After plenty of speculation over whether CVS Health will actually buy Oak Street Health, with many rejecting the notion, the rumors have been confirmed. 

The Woonsocket, Rhode Island-based company will snatch up value-based primary care company Oak Street Health for $10.6 billion paying $39 a share, the retail giant announced Wednesday. The move puts the spotlight on primary care as the focal point for care delivery transformation underway across all healthcare stakeholders.

The Chicago-based primary care company serves adults on Medicare, including those on dual-eligible plans. It has 169 centers across 21 states, and will have more than 300 centers by 2026, according to a news release. More than 50% of the company’s patients have a housing, food or isolation risk factor.

The news comes amid a wealth of primary care M&A activity among retailers, including Walgreens-backed VillageMD’s $8.9 billion acquisition of Summit Health-CityMD and Amazon’s pending $3.9 billion purchase of One Medical (which is reportedly facing scrutiny from the FTC). CVS Health also recently announced its plan to acquire home health company Signify Health for $8 billion, and Oak Street will likely fit well with the Signify business, one expert said.

“All the major retail health platforms are looking at primary care and Medicare Advantage as key drivers of strategy, care and financial performance growth,” said Nathan Ray, partner for West Monroe, a consulting firm. “This fits that objective and likely complements the Medicare Advantage and home focus of previous acquisition of Signify.”

Ray added that CVS Health was attracted to Oak Street because it has proven its ability to grow. Further, the acquisition would allow the retailer to expand into senior care. 

“CVS is interested in Oak Street because it is a growing platform that is focused on senior care. It is matured and builds momentum around the things that matter such as care and intervention models, technology, and outcomes … Oak Street Health has also shown the ability to build the workforce to succeed in their retail health storefront growth,” Ray stated. “Many of these emerging big retail platforms struggle to find the clinical workforce to fully fulfill their physical storefront growth objectives. It appears that Oak Street Health has some of that figured out.”

Ray’s comments were echoed by Alyssa Jaffee, partner at 7wireVentures.

“Expanding access to care and increasing focus on consumer-centered care models is a necessary shift the country’s healthcare system needs to make. Our population is aging and chronic condition prevalence is increasing,” Jaffee said. “The market is primed for innovative strategies and partnerships that center on delivering high quality, personalized care. A CVS/Oak Street partnership has potential to move the needle in the right direction and is a key strategic move for CVS as they continue to extend their presence in care delivery.”

The rumors first surfaced in January during the J.P. Morgan conference and coincided with a series of investment news from CVS Health, including a $100 million investment in Carbon Health, a primary and urgent care company. For some, such as Michael Greeley, co-founder and general partner at Flare Capital, the rumors made sense. CVS Health has long made its interest in primary care clear, and there aren’t a lot of companies with a national presence left, he said in a previous interview.

Others, however, were more dismissive of the rumors. Those include Blake Madden, founder of industry newsletter Hospitalogy, who said Oak Street is currently burning a lot of cash as it grows its business.

“Given CVS’ capital commitments and profitability guidance, dropping another $10 billion on an asset that requires additional investment and drags on earnings (unlike Signify, which should be accretive) doesn’t make financial sense to me,” Madden said in January.

To his credit, Madden candidly admitted he was wrong in his Tuesday newsletter, after the Wall Street Journal article, which reported CVS was nearing the deal. He said CVS Health may have “panicked a bit” to grab the last major value-based care company on the market, after VillageMD snagged Summit Health and Amazon picked up One Medical—though the challenges he previously articulated still exist for CVS Health, he added. 

“CVS is still dealing with all of those headwinds I mentioned in my last writeup,” Madden wrote. “How will this deal affect its finances? Its use of capital, since Oak will need heavy investment? Its previously disclosed ability to buy back shares or pump out its dividend? Will this deal not dilute earnings? In the short term, CVS will be facing some notable headwinds.”

If the above worries Karen S. Lynch, president and CEO of CVS Health, she is not letting on.

“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” Lynch said in in a statement. “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.”

CVS Health declined to comment on the deal beyond what was already stated in the news release, while Oak Street Health did not return a request for comment.

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