CVS opens the checkbook, does the Oak Street Health deal for a generous $10.6B

Staying on strategy, CVS buys provider group Oak Street Health. First rumored in mid-January, CVS Health and Oak Street finalized their deal today. The $10.6 billion purchase price of the NYSE traded company rewards shareholders with a $39 per share purchase price. 45% of the shareholders are composed of Newlight Partners LP and General Atlantic LLC plus certain members of the Oak Street Health Board of Directors. They have agreed to vote the shares they own in favor of the transaction (with a whew! at exiting). It is expected to close this year subject to the usual Department of Justice antitrust, Federal Trade Commission (FTC), and state-level review.

The $39 per share price was a tick lower than the January speculation that the price would be over $40 per share. $39 is not bad; at close of last week OSH was trading at $26.80, a far cry from its 2021 share prices in the $50-60 range. Today’s price closed at just above $35.  It has 169 offices and 600 providers across 21 states, making it a manageable size for CVS. OSH is headquartered in Chicago. Their CEO Mike Pykosz will continue to lead OSH, which will become part of CVS’ new Health Care Delivery organization and will be payer agnostic.  Oak Street is notable for serving underserved patient populations–50 percent of Oak Street Health’s patients have a housing, food or isolation risk factor.  

CVS Health’s long term plan, announced at recent earnings calls, is to add services in three categories: primary care, provider enablement, and home health. They are not hurting for profit or financing, closing out 2022 with $4.2 billion profit which certainly is a shining star in the depressed healthcare sky. CVS projects more than $500 million in synergy potential at the 2026 goal which is over 300 centers by 2026. But there will be losses first: 2023 loss about $200 million and not turning the profit corner till 2025 at earliest. An attractive point for CVS is  Canopy, their proprietary technology that determines the appropriate type and level of care for each OSH patient–and care integrates nicely into CVS Health’s community, home and digital offerings, as they say.

Will DOJ allow it without divestment? This administration has already taken a fairly hard tack on antitrust, trying (and failing, though appealing) to block UHG-Change Healthcare. Already the CVS-OSH tie-up has been opposed by an antitrust think tank, the American Economic Liberties Project. Oak Street adds primary care practices to those already under Aetna, many of which are in Federal ACO programs. Signify Health also has Medicare ACO practice groups, including the Caravan ACOs bought late last year. The Signify buy is already under a rolling DOJ and FTC review that has been moving slowly since last October. Signify’s other strength is diversification into home health, CVS’ third target area.

CVS’ investment in Carbon Health ($100 million Series D investment into primary and urgent care clinics in Western states) may be considered as Carbon will be piloting clinics in CVS retail locations. Release, Mobihealthnews, Healthcare Dive, Becker’s (including a breakdown of CVS’ 2022 financials), FierceHealthcare

Amazon moves to acquire One Medical provider network for $3.9B (updated)

Amazon joining the in-person provider network space for real. Amazon Health Services last week moved beyond experimenting with in-person care via provider agreements (Crossover Health, TTA 17 May) to being in the provider business with an agreement to acquire One Medical. Earlier this month, news leaked that One Medical as 1Life Healthcare was up for sale to the right buyer, having spurned CVS, and after watching their stock on Nasdaq plummet 75%.

  • The cash deal for $3.9 billion including assumption of debt is certainly a good one, representing $18 per share, a premium to their $14 share IPO in January 2020. (The stock closed last Wednesday before the announcement at just above $10 per share then plumped to ~$17 where it remains.)
  • The announcement is oddly not on One Medical’s website but is on Amazon’s here.
  • The buy is subject to shareholder and the usual regulatory approvals. The IPO was managed by JP Morgan Securities and Morgan Stanley. It is primarily backed by Alphabet (Google).
  • One Medical’s CEO Amir Dan Rubin will stay on, but there is no other executive transition mention.
  • Also not mentioned: the Iora Health operation that serves primarily Medicare patients in full-risk value-based care models such as Medicare Advantage (MA) and Medicare shared savings, quite opposite to One Medical’s membership-based concierge model. However, Iora’s website is largely cut over to One Medical’s identity and their coverage is limited to seven states.

There is a huge amount of opinion on the buy, but for this Editor it is clear that Amazon with One Medical is buying itself into in-person and virtual primary care for the employer market, where it had limited success with its present largely virtual offering, and entree with commercial plans and MA. One Medical has over 700,000 patients, 8,000 company clients and has 125 physical offices in 12 major US markets including NYC, Los Angeles, Boston, and Atlanta. It has never turned a profit. Looking at their website, they welcome primarily commercial plans and MA (but not Medicare supplement plans).

Amazon, with both a virtual plus provider network, now has a huge advantage over Teladoc and Amwell, both of which have previously brushed off Amazon as a threat to their business. There is the potential to run two models: the current Amazon Care pay-as-you-go model and the One Medical corporate/concierge model. This puts Amazon squarely in UHC’s Optum Health territory, which owns or has agreements with over 5% of US primary care practices, is fully in value-based care models such as Medicare shared savings through its ACOs, and is aggressively virtual plus integrating services such as data analytics, pharmacy, and financial. Becker’s

What doesn’t quite fit is Iora Health and the higher cost/higher care needs Medicare market that is less profitable and requires advanced risk management, a skill set that Amazon doesn’t have. This Editor will make a small prediction that Iora will be sold or spun off after the sale.

This Editor continues to believe that the real game for Amazon is monetizing patient data. That has gained traction since we opined that was the real Amazon Game in June and October last year, To restate it: Amazon Care’s structure, offerings, cheap pricing, feeds our opinion that Amazon’s real aim is to accumulate and own national healthcare data on the service’s users. Then they will monetize it by selling it to pharmaceutical companies, payers, developers, and other commercial third parties in and ex-US. Patients may want to think twice. This opinion is now shared by those with bigger voices, such as the American Economic Liberties Project. In their statement, they urged that the government block the buy due to Amazon’s cavalier attitudes towards customer data and far too much internal access, unsecured, to customer information (Revealnews.org from Wired). Adding PHI to this is like putting gasoline on a raging fire, and One Medical customers are apparently concerned. For what it’s worth, Senator Bernie Sanders has already tweeted against it.   MarketWatch

Whether this current administration and the DOJ will actually care about PHI and patient privacy is anyone’s guess, but TTA has noted that Amazon months ago beefed up its DC lobbying presence last year. According to Opensecrets.org, they spent $19.3 million last year. In fairness, Amazon is a leading Federal service provider, via Amazon Web Services. (Did you know that AWS stores the CIA’s information?)  One Medical is also relatively small–not a Village MD/Village Medical, now majority owned by Walgreens Boots. This is why this Editor believes that HHS, DOJ, and FTC will give it a pass, unlike UHG’s acquisition of Change Healthcare, especially if Amazon agrees to divest itself of the Iora Health business.

Treat yourself to the speculation, including that it will be added as an Amazon Prime benefit to the 44% of Americans who actually spend for an Amazon Prime membership. It may very well change part of the delivery model for primary care, and force other traditional providers to provide more integrated care, which is as old as Kaiser and Geisinger. It may demolish telehealth providers like Teladoc and Amwell. But as we’ve also noted, Amazon, like founder Jeff Bezos, deflects and veils its intents very well. FierceHealthcare 7/25, FierceHealthcare 7/21, Motley Fool, Healthcare Dive