Susan Diamond
Chief Financial Officer at Humana
Thank you, Bruce and good morning everyone. I will provide an update on our first quarter results, including line of business performance details, our outlook for the full year and progress made to date on our $1 billion value creation plan. Finally, I will provide an update on capital deployment, including the planned use of proceeds from the pending divestiture of our majority interest in Kindred's, hospice and personal care businesses.
Today, we reported first quarter 2022 adjusted earnings per share of $8.04 driven primarily by lower-than-anticipated administrative costs, some of which is timing in nature and outperformance in our pharmacy business. All other lines of business are performing as expected or slightly positive, further contributing to our strong quarter. Inpatient utilization was favorable across our Medicare and commercial businesses due to a faster decline in COVID admissions and slower rebound in non-COVID admissions than we've seen during previous surges and we will need to continue to monitor how utilization further rebounds in the coming weeks.
Typically, we would not raise guidance at this stage as it is too early to fully evaluate results and medical cost trends in particular. However, given the main drivers of our first quarter outperformance, we are raising our full year guidance by $0.50 to approximately $24.50, representing nearly 19% growth over our actual 2021 results. Importantly, this revised guide continues to anticipate $1 of conservatism to cover a net COVID headwind should it emerge and also anticipates the estimated impact to earnings of divesting 60% of our interest in the Kindred hospice and personal care businesses later this year.
With respect to quarterly earnings seasonality, at this time, we expect the percentage of second quarter earnings to be in the low 30s. We want to reiterate, however, that investors should continue to focus on the full year estimates as quarterly development will continue to be impacted by ongoing COVID-related timing dynamics.
With that, I will now provide additional details on our first quarter performance by segment, beginning with our Retail segment. As Bruce discussed, results of our open enrollment period trended slightly better than previous estimates. If these trends continue for the remainder of the year, we expect our individual Medicare Advantage growth to be slightly above the midpoint of our current guidance range of 150,000 to 200,000 members. Revenue for the quarter was in line with expectations with individual Medicare Advantage PMPMs up 8% year-over-year. We continue to expect our PMPM yield to be in the high single-digit range for the full year.
Turning to claims trend, total medical costs in our Medicare Advantage business ran largely in line with expectations in the first quarter. We experienced lower-than-anticipated inpatient utilization offset by higher inpatient unit costs and lower than projected favorable prior period development. As it respects prior period development, we saw inpatient unit cost for the fourth quarter of 2021 and restate higher than anticipated.
As claims were received, the average cost of non-COVID hospitalizations restated higher and hospitalizations occurring in December 2021 and restated as a COVID admission, whereas the initial authorization request reflected a non-COVID admitting condition. Recall that we incur an additional 20% payment on any Medicare admission with a COVID diagnosis under the public health emergency even when it is not the reason for the admission. These incidental COVID admissions represented 10% to 15% of total COVID admissions during the Delta wave, increasing to 25% to 30% with the Omicron wave resulting in a meaningful increase in average unit costs. We will need to continue to monitor inpatient unit cost trends and COVID positivity rates throughout the year.
With respect to current year utilization, COVID admissions peaked in January at 65 admissions per thousand, and then began reducing more quickly than we've seen historically, ending the quarter at approximately 2.5 admissions per thousand the lowest level we have seen since June of 2021 just before the rise of the Delta variant. Non-COVID admissions did not rebound as quickly as COVID declined resulting in net inpatient utilization favorability for the first quarter, although it continues to rebound towards expected levels.
We considered the higher fourth quarter 2021 inpatient unit costs in our first quarter estimates, resulting in overall inpatient costs running generally consistent with expectations. As previously shared, we have limited visibility into non-inpatient trends until claims are received. And so as is customary, our first quarter results assume non-inpatient utilization is in line with previous expectations. All in, we are pleased with the early performance of our Medicare Advantage business and continue to expect a 50 basis point improvement in our individual MA pretax margin in 2022. However, as previously shared, much remains to be learned about the long-term impacts of COVID, including the impact of higher mortality on the morbidity of our Medicare members. Provided COVID levels remain low, we will have an opportunity to further evaluate baseline trends relative to our estimates.
Moving to PDP, membership trends are tracking favorable due to higher sales in the Walmart Value plan and lower voluntary terminations in the premier plan. As a result, we have updated our full year guidance to down 100,000 members versus our previous projection of down 125,000 members. In addition, we continue to expect approximately 80,000 PDP members to move to a Humana Medicare Advantage product this year.
Our Medicaid business performed well in the first quarter, experiencing lower-than-expected COVID costs. The Medicaid team is actively preparing for the Ohio contract implementation, which we expect to occur later this year. We updated our full year Medicaid membership guidance from a range of down 50,000 to 100,000 to a range of down 25,000 to 50,000 to reflect the extension of the public health emergency to mid-July. In addition, we were pleased to receive notification in the first quarter that the Louisiana Health Department announced its intent to award Humana a contract to serve Medicaid beneficiaries. We now expect the state to rescore the previously submitted RFPs with a decision anticipated in late May, and we are optimistic that we will once again score well given the strength of our offering. We continue to be very proud of our Medicaid program and success growing our footprint organically.
Group and Specialty segment results were slightly favorable with growth our group medical and specialty businesses contributing to the positive results. The fully insured group medical business experienced favorable inpatient utilization due to fewer COVID admissions, similar to what we experienced in the Medicare business, partially offset by slightly higher-than-expected membership losses.
The rating actions taken in the back half of 2021 to incorporate expected ongoing COVID costs resulted in slightly higher attrition than originally anticipated. Our specialty business also outperformed as utilization, particularly for dental services continues to run lower than expected. To the extent this lower dental utilization continues, we plan to reduce pricing to our Medicare Advantage business in 2023 accordingly.
Our Healthcare Services segment had a strong start to the year. As previously mentioned, our pharmacy business meaningfully outperformed expectations, driven by higher-than-expected increases in mail order penetration, lower unit costs due to favorable underlying drug mix and lower cost to fill. We currently expect the favorability to persist throughout the year, although with some moderation as our previous estimates contemplated increasing mail order penetration rates over the course of the year. Our efforts to drive increased mail order penetration are demonstrating success with 38% of our individual Medicare Advantage members utilizing our home delivery services in the first quarter, a 100 basis point increase year-over-year.
As Bruce mentioned, Medicare Advantage members retained in 2022 used Humana Pharmacy's home delivery services, nearly 9% more frequently than members who disenrolled, also contributing to the strong start to the year. As a result of the outperformance seen in the pharmacy business, we have increased our full year healthcare services adjusted EBITDA guidance by $50 million to $1.725 billion to $1.875 billion from the previous range of $1.675 billion to $1.825 billion. This adjustment also contemplates the estimated impact to EBITDA of divesting 60% of our interest in the Kindred hospice and personal care businesses later this year. At this time, we have not updated revenue or operating expense guidance points as the impact could vary depending on the timing of the transaction close.
Turning to the home. Beginning with our first quarter release issued this morning, we disclosed episodic and total admissions for our home health business. Episodic admissions are up 3.5% year-over-year, while total admissions are up 4.9% year-over-year, largely consistent with expectations. For the full year, we continue to expect home health admissions to be up mid-single digits.
We also provided detail regarding members covered by our proprietary value-based home health model. We continue to expect approximately 15% of our Medicare Advantage members to be supported by this model as of year-end 2022 as we expand to additional markets, including Virginia and North Carolina beginning at the end of June. Within 5 years, we expect to support 50% of our Medicare Advantage membership with our value-based home health model and believe it will deliver mid-single-digit reductions in overall home health DME and infusion spend within 12 to 18 months of implementation and mid-double-digit reductions at maturity while improving patient outcomes.
The nursing labor shortage continues to be a concern for the home health industry broadly, and we continue to closely monitor clinical staffing levels, capacity and admission trends making targeted investments to sustainably improve the recruitment and retention of nurses to position the business for further growth. We are particularly focused on markets where growth has been negatively impacted by insufficient nursing capacity. We are seeing positive results from our efforts, including a 5% reduction in full-time nurse voluntary turnover in the first quarter as well as improved recruiting in March attributed to the return to face-to-face recruiting.
We are encouraged by the improvement we are seeing in recruiting and voluntary nursing turnover, but acknowledge there is much more work to be done. The hospice business performed well in the quarter with total admissions up 9% year-over-year, fueled by a general improvement in referrals led by increased access to facility-based sources, investments in the business to expand clinical capacity, mainly in the form of dedicated on-call nursing staff and winter storms that negatively impacted missions in the prior year.
Turning to our primary care organization. Results remain in line with expectations for the quarter. We enhanced our primary care disclosures to include a breakout of clinics by de novo, which includes all new centers opened since 2020 under our Welsh Carson joint venture, wholly owned, representing all centers, not in the Welsh Carson joint venture and IPA, which reflects patients served by our Conviva MSO.
We also updated our patient SERD metrics to only include Medicare patients covered by a value-based payment model as this is our focus and represents the primary growth driver for the business. As of March 31, we operate a total of 214 centers, serving 180,000 patients in Medicare value-based arrangements while also supporting 58,000 patients under IPA arrangements. We operate 37 de novo centers, which are focused on driving panel growth and patient engagement to ensure our patients' needs are identified and we can begin our care planning. This early engagement supports our ability to identify and slow disease progression. We opened five new de novo centers in the first quarter and 14 since March 2021, representing a 61% increase year-over-year. These centers grew paneled membership by 4,500 in the first quarter and 9,100 year-over-year, a 163% increase in patients served.
We operate an additional 177 wholly owned centers, serving 166,000 patients in Medicare value-based arrangements, primarily in Florida and Texas. We are focused on continuing to grow these centers organically and inorganically while also focusing on improving clinical and financial outcomes by leveraging our senior-focused, multi-disciplined care model supported by proprietary workflow technology and analytics. Since March 2021, we have increased our wholly owned center count by 30 and Medicare patients served by 37,000 or 29% with approximately two-thirds of this patient growth attributed to acquisitions of Florida and Texas-based primary care practices and approximately one-third due to organic growth, including patients served under DCE contracts.
As we monitor the continued performance improvement of our wholly owned centers, we are pleased to report that 15 are producing our targeted EBITDA contribution of $2 million or greater and have an average panel size of 1,500 Medicare Advantage risk patients. Additionally, 69 of our wholly owned centers are EBITDA positive compared to 51% at this time last year. Finally, I would like to add to Bruce's commentary on our $1 billion value creation plan, highlighting some of our recent progress. We are tracking various initiatives across discrete stages of development starting with ideation, followed by sizing, design and execution; and finally, realization of savings.
We gained confidence as each initiative moves through the stages, and we're pleased that initiatives valued at approximately $575 million are now in the design and execute phase. We continue to believe that the majority of initiatives will be implemented in the back half of 2022, which was contemplated in our initial guidance. Our lower-than-expected administrative expenses in the first quarter in part reflect management actions that accelerated savings we otherwise expected later this year as well as some timing-related variances. We remain confident in our ability to achieve our goal, creating capacity to fund additional investment in 2023, and we will continue to share updates on our progress throughout the year.
From a capital deployment perspective, we expect to receive approximately $2.8 billion in cash proceeds upon closing of the pending Kindred hospice transaction. As shared last week, the enterprise value of Kindred hospice is $3.4 billion. The $2.8 billion in proceeds is made up of approximately $2 billion related to the repayment of debt from Kindred hospice to Humana and $800 million, reflective of 60% of the $1.4 billion equity value. We intend to use the majority of the proceeds for debt repayment as we look to deleverage back towards our target of approximately 35%. In addition, as previously disclosed, we continue to plan for a customary level of share repurchase in 2022. We expect our debt to capitalization ratio to be approximately 40% at the end of the year.
Before closing, I would again reiterate that we had a strong quarter with all businesses demonstrating positive fundamentals supporting our full year guidance raise. There are a number of items we will need to continue to monitor to fully assess '22 performance, including non-coding utilization trends, the rate of COVID positivity and inpatient unit cost trends which is why we believe it is prudent to continue to allow for COVID conservatism in our guidance.
Finally, we are pleased with the progress made to date on the value creation plan and remain confident in our ability to achieve our goal creating capacity for further investment in our Medicare Advantage business and expansion of our Healthcare Services capabilities, while still delivering on our long-term earnings growth target in 2023.
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.
