CVS Health’s plan to buy Oak Street Health for $10.6 billion adds a large network of doctor-staffed clinics primarily used by seniors amid a doctor buyout wave by retailers including Walgreens, Walmart and Amazon.
The deal announced Wednesday, which values Oak Street at $39 a share, comes just months after CVS rival Walgreens Boots Alliance increased its already sizable investment into VillageMD, another national developer of doctor-staffed clinics. VillageMD is attaching hundreds of doctor-staffed clinics adjacent to Walgreens.
Oak Street Health employs about 600 “primary care providers and has 169 medical centers across 21 states,” the companies said. By 2026, CVS said Oak Street Health “will have more than 300 centers, each of which has the potential to contribute $7 million of Oak Street Health Adjusted EBITDA at maturity.”
For CVS, the acquisition of Oak Street is the latest part of chief executive officer Karen S. Lynch’s strategy to have CVS and its companies touch the “entire spectrum of someone’s health journey.”
CVS, which for years now has operated in-store clinics staffed by nurse practitioners and has expanded the number of healthcare services and products within its retail locations by converting certain stores into HealthHUBs continues its push deeper into healthcare. Last year, CVS agreed to spend $8 billion to buy home care provider Signify Health.
“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,”Lynch said in a statement Wednesday. “Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected.”
In buying Oak Street, the Aetna health insurance company that CVS owns will benefit by becoming more attractive to elderly subscribers to Aetna’s Medicare Advantage plans.
There are now some 30 million Medicare beneficiaries – – about half of the snior Medicare population — enrolled in Medicare Advantage plans, which contract with the federal government to provide extra benefits and services to seniors, such as disease management and nurse help hotlines with some also offering vision, dental care and wellness programs. And in recent years, the Centers for Medicare & Medicaid Services has allowed Medicare Advantage plans to cover more supplemental benefits, adding to their popularity among seniors.
“It would allow CVS’s insurance arm Aetna to design novel value-based care Medicare Advantage products in partnership with Oak Street Health,” healthcare analyst Ryan Daniels and colleagues at William Blair wrote in a Tuesday report when the Oak Street-CVS deal was still in the speculation state.
On Wednesday, Oak Street Health CEO Mike Pykosz said the combined company will “have access to greater resources and capabilities to expand the reach of our platform, provide more opportunities for our teammates and, most importantly, make a meaningful difference in the lives of the patients we serve.”
CVS’ Oak Street deal is also the latest effort by big retailers and health insurers to push into healthcare. Amazon, which this year already spent $4 billion on One Medical, a chain of primary care clinics that also has a national presence in virtual care.
Meanwhile, the health insurer Cigna is investing $2.5 billion into doctor practice and clinic operator VillageMD’s Summit Health acquisition to grow its Evernorth portfolio of health services. Cigna’s financial stake is part of Walgreens-backed VillageMD’s $8.9 billion acquisition of Summit that was announced in November. The Cigna investment adds a new national network of medical care providers to the health insurer’s Evernorth portfolio, which already includes Express Scripts, one of the nation’s largest pharmacy benefit management companies.
Other health insurers, like UnitedHealth Group, the nation’s largest health insurance company, have long been gobbling up doctor practices and other primary care operations including urgent care and surgery centers via its Optum health services business. And Walmart has opened several new doctor-staffed “Walmart Health” centers in several states including Florida most recently, which a lucrative market for seniors enrolled in Medicare Advantage.
Like the healthcare services the retailer’s Walmart Health business has rolled out locations across Arkansas, Georgia and Illinois in the last four years, the Florida facilities feature an array of primary medical services, urgent care including X-ray services, dental and eye care, and behavioral health services as part of a new model being replicated into other markets.