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.