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CVS closes $10.6B acquisition of Oak Street Health

Acquisition clears major antitrust setback to halt the deal.

CVS Health has sealed the deal on its acquisition of Oak Street Health, picking up about 169 medical centers in 21 states. The acquisition will broaden CVS Health's value-based primary care platform and significantly benefit patients' long-term health by improving outcomes and reducing costs – particularly for those in underserved communities, according to the company in a press release Tuesday.


The acquisition cleared a major regulatory hurdle back in late March when the Department of Justice and the Federal Trade Commission allowed the antitrust waiting period to run out on without taking action to halt the deal. Sen. Elizabeth Warren, D-Massachusetts, had urged the FTC to take a closer look at the deal and challenge any M&A activity in healthcare that could lead to higher prices, less competition and lower care quality.


The retail pharmacy giant announced the deal on February 8 as an all-cash transaction for $39 per share, representing an enterprise value of approximately $10.6 billion. The company financed the transaction with borrowings of $5.0 billion from a term loan agreement entered into on May 1, 2023 and existing cash and available resources.

Oak Street Health will continue to operate as a multipayer primary care provider as part of CVS Health.


Oak Street Health is a leading multi-payor, value-based primary care company helping older adults stay healthy and live life more fully. With an innovative care model and technology platform designed to deliver consistently superior outcomes and patient experiences, Oak Street Health has demonstrated that its model is scalable. Oak Street CEO Mike Pykosz will continue to lead the Medicare-focused primary care 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.”


Back in August during the company's second-quarter earnings call, Lynch said CVS, which operates nearly 10,000 drugstore locations across the country, is looking to enhance its health services in provider enablement, home health and primary care.


CVS' purchase of Signify Health checks the first two boxes while Oak Street Health checks the third one.


"Oak Street Health has a proven senior-focused primary care model that is scalable at a national level. We see a significant opportunity to expand in the next few years and provide superior care to many more patients," Lynch said during CVS' fourth-quarter earnings call in early February.


Oak Street specializes in treating Medicare Advantage patients and its network of clinics is expected to grow to over 300 centers by 2026, with each offering $7 million in potential embedded earnings before interest, taxes, depreciation and amortization, according to the company. CVS expects the merger to drive more than $500 million in synergy potential over time, bolstering its long-term growth goals.


The deal marks the latest example of vertical integration in healthcare. In addition to operating thousands of pharmacies and MinuteClinics, CVS also is the parent company of major health insurer Aetna and pharmacy benefit manager CVS Caremark.


"With a primary care business, as well as in-home evaluations solutions with Signify and a retail presence, CVS Health is becoming one of the most dominant forces in healthcare services," BTIG analyst David Larsen said in a recent research note.


Oak Street Health also plans to extend its reach into dialysis care through a new joint venture with kidney care management company Interwell Health. The new venture, called OakWell, will offer primary care to end-stage kidney disease (ESKD) patients directly in the dialysis center.

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