CVS BUYING CHICAGO-BASED OAK STREET HEALTH FOR $10B
CVS Health is plunging deeper into primary care services, buying primary care provider Oak Street Health for about $10.6 billion.
The drugstore chain said Wednesday it would pay $39 per share in cash for each share of Oak Street in a deal expected to close this year.
Oak Street runs care centers mostly for lower- to middle-income people with Medicare Advantage plans. Those are privately run versions of the federal government’s program for people age 65 and older.
With its latest acquisition, CVS Health Corp. aims to capitalize on the federal government’s interest in cutting costs and improving the health of people in its Medicare program.
The government wants more people in value-based care arrangements, which basically focus on keeping patients healthy and any chronic problems like diabetes under control. The goal: Ward off big medical expenses like hospital stays.
In addition to running nearly 10,000 drugstores nationwide, CVS Health also covers more than 3 million people with Medicare Advantage plans through its Aetna arm. Big insurers like that need a major presence in primary care to help control costs, BTIG analyst David Larsen wrote before Wednesday’s deal was announced.
“It is clear that value-based-care is becoming a dominant model in health care,” Larsen said.
Oak Street specializes in this type of care. Its centers use doctors, social workers and other care providers to help people manage their health.
Oak Street CEO Michael Pykosz has said that a lot of costs stem from people with chronic health problems who receive poor care and wind up with big medical problems.
“Solving that problem creates a massive, massive market opportunity for Oak Street Health,” Pykosz said in January at an annual conference hosted by JPMorgan.
Founded in 2012, Oak Street operates 169 locations in 21 states. It expects to have more than 300 locations by 2026.
Oak Street’s revenue grew to $1.43 billion in 2021, and analysts expect that it topped $2 billion last year. But the company is spending heavily to open new clinics, and its losses have grown every year.
Larsen added in a note Wednesday that the price CVS Health was willing to pay for Oak Street probably climbed due to a potential tightening of Medicare reimbursement and a competitive market that includes Amazon.com.