AdaptHealth's Strategic Turnaround: Can Diabetes Business Reforms and the Humana Contract Drive Growth?

The healthcare-at-home sector is no stranger to volatility, but AdaptHealth Corp. (ADPT) has faced a particularly turbulent period in its Diabetes Health segment. After years of underperformance, the company has embarked on a strategic overhaul, shifting resupply operations to its Nashville center of excellence, restructuring leadership, and leveraging process automation. These moves, combined with a landmark capitated partnership with Humana, raise critical questions: Can AdaptHealth stabilize its diabetes business and restore growth? How resilient are its margins in a sector marked by reimbursement cuts and operational complexity?

Operational Execution: A Work in Progress

AdaptHealth's Diabetes Health segment, which provides continuous glucose monitors, insulin pumps, and related services, has struggled with patient attrition and declining new patient starts. In Q2 2025, diabetes revenue fell 8% year-over-year, a decline the company attributed to a planned overhaul. However, the reforms—led by a new president and SVP of sales—have already shown early signs of traction.

The relocation of diabetes resupply operations to the Nashville center, a hub for sleep care with over $1 billion in annual resupply volume, has been a key lever. Sleep's proven processes, including postcard reminders and digital engagement tools like the myAdapt app, have boosted diabetes retention to its best level in over two years. Sequential improvements in new patient starts further suggest that the segment is stabilizing, even as it grapples with broader challenges like Medicare reimbursement cuts.

Yet execution risks remain. The integration of diabetes and sleep operations, while logical in theory, requires careful calibration to avoid cross-segment disruptions. AdaptHealth's ability to maintain service quality while scaling efficiency will determine whether these reforms translate into sustainable growth.

Market Positioning: Humana's Capitated Contract as a Double-Edged Sword

AdaptHealth's multi-year capitated partnership with Humana, covering 33 states and the District of Columbia, is a cornerstone of its 2025 strategy. Under this arrangement, AdaptHealth serves as the exclusive durable medical equipment (DME) provider for Humana's Medicare Advantage HMO members, accepting lower per-unit reimbursement in exchange for guaranteed patient volume.

While this model reduces revenue volatility, it also compresses margins. Capitated revenue accounted for 4% of AdaptHealth's total in 2025, with management projecting it could rise to 10% in the next few years. The diabetes segment benefits indirectly, as the contract's “halo effect” drives referrals to the PPO side of the business. However, the capitated model's success hinges on precise utilization management—a challenge AdaptHealth faced during the contract's rollout, which involved high startup costs and operational friction.

The Humana partnership also underscores a broader industry shift toward value-based care. By aligning with payers like Humana, AdaptHealth is positioning itself as a scalable, cost-effective provider in a sector increasingly prioritizing outcomes over volume. Yet the long-term profitability of this approach remains unproven, particularly if utilization trends deviate from projections.

Margin Resilience: A Balancing Act

Despite a 5.9% decline in Q2 adjusted EBITDA to $155.5 million, AdaptHealth has maintained a disciplined focus on debt reduction and cash flow generation. Free cash flow for the year-to-date stood at $73.3 million, a slight dip from $77.9 million in 2024 but in line with its updated guidance of $170–$190 million for 2025. This resilience is partly driven by asset sales in the Wellness at Home segment, but the diabetes business's contribution to EBITDA remains a wildcard.

The company's updated financial guidance—$3.18–$3.26 billion in net revenue and $642–$682 million in adjusted EBITDA—reflects cautious optimism. However, the diabetes segment's 8% revenue decline and ongoing restructuring costs could weigh on these metrics. Management's emphasis on “operational efficiency” and “profit margin expansion” will need to offset these headwinds, particularly as the market for diabetes care devices grows at 15–20% annually.

Risks and Opportunities

AdaptHealth's turnaround hinges on three key factors:
1. Retention and New Patient Growth: Sustaining the recent improvements in retention and new starts will require continued investment in patient engagement tools and physician relationships.
2. Capitated Contract Scalability: Replicating the Humana partnership's success with other payers could diversify revenue streams but will demand operational consistency.
3. Margin Protection: Rising labor costs and inflationary pressures could erode the gains from process automation and resupply optimization.

Investors should also monitor AdaptHealth's leverage ratio, currently at 2.5x, and its ability to meet free cash flow targets. A deleveraging strategy is critical for long-term stability, but aggressive cost-cutting could undermine growth initiatives.

Investment Thesis

AdaptHealth's diabetes business is at a pivotal inflection point. The operational reforms and Humana partnership offer a clear path to stabilization, but execution will be paramount. For investors, the stock's current valuation—trading at a discount to peers—presents an opportunity, albeit with significant risk.

Recommendation: Consider a cautious long position for investors with a 12–18-month horizon, contingent on:
- Sequential improvements in diabetes revenue and EBITDA.
- Expansion of capitated contracts beyond Humana.
- Evidence of margin resilience amid macroeconomic pressures.

For now, AdaptHealth's diabetes segment remains a work in progress. Success will depend not just on operational fixes, but on its ability to navigate a rapidly evolving healthcare landscape.