USA — CVS Health has acquired Oak Street Health Inc. for about US$9.5 billion in cash, expanding its healthcare services by adding hundreds of primary care clinics mostly for older people.

Through Oak Street, CVS will get control over 160 primary care centers that typically offer routine health screenings and diagnosis to those insured under the U.S. government’s Medicare program, which is for people aged 65 years and older or who qualify because they have a disability.

Bringing CVS Health and Oak Street Health together can significantly benefit patients’ long-term health by reducing care costs and improving outcomes – particularly for those in underserved communities.

Oak Street includes about 600 physicians across 169 medical centers located in 21 states. It’s expected to grow to over 300 centers by 2026, with each offering US$7 million in potential embedded earnings before interest, taxes, depreciation, and amortization.

CVS expects the merger to drive more than US$500 million in synergy potential over time, bolstering its long-term growth goals.

Bloomberg reported earlier this year that CVS was in advanced talks with Oak Street in a deal that would likely rise past US$10 billion, including both equity and debt, if completed.

CVS said the value of the deal was US$10.6 billion, including debt. Its per share offer of US$39 represents about 73% premium to Oak Street’s last closing price before talks of the deal were first reported in January and nearly 16% to Tuesday’s close. Shares of the primary care firm rose 5% before the bell, as per Reuters.

The deal marks CVS’ third largest deal in the last decade, closely following its nearly US$13 billion buyout of pharmacy services provider Omnicare in 2015 and US$69 billion acquisition of health insurer Aetna in 2017, according to Refinitiv data.

The Oak Street deal echoes similar moves by rivals into primary care. Walgreens Boots Alliance and Cigna have made investments in primary care provider VillageMD, and Amazon announced a US$3.49 billion deal last year to buy One Medical to expand into the space.

UnitedHealth Group Inc also runs urgent care, primary care, and surgical care centers.

CVS has been in the market for a medical services acquisition since last year, as part of its strategy to mitigate the pressure on its health insurance unit from lower ratings on its Medicare Advantage insurance plans and the end of a major pharmacy benefit management contract.

CVS fell marginally on news of the deal, but reversed course to gain about 2% before the bell, after reporting fourth-quarter profit above Wall Street estimates.

Last month, Karen Lynch told the JPMorgan healthcare conference in San Francisco yesterday that CVS Health expects to exceed its full-year revenue forecast of between US$309 billion and US$314 billion, with adjusted earnings at the higher end of its prior US$8.55 to US$8.65 per share forecast.

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