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WOONSOCKET, R.I. — CVS Health has agreed to acquire Oak Street Health in a $10.6 billion deal that will expand CVS’s recently formed Health Care Delivery organization.
“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” CVS Health president and CEO Karen Lynch said in a statement as the companies announced the deal. “Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected.”
Oak Street Health is a leading multi-payor, value-based primary care company with the stated mission of helping older adults stay healthy and live life more fully. The company employs approximately 600 primary care providers and has 169 medical centers across 21 states. An integrated technology solution called Canopy helps Oak Street Health determine he appropriate type and level of care for each patient, according to the company, which says that care will be enhanced by CVS Health’s community, home and digital offerings.
“This agreement with CVS Health will accelerate our ability to deliver on our mission and continue improving health outcomes, lowering medical costs, and providing a better patient experience while offering significant value to our shareholders,” Oak Street Health CEO Mike Pykosz said. “Together with CVS Health, we will have access to greater resources and capabilities to expand the reach of our platform, provide more opportunities for our teammates and, most importantly, make a meaningful difference in the lives of the patients we serve.”
The companies said that bringing CVS Health and Oak Street Health together has the potential to significantly benefit patients’ long-term health by reducing care costs and improving outcomes – particularly for those in underserved communities. Oak Street Health said its centers are located where healthcare services are needed most, adding that more than 50% of its patients have a housing, food or isolation risk factor.
Following the close of the transaction, Pykosz will continue to lead Oak Street Health, which will become part of CVS Health’s recently formed Health Care Delivery organization. Oak Street Health will continue to serve its extensive network of health plan partners and patients – consistent with CVS Health’s payor-agnostic approach to delivering leading solutions.
CVS Health and Oak Street Health said they expect that the transaction will close this year. The deal has already been approved by the boards of both companies, but is still subject to approval by a majority of Oak Street Health’s stockholders, receipt of regulatory approval, and the satisfaction of other customary closing conditions.
“Oak Street Health is a premier value-based primary care platform,” said CVS Health Chief Financial Officer Shawn M. Guertin. “We believe that in partnership with CVS Health, Oak Street Health can accelerate its growth and provide an attractive return to our shareholders over time. The pending acquisitions of Oak Street Health and Signify Health will also meaningfully advance our goal of adding 200 basis points of long-term adjusted operating income growth, a key commitment we made to shareholders at our December 2021 Investor Day.”
By 2026, Oak Street Health will have over 300 centers, each of which has the potential to contribute $7 million of Oak Street Health Adjusted EBITDA at maturity, representing more than $2 billion of Oak Street Health embedded Adjusted EBITDA at that time. Additionally, CVS Health projects more than $500 million in synergy potential over time, enhancing CVS Health’s long-term adjusted operating income growth.
CVS Health continues to project that it will achieve 2023 Adjusted EPS in the range of $8.70 to $8.90. CVS Health is now targeting 2024 Adjusted EPS of approximately $9.00, growing to approximately $10.00 in 2025, with upside in 2025 based on the successful resolution of its Medicare Stars Ratings mitigation efforts. The 2024 and 2025 Adjusted EPS trajectories reflect the impact of the previously disclosed 2024 Medicare Stars Ratings headwind and Centene contract loss, closing of the Oak Street Health transaction in 2023, as well as projected contributions from the pending Signify Health transaction in 2024 and beyond. Consistent with past practice, CVS Health expects to exclude integration and transaction costs from its Adjusted EPS presentation.
