Payvidors and other strategic players are investing significant capital into primary care.
Oak Street Health's main business goals are to lower total cost of care by preventing unnecessary acute events and managing chronic disease, all while providing a better patient experience. As a primary care operator working in with Medicare beneficiaries, Oak Street Health has done an incredible job of pushing the value-based care agenda forward.
From an operating and clinical perspective, acquiring Oak Street Health will afford CVS greater integration in its care delivery model, which will result in better care coordination for patients, more patient satisfaction, increased access for Medicare Advantage ("MA") members and dual-eligibles, boosts in quality, and reductions in total cost of care.
From a financial and strategy perspective, acquiring Oak Street Health should boost CVS/Aetna's MA star ratings, enhance member recruitment and retention, enable better risk coding, and unlock a national primary care platform for long-term profitability and future growth.
As MA enrollment swells, payors are focused on building out national footprints to attract and retain patients while focusing on managing overall medical spend for an aging population dealing with chronic conditions. Oak Street Health fills many pressing needs for CVS.
Medicare Advantage is a key area of growth for most payors. Market share is up for grabs as the population ages into the entitlement program in a competitive environment. Meanwhile, Medicare Advantage penetration is a rising tide as it overtakes traditional Medicare in 2023.
Payors are chasing UnitedHealth Group and the Optum strategy. The shift toward vertical integration means that insurers are moving profits from regulated, capped insurance segments downstream into higher-margin, unregulated, uncapped services entities.
Blake's Take
In isolation, CVS overpaid for Oak Street Health. But CVS will benefit in the long-term - this is a decades-long bet in healthcare and MA. As such, CVS did not value Oak Street Health on its standalone value today, but rather its strategic value to CVS as a whole.
The Oak Street Health, Summit Health, and One Medical transactions by strategic players are huge net-positives for tech-enabled services companies in the risk game. They establish immediate credibility for both at-risk primary care and players dabbling in specialty risk.
Like I stated in the 2023 predictions piece, vertical integration is the dominant trend in 2023. Payors will continue to pursue vertical integration strategy until the FTC someday pries their services arms from their cold, dead hands.
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