Our Take: CVS Health strikes a deal with Oak Street Health in its attempt to catch up with Walgreens and other competitors
CVS Health may have upped the value-based care ante on Wednesday with the announcement that it plans to acquire Oak Street Health for $10.6 billion, including debt.
Under the definitive agreement the two companies signed, CVS Health will pay $39 per share in cash for Chicago-based Oak Street Health, which employs approximately 600 primary care providers, serves nearly 160,000 patients, and has 169 senior-focused medical centers in 21 states.
By 2026, the companies said, Oak Street Health will have more than 300 of these centers. The firm predominantly treats patients enrolled in Medicare Advantage (MA) plans, particularly those in underserved communities. CVS Health noted that more than 50% of those patients “have a housing, food, or isolation risk factor.”
Oak Street Health uses a proprietary technology platform called Canopy to determine the most appropriate type and level of care for individual patients.
“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” CVS Health CEO Karen Lynch said. “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.”
Both companies’ boards have approved the transaction, but it is still subject to approval by Oak Street Health’s stockholders. It must also be approved by regulatory authorities and meet other customary closing conditions.
The companies anticipate finalizing the acquisition this year. If and when that happens, CEO Mike Pukosz will continue to lead Oak Street Health, which will remain payer-agnostic and become part of CVS Health’s recently established health care delivery organization.
In other news, CVS Health reported net income of $2.3 billion for the fourth quarter of 2022, up 77.5% from the same quarter in 2021. For the full year, the company reported a profit of $4.2 billion, a year-over-year decrease of 47.3%, on revenue of $322.5 billion.
Our Take: With this latest deal, CVS Health continues to grow as a vertically integrated organization.
That growth started in 2006, when CVS bought Minneapolis-based MinuteClinic. The first MinuteClinics to open inside CVS pharmacy stores were in Ohio in 2012.
CVS also revealed plans in 2006 to buy Caremark Rx. Express Scripts tried to swoop in and buy Caremark instead, but CVS eventually won that battle the following year, spending about $24 billion on the deal and merging the pharmacy benefit management company with its own PBM, PharmaCare.
More than a decade later, in 2018, CVS acquired health insurer Aetna for $69 billion acquisition. Then, last September, CVS Health outbid competitors including Amazon and UnitedHealth Group with its offer to buy Signify Health, a home health and technology company based in Dallas, for approximately $8 billion. That deal is expected to close in the second quarter.
CVS is also partnering with Carbon Health, a startup that offers virtual care services and operates bricks-and-mortar primary care and urgent care sites in 13 states. CVS Health Ventures invested $100 millions to accelerate Carbon Health’s expansion into new markets.
If CVS Health can pull off both the Signify Health and Oak Street Health acquisitions, it will fulfill the plans Karen Lynch discussed on an earnings call in August to enhance the company’s health services in three categories: primary care, provider enablement, and home health.
Last week, Lynch said Oak Street Health “has a proven senior-focused primary care model that is scalable at a national level.”
But Dr. Sachin Jain, CEO of SCAN Health Plan, one of the largest MA plans, told Fierce Healthcare there are significant challenges in attempting to scale value-based care models.
“One of the challenges to scaling any of these models is that … there are human capital requirements. We’re existing at a time when there’s a national primary care shortage, so the question becomes, ‘How are we going to staff these models and staff these companies?’” Jain said.
There’s also the question of whether CVS Health can adapt Oak Street Health’s model for commercially insured patients.
“I’ve done the work of trying to transform models that are primarily oriented around Medicare populations to serve other populations,” Jain remarked. “And there are a lot of dynamics that make it incredibly challenging. I would just caution anybody who’s trying to take a model that works well for one type of population and adapt it to another because there are certainly population-specific dynamics that don’t translate.”
First, though, CVS Health has to finalize the deal. There’s no guarantee the Federal Trade Commission and the Department of Justice will give it the nod, as scrutiny of potential antitrust issues intensifies.
Already, at least one group, American Economic Liberties Project, said the FTC should “look to block [the acquisition].”
Sara Sirota, a policy analyst at the organization, said in a press release:
“By purchasing Oak Street Health, CVS hopes to take even more of control of insurance, doctors, medical records, and pharmacies across the country. It’s clear that CVS’ goal is to become another Big Medicine giant like UnitedHealth Group, where payers and providers can coordinate special compensation, referral privileges, and medical record surveillance while undermining independent health care businesses and patient privacy. This deal will be especially disastrous for seniors, who will have little choice but to rely on CVS’ notoriously poor customer service model combined with Oak Street’s physician practices, which have reportedly been staffed without any doctor on site.
Centene agreed to pay $215 million in a settlement with California regarding allegations that two of Centene’s managed care plans overcharged the Medi-Cal program for costs incurred in 2017 and 2018 for patients’ prescription drugs. The state’s attorney general’s office said in a press release that the California Department of Justice alleges Centene and its pharmacy benefit manager did not disclose discounted fees they negotiated on prescription drug claims or pass them on to Medi-Cal, the state’s Medicaid program. This latest settlement of Centene’s brings the total (made public) to $805.6 million in agreements with 14 states, Healthcare Dive reported.
Centene has more than 15 million members in Medicaid managed care contracts in 29 states, but on an earnings call, CEO Sarah London said the company expects to lose approximately 2.2 million of those members after the public health emergency ends and millions of people lose the continuous coverage protection they had during the pandemic. The company anticipates shifting as many as 300,000 members into subsidized exchange plans it offers in 25 states. Similarly, Molina Healthcare expects to lose an estimated 300,000 Medicaid members when coverage protections are lifted, but it also anticipates picking up a total of 240,000 members in Iowa and Wisconsin, according to Healthcare Dive.
Tenet Healthcare’s CEO said the company is positioned for continued growth in 2023 after reporting strong fourth-quarter results for its ambulatory segment — net operating revenue for the segment in the final quarter of 2022 was 25.7% higher than in the same quarter of 2021 ($933 million vs. $742 million). The increase was driven by additional revenue associated with Tenet’s acquisition of SurgCenter Development in December 2021. The Dallas-based company’s overall net operating revenue was down slightly for the full year compared with 2021 ($19.17 billion vs. $19.49 billion). CEO Saum Sutaria indicated on an earnings call that Tenet’s workforce challenges seem to be abating; the company hired more nurses in 2022 than in the prior year, and contract labor costs fell significantly after peaking in September.
Renton, Wash.-based Providence and United Surgical Partners International, a Tenet Healthcare subsidiary, are expanding their partnership. A joint venture partnership they began in 2004 includes five ambulatory surgical centers (ASCs) in California and two in Washington state, according to a news release. Moving forward, the organizations said they will partner in “several existing Providence ASCs across California and Washington” and “will aim to develop additional ASC joint venture partnerships in select markets across the western U.S.”
Bayer’s supervisory board appointed Bill Anderson as the company’s new CEO, effective June 1. Werner Baumann, who currently serves in the role, will retire at the end of May after being with Bayer for 35 years (seven as CEO), the company noted in a press release. Anderson most recently served as CEO of Roche Pharmaceuticals; before that, he was CEO of Genentech and previously held senior leadership roles at Biogen. He will become a member of Bayer’s board of management on April 1.
Dr. Craig Albanese will become Duke University Health System’s CEO at the end of March. He succeeds Dr. A. Eugene Washington, who will continue to serve as Duke University’s chancellor for health affairs through June. Dr. Albanese joined the health system a year ago as its chief operating officer. Before that, according to the announcement, he was chief medical officer of NewYork-Presbyterian Hospital and held senior leadership roles at Stanford University and the University of California San Francisco.
What we’re reading
The Future of Digital Health. BCG, 1.30.23
Recommendations On Health Care Spending And Value From 21 Experts: Why We Should Implement This Road Map For Action Now. Health Affairs Forefront, 2.8.23
Maintaining Health Care Innovations After the Pandemic. JAMA, 2.10.23
What else we’re reading
Mind Wide Open: Your Brain and the Neuroscience of Everyday Life, by Steven Johnson. Like Jon Krakauer and Michael Lewis, Steven Johnson is able to take complex (and often boring) topics and write about them in an engaging, thoughtful manner. There’s a reason why this is my third Steven Johnson recommendation. He’s that good.