Innovation and Disruption

Expanding its capacity to disrupt healthcare, CVS Health shells out billions to buy Oak Street Health

Going back to last year, CVS has proposed spending nearly $19 billion on a pair of acquisitions designed to strengthen its status as a provider of value-based healthcare services.

February 15, 2023 12:22 pm

A month after stating it hoped to gain a presence in primary care, CVS Health accomplished that goal with a massive deal that could fortify its efforts to advance value-based payment in healthcare.

The proposed $10.6 billion acquisition of Oak Street Health, a provider of senior-focused primary care, adds to a portfolio of assets that have developed reputations for innovative approaches to healthcare delivery.

During the first half of this year, CVS expects to close last September’s $8 billion purchase of Signify Health, a provider enablement company with a focus on home healthcare. That transaction also will bring over Caravan Health, which supports providers in accountable care arrangements and was bought by Signify for $250 million in early 2022.

Once all of the vertical integration is complete, CVS Health expects to become “the premier multi-payer Medicare value-based care platform,” Shawn Guertin, executive vice president and CFO, said during an investor call.

The pair of transactions will help CVS Health realize its vision of value-based payment as “not just being a contract, but being a platform where we really drive engagement and connect patients to care,” said Karen Lynch, president and CEO.

Both purchases must pass regulatory scrutiny. Over the past several months, the U.S. Department of Justice has been taking a close look at the Signify transaction.

What Oak Street brings

Founded in 2012 and headquartered in Chicago, Oak Street Health centered its business model on keeping seniors healthy by offering preventive care and other forms of health and wellness support, including social activities. It’s the only medical group endorsed by AARP for primary care (a 2022 Kaiser Health News report examined a possible pay-for-play aspect to AARP endorsements).

Mostly through risk-based contracts, Oak Street cares for about 160,000 Medicare beneficiaries using a network of 600 providers across 169 medical centers in 21 states. It expects to have more than 300 centers nationwide by 2026.

Performance metrics include reductions of 50% in hospital admissions, 42% in 30-day readmissions and 43% in depressive symptoms, along with lower costs, according to the company. Oak Street physicians are touted as spending three times longer with patients compared with the industry average, and 90% of the company’s medical centers are in medically underserved areas with incomes below 300% of the federal poverty level.

“By providing coordinated, holistic care, we can close care gaps and address the social determinants of health,” said Mike Pykosz, CEO of Oak Street Health, who’s slated to remain in that role once the CVS Health deal is finalized.

CVS expects to realize $500 million in value from the transaction over time, Guertin said.

“What we saw when we looked into Oak Street’s portfolio of clinics was a remarkably consistent path to clinic profitability,” Guertin said. “This trend was true across diverse geographies, populations and payers.

“As Oak Street drives strong patient experiences and engagement, their patient panels grow, and as Oak Street’s providers engage with those patients, they improve outcomes and increase patient contributions over time.”

The result is that Oak Street clinics achieve profitability within three years, he added.

Synergy among assets

Oak Street Health and Signify Health will operate as payer-agnostic businesses, a relevant point since Aetna is part of the CVS Health umbrella. Yet Aetna stands to benefit in its Medicare Advantage plans if the caliber of outcomes and experiences offered through Oak Street can boost member retention.

CVS Health envisions the new assets complementing the company’s more than 1,100 retail MinuteClinics and 650 wellness-focused HealthHUBs, which Lynch suggested could be leveraged to incorporate chronic care services for seniors once the pending acquisitions are finalized.

“We’re really proud of what we’ve built over the first 10 years of Oak Street, but we believe there’s an order-of-magnitude more growth out there for us,” Pykosz said. “We can go to more communities and impact more older adults, and I think CVS Health brings just a huge amount of resources that we can partner with and leverage.”

Financially, one reason to emphasize efficient, comprehensive healthcare is as a hedge against revenue loss. For example, there’s concern among payers that pending rules for Medicare Advantage, including a ramped-up approach to risk adjustment data validation, will suppress revenues.

“In many ways, what we saw come out of those notices is exactly why you want high-quality Medicare Advantage value-based care assets,” Guertin said. “When you have a year when reimbursement gets squeezed, what’s one of the things you want to do? You want to look at your cost-control levers, and certainly Oak is a demonstrable asset that has [been] proven to improve outcomes and reduce costs.

“As we think about navigating the future of Medicare Advantage, and maybe even a broader opportunity in Medicare value-based care in the fee-for-service population, both Signify and Oak are exactly the kind of assets you would like to have at your side.”

Part of a larger trend

CVS Health is not the only retailer building up its healthcare portfolio.

In 2021, looking to establish physician-staffed clinics in its stores and accelerate its delivery of value-based primary care, Walgreens Boots Alliance bought a $5.2 billion majority stake in VillageMD. In turn, late last year, VillageMD spent $8.9 billion to buy Summit Health, a physician-owned and -governed multispecialty group that also has a big presence in urgent care.

The combination of those assets “reinforces our intent to create greater access to quality healthcare across the care continuum,” Roz Brewer, CEO of Walgreens Boots Alliance, said in a written statement at the time.

Meanwhile, Amazon last year spent nearly $4 billion to buy One Medical, a provider of primary care and virtual care. Walmart is looking to expand its array of more than 25 physician-staffed Walmart Health centers, which offer primary and urgent care, labs and diagnostic services, and behavioral health, along with dental, optometry and hearing services. The centers also offer virtual care after Walmart’s 2021 purchase of a multispecialty telehealth provider.

In response to such disruption, according to an American Hospital Association report, hospitals’ strategic considerations should entail:

  • Incorporating an omnichannel presence that provides the type of convenience, access, transparency and pricing that can rival disruptors
  • Looking into continuum-of-care partnerships with disruptors of primary care such as Amazon, CVS, Walgreens and Walmart
  • Leveraging existing patient relationships to establish optimal use of outpatient, clinic and virtual services for routine care
  • Partnering with Big Tech firms (e.g., Apple, Google/Alphabet) on research and data-sharing initiatives to improve care


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