By paying almost $10.6 billion for primary care provider Oak Street Health, CVS Health is expanding its primary care offerings.
The pharmacy company said on Wednesday that it would acquire Oak Street for $39 in cash per share in a deal anticipated to finish this year.
Most patients with Medicare Advantage insurance who use Oak Street’s care facilities are of lower- to middle-class income.
These are variations of the federal government’s program for seniors that are privately administered.
The goal of CVS Health Corp.’s most recent acquisition is to take advantage of the federal government’s desire to lower expenses and enhance the health of beneficiaries of its Medicare program.
The government wants more people to participate in value-based care agreements that essentially emphasize patient wellness and managing chronic conditions like diabetes. The objective is to prevent costly medical expenses like hospital stays.
In addition to operating around 10,000 pharmacies across the country, CVS Health also offers Medicare Advantage plans to over 3 million people through its Aetna division.
Before Wednesday’s acquisition was disclosed, BTIG analyst David Larsen noted that large insurers like that require a significant presence in primary care to help control costs.
According to Larsen, value-based care is becoming the standard approach for healthcare.
This kind of care is a specialty at Oak Street.
Its facilities employ medical professionals, social workers, and other caregivers to assist people in managing their health.
According to Oak Street CEO Michael Pykosz, many costs are attributable to patients with chronic health issues who receive subpar care and have significant medical problems.
At a JPMorgan-hosted annual conference in January, Pykosz declared, “Fixing that issue presents a big, massive market potential for Oak Street Health.”
Oak Street was established in 2012 and had 169 locations throughout 21 states. By 2026, it anticipates having more than 300 locations.
Analysts predict that Oak Street’s revenue exceeded $2 billion last year after increasing to $1.43 billion in 2021.
However, despite making significant investments to create new clinics, the corporation still loses money.
The Woonsocket, Rhode Island-based CVS Health Corp. has been increasing the services it offers through its pharmacies, and company executives have been discussing the addition of more primary care for well over a year, following the lead of rival health care behemoths UnitedHealth Group and Walgreens.
CEO Karen Lynch told investors at the JPMorgan conference, “We believe it’s an asset we want in our portfolio.
For a few years now, UnitedHealth has made substantial efforts to expand its care-providing Optum sector.
To assist its VillageMD care partner in acquiring the urgent and primary care network Summit Health-CityMD, rival drugstore chain Walgreens is paying close to $9 billion.
Primary care facilities catering to Medicare Advantage consumers are opening near pharmacies, including Walgreens and VillageMD. Cigna, yet another insurer, also has investments in VillageMD.
The retail behemoth Amazon recently announced the launch of a subscription prescription medicine service and is investing nearly $4 billion to acquire primary care provider One Medical.
According to Larsen’s letter, CVS Health was probably “feeling increased urgency around finding a high-quality ‘dance partner.'”
Spending $8 billion on acquiring home health care provider Signify Health is another expansion focus for CVS Health.
According to CVS Health, the purchase will be finalized in the first part of this year.
9% more money was made, or $83.84 billion.
According to FactSet, analysts predicted $1.92 per share earnings on revenue of $76.32 billion.
Additionally, the business anticipates 2023 earnings per share to fall between $8.70 and $8.90.
Analysts anticipate $8.84 in earnings per share.
Chicago-based Oak Street Health Inc.’s shares increased by about 4%, and CVS Health’s stock rose by almost 2% before the opening bell.