CVS said it was going to do it. People doubted CVS would do it. CVS did it.
To say that the retail health giant’s fourth quarter revenue beat was overshadowed would be an understatement, but in case your internet was out this week: CVS acquired Oak Street Health for $10.6B ($39/share).
Here’s the Q4 report by the numbers, then we’ll get to the juicy stuff:
- Full year revenue of $322.5B, up 10% (Caremark up, Aetna up, Retail up)
- CVS now 5th largest US company by revenue after Apple, Amazon, Walmart, United
- Full year net income of $4.2B, down 48% ($5B of opioid lawsuits didn’t help)
Now for Oak Street. The general idea behind the acquisition is also the title of its snazzy investor presentation: Creating the Premier Medicare Value-Based Care Platform.
- Oak Street Health employs 600 primary care physicians across 169 clinics. It focuses on capitated primary care for Medicare Advantage and Medicare (59k at-risk patients).
- Unlike many of the other primary care operators left on the market after Amazon / One Medical and VillageMD / Summit, Oak Street has locations in 21 states – decent enough proof that the model is scalable and translates to different geographies.
- It’s also one of the only companies that checks every box on CVS’ list: strong leadership; integrated tech platform; agnostic to different geographies and payors; demonstrable capability to improve outcomes; clear path toward profitability.
As for synergies, CVS sees 500 million of them, or at least five that can unlock $500M in value.
- Accelerating Oak Street patient growth through CVS Health channels
- Improving Oak Street’s economics through integration with CVS assets
- Improving the retention of Aetna MA members through the Oak Street experience
- Driving greater utilization of CVS Pharmacy and Caremark capabilities
- Reducing costs from external public company and lease expenses
CVS is a big company, and it needed to acquire a big player to move the needle in primary care. Although $10.6B is a hefty cost – and definitely a result of the physician M&A wars that CVS helped start – it only represents a 3.1x multiple on Oak Street’s project revenue for 2023. By comparison, Amazon forked over a 2.9x multiple for One Medical half a year ago.
Looking ahead, CVS expects Oak Street to expand to 300 clinics by 2026 at its current growth trajectory and without any further boost from the acquisition. When asked about this on its conference call, CVS said that it’s “exploring alternative avenues of accelerating synergy realization.” Buzzword Bingo. That means CVS doesn’t have a plan to speed this up yet, but it’s looking into it.
Either way, it’s hard to imagine that CVS’ existing scale won’t help make this work for both sides. CVS unlocks extra capacity with 1,100 MinuteClinics, has Aetna plans that can highlight Oak Street, and might soon have Signify home visits bringing patients into the ecosystem. This is a tipping point acquisition, and it’ll be exciting to watch.
The retail healthcare buyout bonanza doesn’t seem to want to take a week off, and Cano Health is now the latest company to drum up acquisition rumors.
The Wall Street Journal first reported that “talks are serious” and could be wrapped up in the next few weeks, with Cano already attracting attention from at least two potential suitors.
The first was Humana, who already has strong ties to Cano following a $100M investment in 2019. The second turned out to be none other than everyone’s favorite drugstore turned healthcare heavyweight, CVS Health.
Before we get too ahead of ourselves, Cano Health is a value-based primary care provider with 143 clinics in 9 states and mostly focuses on the Medicare Advantage population.
- Cano went public via a SPAC merger in 2021 at a $4.4B valuation and since then has fared about as well as other SPACs of the same vintage. Let’s just say it still isn’t quite back to that $4.4B mark, even after shares popped 30% on the takeover rumors.
- Similar to Amazon’s recent pickup, One Medical, Cano has been looking for ways to raise capital to sustain its operations – and given that 44% of Cano’s 282k members are in the MA program – pursuing an acquisition by a major payor makes sense.
For Humana’s part, an interesting stipulation in its earlier investment in Cano gives the payor first right-of-refusal in the event of a sale.
- Humana is already second in the MA market behind only UnitedHealthcare, and it’s been very vocal about plans to add over 100 more senior-focused clinics by 2025.
CVS Health, and by extension Aetna, has also been aggressively pushing into the MA market and isn’t shy about acquiring the strategic pieces to do so. See Signify Health.
- After losing out on the One Medical acquisition to a tech giant with deep pockets, Cano would be a great way for CVS to continue building out its clinical assets.
Big ticket acquisitions are turning into regular fixtures in our top story coverage as the crash in high flying valuations puts plenty of appetizing startups on the M&A menu. In the case of Cano, whoever comes out on top will gain a strong foothold in senior primary care, and it’s easy to imagine that other acquirers will be hungrily eyeing other players in the space like Oak Street and ChenMed.
CVS Health’s 2022 Health Care Insights Study revealed that people are eager for the next chapter in their health journeys after multiple years of delayed care and lifestyle disruptions. CVS surveyed 1,000 US consumers and 400 providers about their ideal care delivery experience, finding that the pandemic unsurprisingly caused many people to redefine what healthcare should look like.
The full study has 14 slides of insights to catch you up on the latest sentiment towards everything from patient engagement to primary care (the 1-pager can get you pretty close), but the biggest highlights fell into two main buckets.
Patients are embracing a more holistic view of their health, with 54% saying that it’s important for care plans to involve diet, exercise, and counseling. The pandemic proved to be a catalyst for positive change, with 22% of consumers reporting that they care more about their health than ever before.
- As a result, patients are taking a more active role in managing their own healthcare, with 17% saying they’re now more likely to book their annual wellness checks.
- 83% of consumers said good patient-provider communication and continuous care coordination is important to their health, yet 88% of providers reported that they don’t have enough time for strong patient engagement.
Virtual care is helping providers keep pace with rising consumer expectations. Nearly all consumers (92%) value convenience above all other factors when selecting a primary care physician, while 59% said it’s important to their health to have access to telehealth services.
- 62% of consumers are likely to consider virtual visits if a physical exam isn’t needed, primarily due to convenience-related reasons such as not having to leave home (41%) or saving time (37%).
- 53% of providers said that adding telehealth resulted in more patient visits, and a majority also believe it made patients more likely to make appointments (93%) and keep them (88%).
If the CVS Health report made one thing clear, it’s that patients are engaging in their care with a renewed sense of urgency towards holistic wellness and convenience. All signs are pointing towards “coordination” and “communication” being two of the biggest watchwords for post-pandemic healthcare, and that’s a strong demand signal for solutions that make them possible.
CVS Health’s push into omnichannel care delivery continued last week with its new Virtual Primary Care solution geared towards connecting the company’s clinical expertise and patient data on a single digital platform.
CVS Health Virtual Primary Care will provide eligible Aetna and CVS Caremark members with access to on-demand primary care, chronic condition management, and mental health services in either virtual or in-person settings.
- The service’s physician-led care teams include nurse practitioners, RNs, and licensed vocational nurses. The care team will consult CVS pharmacists and help members identify appropriate in-network specialists and other services as needed.
- An interoperable EHR will help patients transition between virtual and in-person care while allowing clinical data to be shared with other providers. A comprehensive data view will also enable providers to deliver personalized health alerts to patients.
The new program aims to enable timely access to care, and CVS cites reports that it currently takes 24 days to schedule an appointment with a primary care physician and twice that long to see a mental health professional.
- Although the press release doesn’t go into too much detail on how CVS plans to staff the program, an active job listing for a virtual primary care provider indicates that they’re hiring two PCPs to cover the entire 17-state central US region.
- If that ratio holds through next year’s launch it would suggest that CVS isn’t expecting significant patient volume through the platform, although it’s still early to make that call.
The Virtual Primary Care launch continues CVS Health’s recent string of service enhancements designed to help it move beyond its corner drugstore image, including reimagining its stores as healthcare destinations and a strategic data partnership with Microsoft. The move also bolsters CVS Health’s overall care delivery strategy at a time when one of its most direct competitors, Walgreens, is doubling down on primary care by taking an ownership stake in VillageMD to streamline the launch of at least 700 connected clinics by 2027.
CVS Health is wasting little time with its transformation into an “integrated health solutions company.” Less than a month after unveiling its omnichannel strategy, CVS announced a new five-year strategic partnership with Microsoft focused on digital health and personalized care.
The partnership is centered on leveraging Microsoft’s computing capabilities to unlock value from CVS’ treasure trove of patient and consumer data. CVS is in a unique position to know a patient’s provider choices (through its Aetna payor arm), medication history (through CVS pharmacy), and even shopping habits (through its retail stores).
Now, the company has enlisted Microsoft to tie it all together, with key goals of:
- Customizing care by combining information from across the company to deliver customized health recommendations while scaling loyalty and personalization programs.
- Enabling front line workers through the use of Microsoft Teams and Office products, allowing retail employees to quickly consume information and solve customer needs.
- Digitizing operations through Azure’s cognitive services like computer vision and text analytics to automate tasks such as pharmacy intake.
- Expanding cloud services by migrating applications currently running on on-site servers to Azure, giving CVS access to over 1,500 new business apps.
The partnership announcement adds color to the picture of what CVS’ transformation from a local pharmacy to a healthcare destination might look like.
Microsoft’s cloud infrastructure enables CVS to take a more proactive approach to its services, including preventative health recommendations, like when a patient is due for a screening, or automated reminders to pick up sunscreen if a customer has an increased risk of melanoma.
CVS has millions of customers between its retail operations and health plan enrollees, and this partnership allows it to use this data to reach people ”with the right services, through the right channels, at the right time.”
Consumers’ growing preference for omnichannel services has put a lot of pressure on brick-and-mortar retailers to adjust to the times or risk losing business, a message that CVS has clearly received as it looks to move beyond its corner drugstore image.
CVS Health announced that it will close 900 stores over the next three years, equaling roughly 9% of the company’s US footprint. The closures are part of a broader strategy overhaul to focus more attention on digital growth while reimaging its stores as healthcare destinations.
The foundation of CVS’ future retail strategy involves three new store formats:
- Sites dedicated to offering primary care services
- HealthHUBs designed for everyday health and wellness needs
- Traditional CVS Pharmacies with prescription services and personal care products
The move into primary care is particularly interesting. CVS’ current Minute Clinics use RNs for services such as physicals or flu shots, while generating referrals for nearby primary care providers. Although it’s unclear whether CVS will staff physicians in its new formats, the move suggests it is attempting to keep these patients in its ecosystem.
Other synergies are possible with CVS’ payor arm Aetna, which already provides plans nudging members to visit MinuteClinics by charging lower copays. The local density of people with Aetna coverage will factor into the decision of which stores to close, and CVS hopes to capture the downstream benefits resulting from preventative screenings.
At a time when digitally-native competitors like Amazon are flooding into the healthcare space, CVS is aiming to leverage its biggest advantage over these new entrants: its physical presence.
If CVS can successfully transition its stores into healthcare destinations, its scale would allow it to serve thousands of patients per day, expanding access to primary care while driving in-store volume of wellness products and long-term gains for Aetna members.