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Our Take: CVS Health reportedly in talks to acquire primary care provider Oak Street Health

Jan 16, 2023

News of yet another potential CVS Health primary care acquisition made the headlines last week. This time around, Chicago-based Oak Street Health is the rumored target. 

Bloomberg broke the news on Monday, citing sources familiar with the matter who said a forthcoming deal could value Oak Street Health at more than $10 billion, including debt. The report noted there was no certainty that ongoing talks between the two companies would lead to a final agreement, and neither company has confirmed the discussions.  

Oak Street Health operates 169 value-based primary care centers for Medicare beneficiaries in 21 states. The company just went public in 2020 and is not expected to turn a profit until at least 2025. 

Before the news came out, Oak Street Health had a market cap of $5.3 billion, but   shares in the firm soared from $22.57 to $29.77 in after-hours trading on Monday. As of Friday, the company’s market cap was $7.3 billion.

Our Take: Maybe the third attempt will be the charm for CVS. 

The company walked away from its negotiations to buy San Francisco-based One Medical in July after various news outlets reported rumors of a potential acquisition. One Medical is a national membership-based primary care organization that offers in-person, digital, and virtual care services. Amazon announced the following month that it had signed a definitive agreement to buy One Medical for approximately $3.9 billion. 

Then, in September, media reports surfaced that Miami-based Cano Health was exploring a sale after receiving interest from potential buyers, including CVS Health and Humana, who has a right-of-first-refusal agreement with Cano Health. Cano Health operates value-based primary care centers in half a dozen states and Puerto Rico, according to the company’s website, and over 40% of its patient base is enrolled in Medicare Advantage plans. 

In early October, Bloomberg reported that sources familiar with the matter said CVS was in “exclusive talks” to buy Cano Health, driving up the price of Cano Health’s shares. But by mid-October, Barron’s reported that CVS had withdrawn from the negotiations, and Cano’s stock plummeted. As of now, Cano Health is still publicly traded and its share price has not recovered to pre-rumor levels.

We should find out in the next several weeks whether CVS ends up committing to a deal with Oak Street Health — or if Oak Street will suffer the same consequences Cano Health did when CVS pulled out of discussions to buy that company. 

Either way, it’s clear that CVS is serious about following through on the remarks CEO Karen Lynch made during a quarterly earnings call last summer, when she said the company expects to enhance its services in primary care, provider enablement, and home health. 

CVS can check the home health category off its acquisitional “to do” list if it completes its $8 billion purchase of Signify Health. The Department of Justice has requested information twice since the deal was announced in September, so there’s no guarantee that regulatory approval will be granted. 

To stay competitive with Walgreens, though, CVS needs to nail down a primary care acquisition, and the sooner the better. 

Walgreens recently invested $3.5 billion toward VillageMD’s $8.9 billion acquisition of Summit Health-CityMD — which was finalized earlier this month — ensuring Walgreens’ position as VillageMD’s largest consolidating shareholder. The newly combined organization is one of the country’s largest independent provider groups, with more than 680 provider locations across the U.S. 

(Cigna’s health services company, Evernorth, invested $2.5 billion in the VillageMD-Summit Health-CityMD deal.)

In the meantime, CVS is partnering with Carbon Health, a hybrid health care startup that operates more than 125 physical locations in 13 states, along with offering virtual care services. 

The corporate venture capital arm of CVS Health led a recent $100 million investment to speed up Carbon Health’s expansion into new markets. Further, CVS Health will pilot the Carbon Health operating model inside some CVS Health locations.

“This pilot will allow us to explore Carbon Health’s potential to advance the retail health experience, connecting consumers to care where and when they need it with a simple and engaging user-driven experience that can be adapted and delivered across our platform,” Vijay Patel, co-founder of CVS Health Ventures, said in a press release.   

What else you need to know
Ascension’s $2.5 billion economic recovery plan is designed to stabilize labor costs while the health system invests in ambulatory care and ancillary services to increase patient volumes, Fierce Healthcare reported, citing information that CEO Joseph Impicciche and other senior executives provided at the J.P. Morgan Healthcare Conference last week. The health system had a net loss exceeding $1.8 billion in the fiscal year that ended June 30. Contract labor, premium, and overtime expenses increased 100% from FY 2021 to FY 2022, and chief financial officer Elizabeth Foshage said contract labor accounted for more than $1 billion of Ascension’s labor costs in FY 2022. By consolidating to a single vendor for contract labor systemwide, Ascension reduced its hourly rate for contract labor by nearly 40%, she said. Foshage also remarked that Ascension does not believe inpatient volume will rebound to pre-pandemic levels, which is why the health system will continue to invest in outpatient care and ancillary services, including imaging, ambulatory surgical centers, rehabilitation facilities, and home care.

A strike in New York City involving more than 7,000 nurses ended early Thursday morning, after three days, when the New York State Nurses Association reached tentative contract agreements with Mount Sinai Hospital in Manhattan and Montefiore Medical Center in the Bronx. The striking nurses said staffing shortages exacerbated by the pandemic were causing high rates of burnout and inadequate patient care. According to union officials, both hospitals have several hundred unfilled nursing positions, The New York Times reported. Along with safe staffing ratios and other steps to ensure adequate staffing, the tentative deals included pay raises totaling approximately 19% over three years. Initially, an estimated 16,000 nurses voted to strike, including 4,000 at NewYork-Presbyterian, but union leaders representing nurses there and at several other hospitals in the city reached contract agreements before the strike began last Monday.  

Intermountain Healthcare is partnering with UCHealth to form a clinically integrated network in Colorado comprising 700 primary care physicians and hundreds of clinics and hospitals, with support from specialists across the state. Their intent is to accelerate the transition to value-based care in Colorado and “to give Coloradans a new option for their health insurance that prioritizes value-based care,” Elizabeth Concordia, UCHealth’s CEO, said in a press statement. To that end, the partnership will support health insurance products and programs — including Medicare Advantage and individual ACA health plans, pending regulatory approval — offered through Intermountain Health’s SelectHealth subsidiary for the plan year starting Jan. 1, 2024. The clinically integrated network will operate as an independent company. 

In separate news, Intermountain Health’s value-based care subsidiary, Castell, is partnering with Omada Health, a virtual, integrated chronic care health care provider based in San Francisco, to offer virtual diabetes care and prevention to primary care patients in Intermountain’s Utah medical group. Castell’s care coordinators and physicians in the medical group will identify and contact patients with or at risk for diabetes and give them the option to enroll in one of Omada’s programs. 

A group of Blue Cross and Blue Shield affiliated companies formed a medication contracting organization called Synergie Medication Collective. By using its “collective reach and engagement with pharmaceutical manufacturers and other industry stakeholders,” the group plans to establish a “more efficient” contracting model that can lower medical benefit drug costs. Targeted drugs include gene therapies and infusible cancer drugs, according to a press release. Along with the Blue Cross Blue Shield Association (BCBSA), Synergie’s founding investors include Elevance Health (formerly Anthem), Evio Pharmacy Solutions, Prime Therapeutics, and independent licensees of BCBSA operating in a dozen states and Washington, D.C. Jarrod Henshaw, who served as Prime Therapeutics’ chief innovation officer and supply chain officer, is Synergie’s CEO.

AstraZeneca agreed to acquire Waltham, Mass.-based CinCor for as much as $1.8 billion. Under the definitive agreement, AstraZeneca will pay $26 per share in cash, for a total of $1.3 billion. The deal also includes a non-tradable contingent value right of $10 per share that is linked to “a specified regulatory submission of a baxdrostat product.” Baxdrostat, an aldosterone synthase inhibitor CinCor in-licensed from Roche in 2019, is in clinical development for treatment-resistance hypertension. In the acquisition announcement, AstraZeneca referred to an opportunity to combine baxdrostat with Farxiga (dapagliflozin), which is used in treating heart failure, chronic kidney disease, and type 2 diabetes. The companies expect to complete the transaction this quarter if all customary closing conditions are met.

What we’re reading
Working With ACOs To Address Social Determinants Of Health. Health Affairs Forefront, 1.10.23
Pharmacy Benefit Managers and the Federal Trade Commission: A Relationship Gone Sour. JAMA Viewpoint, 1.9.23
The Anchor Strategy — A Place-Based Business Approach for Health Equity. NEJM, 1.12.23

 

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