CVS closes in on $10 billion acquisition of Oak Street Health

Article by Rajiv Leventhal | Feb 7, 2023

The news: CVS Health is closing in on a deal to acquire senior-focused primary care company Oak Street Health for $10.5 billion including debt, according to a WSJ report.

Oak Street shares jumped by over 30% following the Monday evening report.

Who is Oak Street? It’s a national value-based primary care company for Medicare-eligible patients, particularly in underserved communities.

It operates 169 centers in 21 states, employing around 600 primary care providers.
It cares for nearly 210,000 patients, offering ancillary services for many of them, such as transportation to appointments, a 24/7 hotline, and behavioral health support.
The company went public in 2020 and has a market cap of around $6.5 billion.

CVS’ value-based care intentions: It appears to be gunning for the Medicare Advantage (MA) market. MA financially incentivizes health insurers to lower patients’ medical expenses and keep them out of the hospital.

MA can be a moneymaker for insurers—they get paid by the Centers for Medicare & Medicaid Services for effectively managing sicker patients’ costs.

Under its VBC contracts, Oak Street is responsible for patients’ medical costs in exchange for a flat per-member, per-month payment.
These capitated agreements accounted for nearly 99% of Oak Street’s revenues in Q3 2022.
CVS/Aetna has been growing its MA membership, with over 3.2 million beneficiaries currently enrolled in an Aetna MA plan.

Key stat: Value-based primary care for seniors is a $700 billion total addressable market, Humana president and CEO Bruce Broussard said during the company's investor day in September.

CVS vs. its healthcare rivals: CVS would be acquiring a smaller provider organization—at a higher price—than its competitors.

Walgreens-owned VillageMD and Cigna acquired Summit Health, a multispecialty physician group and parent entity of urgent care provider CityMD, in November for $8.9 billion. Summit’s combined footprint is around 370 locations across multiple Northeast states and Oregon, employing 2,800+ providers.
Amazon acquired One Medical for $3.9 billion last July. The deal is facing regulatory scrutiny, but if it closes, Amazon will reel in the primary care provider’s 800,000+ members across 26 markets.

Our take: CVS hasn’t been shy about its aspiration to acquire a primary care business. But by being late to the primary care buying party, CVS may have lost some pull and paid a premium.

But perhaps the retailer isn’t as concerned with the cost as it is with building a vertically integrated healthcare giant. It is combining pharmacy, insurance, retail clinics (MinuteClinics + HealthHUBs), home health (Signify Health, acquired last year), and now primary care to compete with UnitedHealth Group/Optum, Walgreens/VillageMD, and Humana/CenterWell.