CVS Health Makes Waves During JPM: Experts Weigh In - MedCity News

CVS Health made headlines during the JP Morgan Conference in San Francisco this week through a series of investments and even a rumored acquisition of value-based primary care company Oak Street Health. The moves will make the company a dominant figure in the healthcare industry, one expert said.

“I think it really highlights the capabilities that they’ve built on the investment side,” said Michael Greeley, co-founder and general partner of Flare Capital. “They will be a force to be reckoned with in our industry, in a good way. I think they will be a really welcome partner.

Based in Woonsocket, Rhode Island CVS Health announced investments in three companies: $100 million to Carbon health, a primary and emergency care company; contribution to a $375 million funding round for Monogram health, a value-based provider of home care for people living with polychronic conditions; and $25 million Array Behavioral Care, a virtual mental health care provider. CVS Health is also reported to be exploring the acquisition of Oak Street Healthwhich operates primary care centers for Medicare beneficiaries, Bloomberg reported on Monday.

Greeley said he was not surprised by the rumors of the Oak Street deal. CVS Health has long since hit its stride interest in primary care clear as well as home care through your plan for acquire Signify Health for nearly $8 billion. The company may also face pressure as competitors make moves in the M&A space. Amazon announced its plan for acquire primary care company One Medical for nearly $4 billion in July and Walgreens-backed VillageMD recently closed for $8.9 billion acquisition of Summit Health-CityMD, a provider of primary care, specialty care and urgent care.

“Certainly, with some of the big acquisitions that have been announced over the last few quarters, there’s been a competitive response … There’s not a lot of high-quality, nationally-focused assets left,” Greeley said in an interview.

Another industry expert, however, doesn’t see the Oak Street deal happening. Oak Street is currently burning through a lot of cash growing its business, said Blake Madden, founder of the industry newsletter Hospitalology.

“Given CVS’s capital commitments and profitability guidance, shedding another $10 billion on an asset that requires additional investment and slows earnings (unlike Signify, which should be accretive) doesn’t make financial sense to me,” he said in an email. “That being said, anything is possible and CVS has been on the hunt for something for some time. Perhaps they get creative with a deal structure that includes cohort gain provisions or even bring in a financial partner to help close the deal.

The $100 million investment in Carbon Health makes more sense to Madden because it allows CVS Health to still do something in the primary care space, and for not too much cost. Carbon Health will use the funding to enter new markets, sign new value-based care agreements and advance its technology. CVS Health will also pilot the Carbon model at some CVS locations.

“CVS is gaining access to interesting Carbon assets, including a custom-built EHR and its new Connective Care primary care model, along with piloting the Carbon urgent care model in select CVS stores,” Madden said. “And all they had to spend was $100 million on a pretty cool brand in Carbon Health, a deal that doesn’t impact the balance sheet at all, but still moves the needle for their business.”

For Christina Farr, director of OMERS Ventures, Carbon Health’s investment could point to a potential acquisition in the future.

“I suspect this is a way for CVS to compete with Optum, especially when it comes to the consumer/retail strategy,” she said. “I don’t have first-hand knowledge to be clear, but this could also signal a potential acquisition down the line, as sometimes happens after strategies make growth-stage investments.”

CVS Health CEO Karen Lynch shed light on the company’s plans during a presentation at the JP Morgan conference on Tuesday. She said CVS Health has three strategic priorities: primary care, home health and physician opportunity for value-based care. The deal with Signify Health, which is expected to close in the first half of the year, is part of a home health and physician support strategy, and the company continues to look for ways to expand its reach into primary care, she said.

“We will continue to work diligently to identify additional assets, including primary care opportunities, that will complement our core businesses and advance our strategic vision,” Lynch said.

In response to the Oak Street rumors, CVS Health told MedCity, “We do not comment on rumors and speculation.”

Photo: CVS Health

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