Digging into CVS’ Latest Proposed Purchase: Oak Street Health

What is Oak Street Health?

Oak Street Health, founded in 2012, is a value-based primary care organization dedicated to serving seniors with Medicare coverage. Its care model prioritizes quality over quantity and aims to improve health outcomes, lower healthcare costs, and provide positive patient experiences.

The organization offers patients comprehensive preventive care, including personalized wellness plans, integrated health services, and educational and social activities. The company focuses on equitable care delivery and works to improve healthcare access for traditionally underserved communities.

Nearly all of the practice’s patients are Medicare beneficiaries, and 42 percent of those are dually eligible for Medicaid. More than half of its patients identify as African American, Hispanic or Latino, or Indigenous.

In addition to primary care, Oak Street Health can provide patients with coordinated specialty care if needed. The organization has in-center specialists for areas like podiatry, mental health, and behavioral health.

Oak Street Health runs more than 160 centers across 21 states and is the only primary care provider endorsed by the AARP.

Additionally, the primary care practice has an accountable care organization (ACO), Oak Street Health Medicare Partners, which achieved $14.6 million in net shared savings in the Global and Professional Direct Contracting Model during performance year 2021.

Oak Street Health’s Newsworthy History

The primary care organization has been recognized for its achievements in various areas.

In November 2021, the network was selected as a Chicago Tribune Top Workplace based on feedback from Oak Street Health’s nearly 1,000 employees in the Chicago area. The organization was praised for its company culture, leadership, and values. Similarly, New Orleans Top Workplaces by NOLA.com recognized Oak Street Health as a 2022 winner.

The organization has also received awards praising its customer service team and EHR technology.

Oak Street Health has collaborated with retail giant Walmart to increase access to care in the Dallas-Fort Worth, Texas area. The partnership helped bring Oak Street Health clinics that offer preventive primary care and urgent care services to three Walmart supercenters.

The organization went public in August 2020. It closed an initial public offering of 17,968,750 shares of its common stock, including the exercise in full of the underwriters’ option to purchase 2,343,750 additional shares of common stock at the initial public offering price of $21 per share.

Before deducting underwriting discounts and commissions, Oak Street Health received around $377 million in gross proceeds.

The proposed acquisition from CVS is not the first healthcare deal Oak Street Health has been a part of. In October 2021, the provider organization acquired RubiconMD, a virtual consultation platform that helps connect primary care physicians and patients to specialists.

The transaction aimed to integrate virtual specialty care into Oak Street Health’s care model to streamline the referral process, improve cost management, and better the patient experience. RubiconMD specialist networks cover all major specialties, including cardiology, nephrology, and pulmonology.

What the Future Holds

Talks about CVS Health’s intention to purchase Oak Street Health started in January. On February 8, the organizations confirmed they had entered into a definitive agreement for CVS Health to acquire Oak Street Health for $10.6 billion, or $39 per share.

“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” Karen Lynch, president and chief executive officer of CVS Health, said 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.”

CVS has had its sights set on primary care since last year, perhaps to keep up with the competition as Amazon announced plans to acquire One Medical and Walgreens Boots Alliance invested in VillageMD.

The Oak Street acquisition puts CVS in a position to further both its primary care and value-based care reach.

CVS also announced plans to acquire Signify Health in September 2022, indicating another move into the value-based care space for the company.

Oak Street’s projected growth may be an attractive feature to CVS. The provider organization expects to have 300 centers by 2026, each of which could potentially deliver $7 million in earnings. CVS also projects more than $500 million in synergy potential between the organizations, which would enhance long-term operating growth.

Following the transaction’s close, Oak Street Health will become part of CVS Health’s Health Care Delivery organization, where it will continue to serve its health plan partners and patients.

However, the proposed acquisition may face financial and antitrust roadblocks.

Oak Street is expected to lose $200 million this year and may not reach profitability until 2025, according to one source. This could pressure CVS’s financial targets and capital priorities.

The deal might not even happen if antitrust groups get their way. The American Economic Liberties Project has already urged the Federal Trade Commission (FTC) to block the transaction.

“By purchasing Oak Street Health, CVS hopes to take even more control of insurance, doctors, medical records, and pharmacies across the country,” Sara Sirota, a policy analyst at the American Economic Liberties Project, said. “It’s clear that CVS’s 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 healthcare businesses and patient privacy.”

The antitrust group said the deal will give seniors “little choice but to rely on CVS’s notoriously poor customer service model.” They also referenced an investigation by Capitol Forum which found that more than 20 percent of Oak Street Health clinics listed no doctor on staff.

Following the acquisition announcement, Oak Street Health’s stock price jumped from 25.96 USD to 33.68 USD and is currently at 35.39 USD as of February 15. The organization stated that its policy is not to comment on unusual market activity.