CVS Health is buying Oak Street Health for $10.6 billion, adding 169 urgent care centers in 21 states to a health-care empire that already includes a leading insurer and a near-ubiquitous drugstore chain.
The deal announced Wednesday fits CVS’s focus on what chief executive Karen Lynch described as “value-based offerings.” Investors cheered the news, with CVS Health Corp. stock rising 4.5 percent by midafternoon.
It’s the latest example of consolidation in the health-care industry, where a handful of big players are expanding their reach through multibillion-dollar acquisitions.
Last year UnitedHealth, primarily known as an insurer, spent $5.4 billion to swallow up LHC Group and build out its Optum Health network of clinics. Walgreens has spent years combining hundreds of its drugstores with primary care clinics. And last year Amazon snapped up One Medical for $3.9 billion, giving it an urgent care network that charges patients on a subscription basis. (Amazon founder Jeff Bezos owns The Washington Post.)
Proponents of such deals contend that putting health-care payers and providers under one roof will keep costs down, while providing an incentive to keep patients healthy. Some antitrust advocates, however, see downsides to CVS’s expansion.
“By purchasing Oak Street Health, CVS hopes to take even more control of insurance, doctors, medical records, and pharmacies across the country,” said Sara Sirota, analyst at the American Economic Liberties Project.
She called on the Federal Trade Commission to consider blocking the deal to protect seniors who “will have little choice but to rely on CVS’s notoriously poor customer service model.”
Wednesday’s blockbuster is not the first major deal announced by CVS in recent months. The company last fall said it would buy home health provider Signify Health for $8 billion.
By putting doctors and insurers under the same umbrella, CVS becomes a so-called “payvider” — payer and provider combined ― whose profits are directly tied to the successes and failures of its doctors and nurses.
That structure provides a powerful incentive to deal with patients’ problems before they need a hospital visit. But skeptics worry that doctors could put off certain treatments or procedures, such as elective surgeries, in a bid to keep costs down.
Medicare Advantage represents an attractive opportunity for CVS as the population ages, said Michael Abrams, managing partner of health-care consulting firm Numerof & Associates.
“Medicare Advantage is growing by leaps and bounds,” Abrams said. “These organizations believe that with their cost structure and their management expertise, they can deliver a superior outcome at a lower cost than their competition, which are largely traditional health-care providers.”
The all-cash deal for Oak Street is expected to close later this year.