CVS is set to acquire a primary care doctor’s network, further integrating physician services into its pharmacy operations.
The company announced on Wednesday that it intends to pay $10.6 billion to purchase Oak Street Health, a primary care provider focused mainly on adults enrolled in Medicare Advantage. Oak Street operates 160 healthcare clinics across 21 states.
Medicare Advantage, also known as Medicare Part C, is a Medicare health plan offered by private companies under contract with Medicare. It covers nearly half of all Medicare beneficiaries.
Over the years, CVS has expanded its retail stores and basic MinuteClinics, and has also grown as a pharmacy benefits manager. In 2018, CVS acquired Aetna, becoming one of the largest health insurers in the United States.
While CVS has not traditionally operated a network of primary care physicians, the company has expressed interest in entering this sector.
In response to increasing competition and the need to manage costs, CVS aims to keep up with its rivals. According to Sean Nicholson, director of the Sloan Program in Health Administration at Cornell University, CVS could potentially offer insurance plans with lower premiums to consumers within Oak Street’s network.
The healthcare industry has seen a surge in deals between insurers and primary care providers in recent years. UnitedHealth Group’s Optum arm and Humana have expanded their primary care services as well.
“In the last three years, health insurers have shown a growing interest in acquiring primary care practices and employing physicians,” Nicholson noted.
Traditionally, health insurers have contracted with, rather than employed, physicians. However, insurers now believe that owning a strong physician network can help them better manage medical costs and care quality.
Nicholson also pointed out that private Medicare plans generally offer higher reimbursement rates from the federal government compared to traditional Medicare, which CVS aims to leverage. Recently, the Biden administration introduced a rule to address overcharging by private Medicare plans.
CVS’s retail competitors are also moving into primary care. Walgreens has partnered with VillageMD to open doctors’ offices at hundreds of its locations and has taken a majority stake in the company.
VillageMD, with backing from Walgreens, purchased primary care provider Summit Health for $9 billion earlier this year. Additionally, Amazon announced plans last year to acquire primary care provider One Medical for approximately $4 billion.
