Humana Inc. headquarters occupies an iconic Michael Graves postmodern tower in Louisville, Ky. The architecture, with its eclectic elements, is oddly appropriate. The company, based in Louisville for 51 years now, has been in a state of nearly continuous change, embracing and rejecting four distinct business models. M&A has been a key enabler of that evolution.

"We have flexibility, the ability and willingness to change, with changing markets and changing individual tastes. That keeps us nimble, agile, on the lookout for the next around-the-corner thing," says Thomas Noland, Humana senior vice president for corporate communications and an executive with the company for 23 years. "We've always been careful to make targeted acquisitions that contribute directly to our strategy. Our transactions tend to be supplemental rather than fundamental."

"Humana's a great story in the way its transformed itself through its 50-year history," adds Paul Kusserow, Humana's chief strategy officer, who joined in February 2009 to oversee corporate strategy, M&A and venture investing.

In recent years, Humana's focus has been to expand its Medicare offerings and market penetration, but this wasn't always the case. "The real concentration in Medicare is a newer phenomenon [from] around 2000," says Morningstar Inc. analyst Matthew Coffina. "At one point, they owned hospitals. Then they divested those."

Humana's M&A history traces some of the largest themes in U.S. healthcare.Founders David Jones Sr. and H. Wendell Cherry met in 1959 during Jones' job interview at what was then Louisville law firm Wyatt, Grafton & Sloss. Jones got the job and later did legal work for a homebuyer who owned a nursing home. Soon after, Jones decided to start his own nursing home with Cherry. The pair each put up $1,000 and, with four friends who invested, formed a company.

Their first nursing home, Heritage House, opened in 1962, and the company took the name Heritage House of America Inc. In 1968, they changed the name to Extendicare Inc. to go public; they initially sold 250,000 shares at $8 a share, raising $2 million. Ten months later the stock shot to $50 a share, producing a $12.5 million market value. By 1969, the company had developed 50 nursing homes with 10 more under construction, making it the largest nursing home operator in the U.S. Extendicare also bought five hospitals that year after leasing a facility in Huntsville, Ala.

The hospitals proved so successful that Extendicare divested its nursing homes in 1972. The company even made a brief foray into running mobile home parks between 1969 and 1971, but even management viewed that as a flop. "David Jones likes to say the mobile home venture was an illustration of the first rule of holes, which is, when you're in one, stop digging," says Noland.

Around that time, Jones and Cherry analyzed demographics that suggested the U.S. would need $20 billion to $30 billion in new hospital construction in the 1970s. Extendicare became Humana in January 1974. A decade later it began to assume its current form as an insurer when it launched Humana Health Care Plans. "[We thought] there should be a link between financing care and providing care, which we already had a 20-year history of doing," says Noland.

As a hospital operator, Humana had a reputation for cost control through a centralized management structure. In 1978 Humana bought American Medicorp Inc., doubling in size.

In the '80s, Humana moved into its Graves-designed tower. It began to develop its managed-care business with its hospital operations, but conflicts emerged. Low deductibles to lure users to Humana hospitals hurt the insurance business. Policyholders were not restricted in their choice of physician, and there was no guarantee patients would be referred to Humana facilities. "The physicians were increasingly in a conflict-of-interest bind," says Noland.

Humana tried to combat this problem by attempting to change doctors' perceptions of the company and to restrict their use of outside hospitals. The company tried to require doctors to speak with a health-plan nurse during treatment and to accept the Humana hospital recommended for use. Refusal to follow this process would prevent reimbursement.

But this proved controversial. Meanwhile, the hospitals were under intense cost pressures as Medicare reimbursement rates tightened. By the early '90s, its managed care operations grew into a $2 billion business with 1.7 million plan participants. In March 1993, the company decided to stake its future on managed care by spinning off its hospital division -- 77 hospitals, most of the total -- into a separate company called Galen Health Care Inc.

Galen was sold to Nashville-based Columbia Hospital Corp., which then merged with Hospital Corp. of America, in a $3.4 billion deal that included 73 hospitals. The remaining four hospitals became part of Alliant Health System, a predecessor of Norton Healthcare Inc.

Humana emerged from the spinoff with $685 million in cash and long-term debt of only $21 million (Galen shouldered most of Humana's pre-spinoff debt). The company then launched an acquisition spree. In 1994 it spent $180 million to buy Group Health Association, a 125,000-member HMO in Washington, and CareNetwork Inc., an HMO in Milwaukee. The company in October 1995 acquired Emphesys Financial Group Inc. for $650 million. Green Bay, Wis.-based Emphesys was a leading provider of health insurance in the small group market, with 1.3 million members, and the 10th-largest commercial group health insurer. By the end of 1995, Humana membership hit 3.8 million and revenue rose to $4.7 billion.

Cherry died in 1991, and Jones served as CEO and chairman until December 1997. Mike McCallister, who joined the company in 1974, became CEO in 2000. David Jones Jr., son of the co-founder, served as vice chairman from 1996 to 2005 and chairman from 2005 to 2010.

In May 1998, Humana and Minneapolis-based United HealthGroup Inc. announced they would merge in a $5.4 billion stock swap, creating the largest managed care company in the U.S., with 10.4 million full-paying HMO and preferred-provider-organization members (and overall membership of over 19 million). The new entity would have operated under the United HealthCare name in 48 states and Puerto Rico, and have annual revenue of $28 billion.

However, the deal was never consummated. Why? UnitedHealthCare had taken a hefty restructuring charge, which caused the stock to tumble. This reduced the amount Humana shareholders would have received from $5.5 billion to $3.12 billion, prompting it to call the deal off in August 1998.

Without UHC, Humana marched into the new century focusing on building up its insurance offerings through midmarket acquisitions. Humana remains the company built, and reshaped, by M&A. "[Our transformations] sort of neatly fall roughly into decade-by-decade tranches, if you will," Noland notes.

What comes next? Humana is beginning to shift away from its core insurance expertise to that of a "health and well-being company," says Noland, adding: "Anvita, Senior-Bridge, those are well-being plays. Where we want to go is in what we call 'adjacencies,' to our core business. We have health at our core. If we take that core of health, we can expand in other areas. [We ask] 'What are the needs of our folks, our members? And how can we solve those needs given our capabilities and competencies? How can [a target] help us diversify and be additive in terms of new revenue streams?" Well, it's a new decade.