LOUISVILLE, Ky. (WDRB) --  Louisville-based Kindred Healthcare worries that Congress will be forced to cut Medicare and Medicaid – big sources of revenue for the company -- to offset larger federal budget deficits created by the GOP-led tax cut bill.

The prospect of cuts in the government-funded health insurance programs for the elderly and poor are one reason Kindred’s board approved a sale of the company to Louisville-based Humana and two private equity firms in December, according to a regulatory document filed Monday.

The companies are trying to close the transaction, which values Kindred at about $780 million, this year. But one big Kindred shareholder has said it's a “terrible” time to sell the company and that the $9 per-share price shortchanges the company’s stockholders.

The deal has significant ramifications for Louisville because it involves the combination of two of the city's three Fortune 500 companies. Executives have said there will be no immediate impact on Kindred's roughly 1,200 corporate jobs based here.

Under the plan, Kindred would be split into two companies and cease being traded on the stock market.

Humana plans to absorb Kindred at Home, which is Kindred’s home health and hospice business.

Private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe plan to acquire the surviving Kindred Healthcare, a specialty hospital company that includes Kindred’s long-term acute hospitals, inpatient rehab facilities and contract rehab services.

The proxy statement filed Monday gives a detailed timeline of Kindred’s negotiations over the sale -- going back to the spring of 2016 when the company was first contacted by unnamed private-equity firms, according to the filing.

The filing reveals that Humana made a preliminary, non-binding offer to buy Kindred outright for a higher price, $11 to $13 per share, on March 7, 2017. But Humana eventually insisted on finding private equity firms to be partners in the deal.

The preliminary offer was before the federal agency that oversees Medicare and Medicaid in July floated a proposal to change how home health providers are paid, a move that could have cut payments to companies like Kindred by 15 percent, according to the filing.

While the rule was never finalized, Kindred's stock took a dive and never fully recovered, leading to the eventual $9-per-share deal.

The filing reveals that, just before Kindred's board agreed to the sale in December, Kindred directors considered asking for a higher price. But they decided to accept $9 per share, fearing that additional negotiations may lead to a breakdown of the deal which was already seven months in the works.

The filing reveals that Humana first expressed interest in Kindred on Jan. 31, two weeks before Humana formally called off its plan to be purchased by rival insurer Aetna. (The Humana-Aetna deal had effectively died a week earlier, on Jan. 23, when a federal judge blocked it from moving forward).

Humana CEO Bruce Broussard and Kindred CEO Ben Breier held their first in-person meeting about a potential deal on Feb. 13, one day before Humana and Aetna announced their break up.

The tax bill is just one factor Kindred cited in making the case for selling now instead of continuing as an independent business.

Other factors include Kindred’s roughly $3 billion in debt, which will need to be refinanced soon in an environment of increased interest rates; and rising costs for employees like nurses and home health aides with “abnormally low” unemployment.

Despite sharply cutting the corporate income tax rate, the tax bill is “unlikely” to benefit Kindred on the whole because it also limits how much business interest companies can deduct, a key benefit for Kindred because of its high debt load, according to the filing.

“(T)he Board considered the possibility that the increase in the U.S. budget deficit from the proposed Tax Bill could lead to attempts by Congress to reduce expenditures on Medicare and Medicaid to offset the increase in the deficit,” the company said in the filing.

The company also cited a Dec. 6 statement by House Speaker Paul Ryan, R-Wisconsin, calling the “health care entitlements” – Medicare and Medicaid – “the big drivers of our debt.”

Kindred also cited the fact that rumors of its takeover had been public since April 2017, and “no additional bidders emerged” in the subsequent eight months. 

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2018 WDRB News. All rights reserved.