CVS Health will buy Chicago-based primary care provider Oak Street Health in a deal valued at $10.6 billion, the healthcare pharmacy said Wednesday.
Woonsocket, Rhode Island-based CVS has agreed to pay $39 per share in cash and assume debt in a transaction set to close this year, assuming regulatory approval. Oak Street CEO Mike Pykosz will continue to lead the operation.
Oak Street, which will become part of CVS' healthcare delivery organization, employs about 600 providers in 169 locations across 21 states. It is expected to grow to 300 locations by 2026, opening 35 to 40 centers per year, CVS Chief Financial Officer Shawn Guertin said on a call with investors.
More than 90% of Oak Street’s centers operate in underserved areas with average incomes below 300% of the federal poverty level.
“We’re really proud of what we’ve built over the first 10 years of Oak Street, but we really believe [there is] more magnitude and more growth out there for us," Pykosz said on the call. "We can go to more communities and impact more older adults, and I think that CVS Health brings a huge amount of resources that we can partner with and leverage to help us provide higher-quality care for patients."
Executives of the two companies were not made available for interviews.
The Oak Street acquisition comes as major retailers, including Walgreens Boots Alliance and Amazon, have been striking deals to expand their presence in healthcare services.
Executives touted the combination as a long-term value play. It is expected to create $500 million in savings in the coming years by accelerating Oak Street’s patient growth, increasing collaborative opportunities with CVS’ pharmacy and pharmacy benefit manager Caremark and encouraging retention of Aetna Medicare Advantage members with access to Oak Street physicians, among other factors.
In September, CVS announced plans to buy Signify Health, a home health and physician enablement technology company, in an $8 billion deal set to close in the second quarter. Signify employs more than 10,000 clinicians in all 50 states.
"We are entering 2023 with tremendous momentum," CVS President and CEO Karen Lynch said on Wednesday's investor call. "We continue to make progress on our strategy and will enhance the capabilities of our value-based care platform through the Oak Street Health and Signify Health acquisitions. We are excited about the opportunities ahead of us."
CVS on Wednesday reported fourth-quarter net income of $2.3 billion, a 77.5% increase from a year ago. Revenue rose 9.5% to $83.85 billion. Operating costs increased 7.9% to $80.23 billion.
For the full year, net income totaled $4.17 billion, a 47.3% year-over-year drop. Revenue increased 10.4% to $322.47 billion.
In November, CVS said it expects a $2 billion revenue hit in 2024 due to the loss of its pharmacy contract with Centene and bonus payments Medicare Advantage’s quality rating program. The Aetna National PPO rating fell to 3.5 stars in 2022. To receive bonuses, plans must achieve at least a four-star rating out of five stars.
Lynch said CVS plans to grow its commercial membership. Last month, the state of North Carolina selected Aetna as its health plan administrator starting in 2025, an agreement adding about 570,000 members. It also hopes to have 900,000 to 1 million members in its individual exchanges by the end of 2023. CVS is expecting a decline in Medicaid members this year once redeterminations take effect.
In 2022, CVS also recorded a $5.8 billion charge for opioid litigation involving allegations the chain improperly distributed prescription painkillers, contributing to the national opioid crisis.