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CVS spends $10.6 billion to enter primary care market

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  • Staff Report 

Health care companies are investing heavily in primary care clinics as a way to reduce costs and improve patient health. CVS Health has announced it will spend $10.6 billion to purchase Oak Street Health, a clinic specializing in treating Medicare Advantage patients. This acquisition follows Walgreens’ $9-billion investment in VillageMD’s purchase of Summit Health-CityMD, and CVS Health’s $8-billion deal to acquire home health care provider Signify Health.

These investments signal a growing trend towards value-based care, a model that incentivizes doctors to keep patients healthy rather than paying for each individual service performed. The goal is to help patients manage chronic health problems and prevent costly hospital stays and medical treatments. Oak Street Health centers use a team of doctors, social workers, and care providers to assist patients with their health.

Primary care represents only 10% of national health care spending, but it has a significant impact on overall health care use, according to CVS Health CEO Karen Lynch. Oak Street Health caters to lower to middle-income Medicare Advantage patients and has plans to expand to 300 locations by 2026.

The increasing competition in the market, potential changes in Medicare reimbursement, and the entry of companies like Amazon into the health care space has driven up the cost of acquiring primary care providers. Amazon has announced its intention to spend $3.9 billion on care provider One Medical, though the deal is still under review by regulators.

CVS Health will pay $39 per share in cash for each share of Oak Street, with the deal expected to close this year. CVS Health’s profit for the fourth quarter of 2022 was $2.3 billion, a 76% increase from the previous quarter, with revenue climbing 9% to $83.85 billion. The company expects its adjusted earnings for 2023 to be between $8.70 and $8.90 per share.

In response to the news, shares of both CVS Health and Oak Street Health rose over 4%, while broader indexes slipped.

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