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CVS closes in on Oak Street Health

Illustration of the CVS logo with dollar bills forming the heart.

Illustration: Shoshana Gordon/Axios

It looks as if CVS Health is going to buy Medicare-focused primary care operator Oak Street Health after all, according to the Wall Street Journal — and despite our own recent reporting to the contrary.

Why it matters: The trend of Medicare Advantage plans aligning with risk-bearing physician groups continues, as CVS throws its hat in the ring alongside peers UnitedHealth and Humana.

Details: Per WSJ, the deal is valued at about $10.5 billion including debt, which would come out to a share price of roughly $39.

  • A deal could be announced as soon as this week.

What they’re saying: “We have been seeing a land grab for any models taking risk in a retail environment and addressing the senior population,” one private equity partner says. “There are not that many scaled options out there, and they needed something to move the needle forward.”

  • BTIG analyst David Larsen says CVS Health may be feeling more “urgency around finding a high-quality dance-partner," with Oak Street viewed as a higher-quality asset large enough to move the needle for CVS.

Between the lines: The deal price is lofty, especially compared with Amazon's $3.9 billion acquisition of One Medical last year and considering Oak Street's more limited market share.

  • “Our view is that One Medical has a business model that is superior to Oak Street Health,” Larsen says in a report.
  • One Medical "supports Medicare and commercial lives, ONEM has its membership model, and ONEM also partners with high-quality acute care health systems in a multitude of cities," the report says. "We like the quality of care that [Oak Street] delivers to its patients but OSH, for now, is limited to Medicare.”

The intrigue: CVS has multiple financial balls in the air, and the deal is likely to add complexity to a company trying to focus on profitability.

  • The company is still trying to close its $8 billion deal for Signify Health (NYSE: SGFY). That deal is currently under DOJ review.
  • In January CVS announced minority bets on three other companies: $100 million to hybrid primary and urgent care company Carbon Health, a contribution to a $375 million funding round for home care business Monogram Health, and $25 million to virtual provider Array Behavioral Care.

Driving the news: The timing of this deal isn't a coincidence, after CMS announced a proposed payment policy change last week for Medicare Advantage that will expand choices and affordable options for patients.

By the numbers: As of 11:22am ET, Oak Street’s stock had soared to $33.72, up 29.8% after closing at $25.96 Monday.

💭 Our thought bubble: It's not an easy time to be a publicly traded company — if a transaction goes through, it'll be a sweet deal for Oak Street.

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