CVS Health Keeps Getting Bigger and Bigger

MHE PublicationMHE April 2023
Volume 33
Issue 4

Aetna, Signify Health and now Oak Street Health. Some see advantages to CVS acquiring a primary care provider — for U.S. healthcare as well as CVS. Others see risks of even more consolidation in the healthcare sector and perhaps a financial hit to CVS because of Oak Street’s net losses.

Some experts see the CVS and Oak Street Health deal as increasing access to care for medically underserved seniors as well as benefiting a company that has ventured far beyond its pharmacy roots. Others believe the acquisition will stifle competition and drive up prices.

Some experts see the CVS and Oak Street Health deal as increasing access to care for medically underserved seniors as well as benefiting a company that has ventured far beyond its pharmacy roots. Others believe the acquisition will stifle competition and drive up prices.

CVS Health’s plan to acquire primary care provider Oak Street Health is getting mixed reviews. Some experts see the deal as increasing access to care for medically underserved seniors as well as benefiting a company that has ventured far beyond its pharmacy roots. By purchasing Oak Street, which focuses on serving people covered by Medicare, CVS is positioning itself to expand into value-based care, says Jim Fields, partner and global head of health and life sciences at consultancy Oliver Wyman. “Older Americans have a lot of care needs and a lot of value-based care programs.”

But others believe the acquisition will stifle competition and drive up prices. Some commentators also have questioned whether it is a smart business deal for CVS Health: Oak Street’s net losses climbed from $414.6 million in 2021 to $509.7 million in 2022.

CVS Health announced that it intended to acquire Oak Street in February 2023, a transaction valued at $10.6 billion. Oak Street, based in Chicago, operates 169 value-based primary center centers in 21 states.

Naturally, CVS executives celebrated the deal when they announced it. “The acquisition of Oak Street Health will broaden our value-based care platform into primary care and accelerate our long-term growth,” Karen S. Lynch, CVS Health president and CEO, said during an earnings call on Feb. 8,according to the transcript posted on the CVS Health website.

Familiar turf

CVS, which had $332.5 billion in total revenue in 2022, continues to grow by acquisition into a U.S. healthcare giant. The company changed its name to CVS Health in 2014, acquired health insurer Aetna in 2018 and in September 2022 said it planned to acquire Signify Health, a home health company, for $8 billion. That deal closed at the end of last month.

Adding Oak Street to its portfolio will give CVS “a stream of patients,” says Adam Block, Ph.D., an associate professor of health policy and management at New York Medical College in Valhalla. Oak Street has reported that the company’s primary care clinics treated 224,000 patients in 2022. Acquiring those primary care clinics would give CVS and Aetna “the ability to help direct patients to in-network providers,” he notes.

CVS reportedly had pursued another deal, the acquisition of concierge primary care provider One Medical. Instead, Amazon snagged the company in a $3.9 billion deal, which closed in February 2023.

The acquisition of Oak Street puts CVS on fairly familiar turf. The company has been branching out into direct provision of healthcare for almost 20 years. The company announced in 2006 that it was buying MinuteClinic, which started in 2000 as an independent business. The company’s website says it now has more than 1,000 MinuteClinic locations.

Before the COVID-19 pandemic, CVS executives also had ambitious plans for its in-store HealthHUBs. The HealthHUBs provides more services than MinuteClinic and are oriented toward managing chronic diseases. By some accounts, the company’s goal was to have 1,500 HealthHUBs operating by the end of 2021. According to data company ScrapeHero, there are now 935 operating HealthHUB locations. There was no mention of the HealthHUBs during the Feb. earnings call that included an announcement of the Oak Street acquisition.

Instead, Lynch said that Oak Street’s “Medicare-focused assets complement our established care delivery assets, including our over 1,100 retail health MinuteClinic (locations) in a number of ways.”

Eversana, a pharmaceutical market access consulting firm, said in a recent report that the acquisition of Oak Street could help CVS to bolster — or even replace — the HealthHUBs. “A large portion of Aetna’s Medicare Advantage membership resides in an Oak Street Health market, opening the door for seamless network integration,” Eversana wrote.

The Oak Street acquisition may also help CVS attract and retain Medicare Advantage members and improve the star ratings that Aetna receives from CMS.

Possible downsides

The Oak Street deal has some possible pitfalls for CVS. One-third of Oak Street’s revenue comes from Humana. The rival insurer could cut Oak Street from its provider network, Eversana noted.

In addition, “CVS faces the financial burden of taking on Oak Street’s poor financial performance,” Eversana noted. Oak Street has been growing. It opened 40 new healthcare centers in 2022, bringing the total to 169. The company reported that revenues increased by 51% in 2022, reaching $2.1 billion, but those positive results are accompanied by ballooning net losses.

For CVS, “the price paid will be justified by the value it (the acquisition) creates,” says Fields at Oliver Wyman.

Some experts are concerned that the acquisition will squeeze out competition and possibly result in lower quality care. More consolidation in U.S. healthcare can lead to “worse outcomes and higher costs,” says Sara Sirota, M.S., a policy analyst with the American Economic Liberties Project, an advocacy organization and think tank that calls for aggressive enforcement of antitrust regulations. The organization has called on the Federal Trade Commission to block the CVS-Oak Street deal.

“Anytime you see the integration of extra-large organizations, the impact could be potential monopoly power,” Block says. However, although such acquisitions might raise prices for patients, they also might result in a smoother experience for patients, he says.

He cites examples such as Kaiser Permanente and UnitedHealth Group, which have been highly successful with vertical integration. “I suspect many of the other organizations are playing catch-up,” Block says.

Social determinants of health

Acquiring Oak Street might help CVS Health and Aetna address social determinants of health.

More than half of Oak Street’s patients are at risk for challenges with food, housing or isolation. During the February earnings call, Michael Pykosz, J.D., CEO of Oak Street, said that by “providing coordinated, holistic care, we can close care gaps and address social determinants of health.”

With many of its clinics located in historically underserved communities, models such as Oak Street’s provide the opportunity to “meet people where they are,” says Jay Bhatt, D.O., M.P.H., M.P.A., executive director of the Deloitte Center for Health Solutions and the Deloitte Health Equity Institute.

In a 2022 report by Deloitte, the consultancy wrote, “Unequal access to care is a major factor in contributing to health disparities. Historically vulnerable and underserved populations have difficulty accessing care, given work demands, health literacy, transportation, health insurance coverage and system trust deficits.”

In many cases, patients from underserved groups are concerned about “where can I get the healthcare I need the quickest,” Bhatt says. “Consumers want more access points and less friction.”

Going forward there should be a “defragmentation of the ecosystem into reassembling of healthcare in new ways,” Bhatt says. “Primary care is foundational.

One challenge will be “getting more advanced care to the right place quickly enough,” Bhatt says. Issues also remain regarding information exchange and interoperability between primary care providers and others on the healthcare continuum. “There’s a higher risk of missing something,” Bhatt says. CVS’ acquisition of Oak Street and similar deals “will pressure traditional providers to find ways to match the convenience and connectivity that models like CVS aspire to deliver,” Fields says.

Susan Ladika, an independent journalist in Tampa, Florida, covers business and healthcare. She is a regular contributor to Managed Healthcare Executive.

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