Dive Brief:
- CVS has closed its acquisition of Oak Street Health for $10.6 billion in cash, pushing the retail health giant further into direct care delivery, CVS announced on Tuesday.
- With the deal’s completion, CVS adds a multi-state chain of doctor-staffed medical clinics for seniors to its primary care roster.
- CVS first announced the acquisition, which values Oak Street at $39 a share, in February.
Dive Insight:
CVS has been hustling to expand healthcare services and products offered in its stores and clinics, aiming to capture revenue at every stage of a patient’s healthcare journey by building a vertically integrated healthcare business including doctor’s offices, a health plan and pharmacy.
Finalizing the Oak Street deal is a key step in that direction. The Chicago-based medical group employs roughly 600 primary care providers across 169 medical centers in 21 states.
Oak Street, founded in 2012, expects to have more than 300 centers by 2026. Each of those centers has the potential to contribute $7 million in adjusted earnings at maturity, CVS has said. That represents more than $2 billion in adjusted earnings at that time.
“The acquisition will broaden CVS Health’s value-based primary care platform and significantly benefit patients’ long-term health by improving outcomes and reducing costs — particularly for those in underserved communities,” CVS said in a Tuesday release. “Oak Street Health will continue to operate as a multi-payor primary care provider as part of CVS Health.”
Oak Street has seen rapid growth and results from its value-based clinical strategy, but still operates at a loss. The clinic operator is expected to lose over $200 million in 2023 and not reach profitability until 2025 at the earliest.
That could pressure CVS’ financial targets, along with capital priorities like share buybacks, analysts have said.
CVS has pinpointed Medicare Advantage as a key growth area, which ties into Oak Street’s clinical model. Oak Street specializes in contracting with Medicare payers to manage care for their patients, with any profits tied to quality of outcomes.
The deal faced little regulatory scrutiny, despite opposition from antitrust advocacy groups and political figures like Sen. Elizabeth Warren, D-Mass. Earlier this year, Warren sent a letter to the Federal Trade Commission urging regulators to heavily scrutinize the deal, citing the potential risk that vertical integration could lead to higher healthcare prices.
However, the antitrust waiting period for the deal expired in late March, clearing CVS and Oak Street to consummate the merger.
It’s the latest healthcare acquisition to close this year for CVS. The Rhode Island-based company also completed its $8 billion buy of home care provider Signify Health in March.
Companies have pursued deals in the primary care space as players like CVS, Walgreens and Amazon look to build out their physician networks, following in the footsteps of health insurer UnitedHealth, which has acquired physician practices to build its increasingly lucrative Optum health services business.
