CVS buying Chicago’s Oak Street Health in deal valued at $10.6 billion

CVS Health plans to buy Chicago-based Oak Street Health in a $10.6 billion deal that aims to expand CVS’s reach into primary care.

The all-cash deal was announced early Wednesday morning, with CVS Health saying it would pay $39 a share. The acquisition is expected to close later this year, pending regulatory approval.

The companies said in a news release that bringing CVS and Oak Street together will improve “patients’ long-term health by reducing care costs and improving outcomes — particularly for those in underserved communities.”

Oak Street provides primary care to people on Medicare at 169 centers across the country, including more than 25 in Illinois. It focuses on caring for low to moderate-income adults in underserved communities, aiming to keep them healthy through preventative care.

Oak Street aims to make money by contracting with insurers offering Medicare Advantage plans, and receiving a certain amount of money to care for each patient, rather than being paid per service. If Oak Street can keep a patient healthy, leading to lower medical costs, Oak Street gets to keep the difference between what the insurer paid versus what a patient’s care actually cost.

Oak Street was founded in Chicago in 2012, and has since grown rapidly. Oak Street went public in 2020.

“This agreement with CVS Health will accelerate our ability to deliver on our mission and continue improving health outcomes, lowering medical costs, and providing a better patient experience while offering significant value to our shareholders,” said Oak Street Health CEO Mike Pykosz, in a news release.

Pykosz will continue to lead Oak Street after the deal closes. Oak Street Health is expected to have more than 300 centers by 2026.

The deal should also give CVS more reach into primary care, in what’s become a race between CVS and Deerfield-based Walgreens to become health care companies, rather than just retail pharmacy chains.

Walgreens has been increasingly opening VillageMD primary care locations next to its stores across the country, and is the largest shareholder in Chicago-based VillageMD. Walgreens said it plans to increase the number of Village Medical clinics in its stores to 1,000 by 2027.

Meanwhile, CVS has offered MinuteClinics inside its stores for years, which give vaccinations, see sick patients and help people manage chronic conditions. In September of last year, CVS announced it planned to acquire home care provider Signify Health for about $8 billion.

Bloomberg first reported in January that CVS was in discussions to acquire Oak Street Health.

More to come.