Primary care a hot target; CVS spends $10.6B on Oak Street

Big money is pouring into primary care clinics as the nation's health care giants hunt for ways to cut costs by keeping people healthy.

CVS Health said Wednesday that it will spend about $10.6 billion to buy Oak Street Health, which runs clinics that specialize in treating Medicare Advantage patients.

The acquisition comes just three months after a nearly $9-billion investment by rival Walgreens in VillageMD's acquisition of the urgent and primary care chain Summit HealthCityMD. And that deal was announced two months after CVS said it would spend $8 billion to acquire home health care provider Signify Health.

The money being spent tells of a rapid expansion in value-based care, an approach to medicine that is growing popular with bill payers like the federal government's Medicare program.

It essentially rewards doctors for keeping patients healthy instead of paying them for every service they perform. The idea is to help people stay on their regular medications, control chronic health problems such as diabetes, and avoid hospital stays and other expensive medical treatments.

“It is clear that valuebased-care is becoming a dominant model in healthcare,” BTIG analyst David Larsen said in a recent research note.

Oak Street specializes in this 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 patients with chronic health issues 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.

CVS Health CEO Karen Lynch told analysts Wednesday that she sees primary care as a key to improving patient health. She noted that although it represents only about 10% of health care spending nationally, the specialty holds “significant influence” over health care use.

Oak Street runs care centers mostly for lower-tomiddle income people with Medicare Advantage plans. Those are privately run versions of the federal government's program for people aged 65 and older.