CVS finally makes primary care play, scooping up Oak Street Health in $10.6B deal

Rumors swirled last month at the J.P. Morgan Healthcare Conference that CVS Health had finally found its primary care play: acquiring Oak Street Health.

The healthcare giant confirmed those rumors Wednesday morning by revealing that it had entered into a definitive agreement to buy the Medicare-focused provider in an all-cash deal valued at $10.6 billion, or $39 per share. CVS said in the announcement that Oak Street's model, which is tech-enabled, multipayer and value-based, has proven to be scalable, making it an attractive target.

Oak Street CEO Mike Pykosz will continue to lead the company when the deal closes, CVS said, and the provider would be folded into its newly created healthcare delivery arm.

CVS said it sees significant opportunity in the combination to address healthcare costs and improve outcomes, especially in areas that have been underserved, as more than 50% of Oak Street's patients have either a housing, food or isolation risk factor. CVS' own retail pharmacies are also often in reach of patients who may otherwise struggle to access healthcare services, and the company has put a focus on its ability to reach underserved populations.

“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” said CVS Health CEO Karen Lynch in the announcement. “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.”

Oak Street includes about 600 physicians across 169 medical centers located in 21 states. It's expected to grow to over 300 centers by 2026, with each offering $7 million in potential embedded earnings before interest, taxes, depreciation and amortization. CVS expects the merger to drive more than $500 million in synergy potential over time, bolstering its long-term growth goals.

Chief Financial Officer Shawn Guertin said the combination with Oak Street as well as the pending acquisition of Signify Health are crucial steps to advancing "a key commitment we made to shareholders" on its growth targets.

Oak Street's care model is backed by Canopy, its proprietary technology platform, which is designed to determine the best type and level of care for each individual patient. CVS said these offerings will be enhanced by its own community, home health and virtual care abilities.

“This agreement with CVS Health will accelerate our ability to deliver on our mission and continue improving health outcomes, lowering medical costs, and providing a better patient experience while offering significant value to our shareholders,” said Pykosz in the release. “Together with CVS Health, we 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 and Oak Street expect the deal to close this year.