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CVS Health, Looking To Up Its Value-based Care Game, Puts Oak Street Health in Its Shopping Cart


The announcement of the $10.6 billion acquisition comes a few months after the company announced it was buying Signify Health, a home health provider, for $8 billion.

The announcement of the $10.6 billion acquisition comes a few months after the company announced it was buying Signify Health, a home health provider, for $8 billion.

CVS Health Corp. fully joined the race of healthcare companies to also become major providers today with the announcement of its $10.6 billion acquisition of Oak Street Health Inc., a chain of 169 primary care centers that focuses on seniors in Medicare Advantage plans in low income areas.

The deal was officially announced this morning by the companies, but the Wall Street Journal reported on Monday that it was in the works. CVS Health is paying $39 a share in an all-cash deal for Oak Street. CVS’s stock closed at $88.96 today, up 3.44% from its opening price.

CVS CEO Karen Lynch referred often to value-based care during an earnings call this morning and said that “value-based care is not just a contract but being a platform where we really drive engagement and connect patients to care.”

Related: What Does CVS Health’s Purchase of Signify Health Signify?

The Oak Street acquisition comes on the heels of CVS’ announcement in September 2022 that it was acquiring Signify Health, a home health company, for $8 billion.

“The combination of CVS Health’s foundational business with Oak Street and Signify Health creates one of the premier, multipayer Medicare value-based platforms in the marketplace today,” Lynch said.

Lynch, who became CEO of CVS in February 2021, mentioned today that the company’s leadership had outlined a strategy of getting into the provision of health services during an investors meeting in late 2021.

Some CVS Health, which pioneered retail-based healthcare with its MinuteClinic, is playing catch up in the provision of healthcare services, especially primary care. Today’s announcement is according against the backdrop of

The Optum division of UnitedHealth Group has been buying up physician practices for years; for example, Optum bought the Kelsey-Seybold Clinic, a 500-physician multispecialty group practice in Houston, for a reported $2 billion last year. Last year, months before CVS Health announced it was acquiring Signify Health, UnitedHealth announced it was buying LHC Group, a home health provider for a reported $5.4 billion.

Walgreens Boots Alliance, the rival drugstore chain to CVS, announced in October 2021 that it was investing $5.2 billion in VillageMD, “to advance its strategic position in the delivery ofvalue-based primary care.” That investment increased its ownership take from 30% to 63%, according to Walgreens Boots Alliance press release.In November 2022, Cigna announcing it was investing $2.5 billion in VillageMD.

Amazon has also entered the primary care arena. In July 2022, the retail giant announced that it was acquiring One Medical, a technology-oriented primary care company for $18 a share, or $3.9 billion.

Media reports say the Federal Trade Commission is looking into whether the Amazon acquisition might violate antitrust laws. The Wall Street Journal reported today that Lynch said in an interview with the newspaper that she was confident

Oak Street was founded in 2012 and went public in 2020. Mike Pykosz, J.D., CEO and co-founder, said on the call this morning that Oak Street focuses on areas with large concentrations of Medicare-eligible patient with incomes below 300% of the federal poverty line, “areas,” said Pykosz, “where we can make the biggest impact.” Pykosz said that Oak Street’s way of delivering care reduced hospital admissions by 50%. Although the company has focused on people in Medicare Advantage plans, Pykosz said Oak Street was a strong performer when it participated in the Medicare’s now-defunct Direct Contracting Model.

Shawn Guertin, chief financial officer, CVS Health

Shawn Guertin, chief financial officer, CVS Health

“What we saw when we looked into Oak Street’s portfolio of clinics was a remarkably consistent path to clinic profitably,” Shawn Guertin, CVS Health’s chief financial officer, said during this morning’s call. Guertin said the clinics become profitable within the first three years and “unlocking annual potential EBITA (earnings before interest, taxes, depreciation and amortization) of $7 million per clinic,” using Oak’s Street’s definition of adjusted EBITA.

Guertin said at Oak Street’s current rate of expansion of CVS Health expects it to have over 300 clinics by 2026, which he said CVS projects will work out to $2 billion of “embedded, Oak Street-adjusted EBITA.”

Guertin said Oak Street will remain “payer agnostic” but also ticked off a list of “synergies” with other parts of CVS, including “accelerating the Oak Street patient growth through CVS Health channels” and “greater utilization of CVS pharmacy and Caremark capabilities.”

Guertin said CMS’s recent issuing of the Medicare Advantage Risk Adjustment Data Validation (RADV) rule and proposed Medicare Advantage payment rates in 2024 was important and “frankly, work in conjunction with Oak on what we thought that meant to them.”

The acquisition announcement was made against a backdrop of positive financial projectionsby CVS Health for 2023, although some of the increases are moderate. The company expects revenues to grow by 3% to 5%, adjusted operating income to between 1% lower and 1% higher than it was in 2022 and adjusted earnings per share to be between the same as it was in 2022, $8.69, to $8.90.

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