermination, which we expect to begin following the end of the public health emergency in April. These losses will be partially offset by membership additions expected as part of the Ohio contract award, which will go live in July. The addition of the Ohio contract award expands our Medicaid presence to six states, which as we have shared before, has been largely accomplished through organic growth.
The Retail segment revenue is expected to be in a range of $81.2 billion to $82.2 billion, reflecting a 10% increase year-over-year at the midpoint. The year-over-year change includes the impact of the normalization of Medicare risk adjustment revenue in 2022, the phase-out of the sequestration relief beginning in the second quarter as well as the impact of changing member mix. The benefit ratio guidance of 86.6% to 87.6% is 80 basis points lower than the 2021 benefit ratio of 87.9% at the midpoint driven in part by the normalization of Medicare Advantage revenue in 2021, partially offset by the expected return to baseline medical cost trends. In summary, we are guiding to Retail segment pretax income in the range of $2.35 billion to $2.55 billion for 2022, an increase of 26% over 2021 at the midpoint of the range, which includes the impact of an approximate 50 basis points increase in individual MA margin year-over-year.
Moving to our Group and Specialty segment, we are expecting total commercial medical membership, including both fully insured and ASO products, to decline by 125,000 to 155,000 members. This decline primarily reflects lower small group quoting activity and sales attributable to the COVID-19 pandemic, specifically as it relates to continued actions by our competitors to retain membership as well as the loss of a large group ASO account. These impacts are expected to be partially offset by strong retention of our existing members.
From a profitability perspective, we expect this segment to show nice pretax growth driven by improved profitability in the group medical business resulting from the rating actions taken to account for the expected impact of COVID in 2022. This improvement was partially offset by a reduction in expected earnings from our specialty business year-over-year as we do not expect the COVID-driven outperformance seen in 2021 to continue. All-in we are guiding to a pretax range of $185 million to $285 million for the segment.
For our Healthcare Services segment, we expect adjusted EBITDA in the range of $1.675 billion to $1.825 billion for 2022. The 2022 outlook reflects a full year contribution of Kindred at Home and continued growth in our pharmacy and primary care businesses. These items are partially offset by investments to enhance our clinical capabilities and expand our value-based home care model as well as investments to support the continued expansion of our primary care organization. In our Kindred at Home business, home health admissions are expected to be up mid-single digits with hospice admissions up low-single digits year-over-year.
As I mentioned previously, Kindred at Home anticipates ongoing staffing challenges in 2022 driven by the labor shortage the industry is currently facing. We are focused on mitigation efforts through targeted investments to improve recruitment and retention of nurses. We expect these investments to continue our second half of 2021 trend of improved retention and net nurse headcount growth providing additional capacity to support topline growth. In our Primary Care business, as Bruce shared, we intend to build an additional 26 centers in 2022 under our existing joint venture with Welsh, Carson, which when combined with planned acquisitions, is expected to increase our center count by approximately 20% in 2022 and bring our total center count to approximately 250 centers by the end of the year. Patient growth in our de novo centers is expected to exceed 10,000 in 2022, reaching approximately 30,000 by year end, a 57% increase year-over-year.
From an operating cost ratio perspective, we are guiding to a consolidated adjusted operating cost ratio in the range of 13.2% to 14.2% for 2022, an increase of 160 basis points at the midpoint from the adjusted ratio of 12.1% in 2021. This increase reflects the full year impact of Kindred at Home, which has a significantly higher operating cost ratio than the Company's historical consolidated operating cost ratio, the incremental 7.5-month impact of Kindred at Home operations are contributing approximately 150 basis points to the expected year-over-year increase.
I would like to now briefly discuss capital deployment for 2022. We will continue to prioritize investments in our core business to drive organic growth. Strategic tuck-in M&A remains part of our overall framework and we will be prudent and opportunistic as we focus on organic growth in the near term. And finally, we recognize the importance of returning capital to shareholders, and we expect to maintain our strong track record of repurchases as demonstrated by the $1 billion accelerated repurchase program that we entered into in January. While our debt-to-cap ratio is temporarily impacted by the acquisition of Kindred at Home, we believe we have sufficient capacity to execute on high priority investments initiatives such as primary care growth while continuing to deliver strong shareholder returns.
In closing, I would like to reinforce our commitment to drive $1 billion of additional value for the enterprise through cost savings, productivity initiatives and value acceleration from previous investments in order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our Healthcare Services capabilities. As reflected in our initial guidance for 2022, we have entered the year targeting the low end of our long-term earnings growth range of 11% to 15%, which includes an embedded COVID headwind. To the extent this COVID headwind is not ultimately realized, we will be conservative regarding the timing and pace with which we adjust our full year guidance.
We believe entering the year with this headwind incorporated into our guidance is prudent in the current environment, and we are proactively taking steps to position the Company to continue to deliver on our long-term targets in 2023 and beyond.
With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller.