CVS acquires Oak Street Health for $10.6 billion

Yahoo Finance’s Anjalee Khemlani discusses how CVS’s acquisition of clinic operator Oak Street Health for $10.6 billion is part of a wider trend of consolidation in the health care industry.

Video Transcript

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BRAD SMITH: Health care consolidation continues. CVS buying up clinic operator Oak Street Health for a cool $10.6 billion. The move turns CVS into something a bit bigger than just a drugstore chain with aspirations to match here. Here with more, we've got Yahoo Finance's own Anjalee Khemlani. Anjalee, what do we know?

ANJALEE KHEMLANI: Well, first of all, I'm issuing a mandate here that you guys are not allowed to call CVS a drug store chain anymore.

BRAD SMITH: No mas.

ANJALEE KHEMLANI: Officially, no more. So let's take a look at what's happening. First of all, pull it out, zoom out, and look at what's going on in the health care space. We know that for years, there has been consolidation and there have been what's known as vertical integration. So these larger companies, parent companies, buying up basically partners or entities that have nothing to do with their original concept.

UnitedHealthcare, for example, launched the Optum brand in 2011. And that does everything from owning physician care, you know, offices, they also have the Optum RX, which is their PBM play. CVS, similarly, is-- owns Aetna now, right? That's an insurer. They picked that up. Humana also has a list and Cigna, as well. Though, their relationships are a little bit more multiplayer. They don't necessarily have exclusivity over a lot of that.

But it's still sort of begs the question, what's going on in the healthcare industry? Not a lot of people are paying attention to all these brands that are now under one roof. CVS stands out on that list. It's the only parent company that is not an insurer on the list you previously saw.

So the track starts basically back in 2006 with that acquisition of the MinuteClinic. That's when they make their first play into healthcare services. They then acquire Caremark, which is their PBM play. Then they stopped selling cigarette and we remember that push. And that really changed the tide in terms of what CVS looked at itself as. It was more than just a pharmacy at that point in time.

Fast forward 10 years later, we've got the acquisition of Aetna, Signify, and now Oak Street Health. So all of this really a major play in everything outside of that pharmacy space. And if you recall, quarter-over-quarter, we used to hear the front end is not bringing in money, the front end is not bringing in money. So here's what the company has really been doing when it comes to that.

And how does Oak Street Health now play, in addition to Signify, which is another sort of provider service. That they had a home health service that they picked up last year for about $8 billion. So $18 billion in total here we're looking at, a little bit more. So Signify is one option for home health. Now, this is primary care but for older individuals. That's part of Oak Street Health.

And we heard CFO Shawn Guerton on the earnings call recently saying, quote, that "There's obviously things that they can do to kind of push members to highlight that new Oak network." So all told, you're looking at a really different landscape when it comes to what's going on out there. We know a lot of people are, you know, keeping an eye on Amazon. But I would say, keep an eye on CVS, as well.

JULIE HYMAN: So my question is, when I see these deals, whether it's CVS, whether it's Amazon, in theory at least, I see them and I say, well, this should bring healthcare costs down, right? If I'm CVS and I own an insurer and I own all this other stuff, like it's more in my interest to bring costs down because I'm now paying some of-- and I now own the means to bring the costs down, as well. But is that what's going to happen?

ANJALEE KHEMLANI: Well, that's TBD and the reason why is because it's such a mixed bag of moves and players that any data that I tried to look for has shown either an increase in the cost or unknown because it's too much of a mixed bag. So we really do have to wait and see. The hope is once they get a handle over all of this, you know, it will actually lower cost.

Or it can go the way of pharmacies. We saw pharmacies have been spinning off and becoming leaner, meaner machines-- sorry, pharmaceutical companies have been becoming leaner machines. So it could even follow that route. It's just a wait and see.

BRIAN SOZZI: Anjalee, CVS really seems like the aggressor here according to your reporting. What is Walgreens doing?

ANJALEE KHEMLANI: Walgreens also has a lot of moves that it's been making and is in partnership with Cigna, I believe. Did have a pickup on the primary care front. But it's also a little bit different because it hasn't been moving as quickly as a major health provider in that sense. But it does have some moves.

CVS and Walgreens are also competing to now enter the clinical trial space, which is something we've reported on before. So that's going to be interesting. Basically, having locations where clinical trial patients can come into the location. So that's something that is a build out of the many locations that they already have. And utilizing that, as we saw during the pandemic, just how convenient those locations can be. So it's really just, you know, an interesting picture there.

JULIE HYMAN: You know, one other footnote as we're having this discussion. I'm thinking back on CPI this morning. And I noticed health insurance prices have been falling for four straight months, month-over-month down 3.6% in January. Medical healthcare services, overall, it looks like fell by 7/10 of 1%. So interesting trend that we are seeing there within the healthcare space.

ANJALEE KHEMLANI: Hopeful, right?

JULIE HYMAN: Yeah, yeah. We'll see how it ends up.

BRIAN SOZZI: Anjalee Khemlani, thanks so much. Appreciate it.