CVS Well being crammed headlines throughout the J.P. Morgan convention in San Francisco this week by a sequence of investments and even a rumored $10 billion acquisition of value-based main care firm Oak Road Well being. The strikes will make the corporate a dominant determine within the healthcare trade, one professional mentioned.
“I believe it actually highlights the capabilities they’ve constructed on the funding facet,” mentioned Michael Greeley, co-founder and normal associate of Flare Capital. “They’ll be a pressure to reckon with in our trade, in a great way. I believe they’ll be a very desired associate.”
Woonsocket, Rhode Island-based CVS Well being introduced investments in three firms: $100 million to Carbon Well being, a main care and pressing care firm; a contribution to a $375 million funding spherical for Monogram Well being, a value-based supplier of in-home take care of these dwelling with polychronic situations; and $25 million to Array Behavioral Care, a digital psychological well being care supplier. Moreover, CVS Well being is reportedly exploring an acquisition of Oak Road Well being, which runs main care facilities for Medicare beneficiaries, Bloomberg reported Monday.
Greeley mentioned he’s not shocked by the rumored Oak Road deal. CVS Well being has lengthy made its curiosity in main care clear, in addition to dwelling care by its plan to purchase Signify Well being for almost $8 billion. The corporate might also be dealing with stress as rivals make strikes within the M&An area. Amazon introduced its plan to purchase main care firm One Medical for almost $4 billion in July, and Walgreens-backed VillageMD not too long ago closed on its $8.9 billion acquisition of Summit Well being-CityMD, a supplier of main care, specialty care and pressing care.
“Definitely, with a few of the main acquisitions which have been introduced during the last couple of quarters, there’s a aggressive response … There aren’t a whole lot of top quality, nationally targeted property left,” Greeley mentioned in an interview.
One other trade professional doesn’t fairly see the cope with Oak Road taking place, nonetheless. Oak Road is at present burning a whole lot of money because it grows its enterprise, mentioned Blake Madden, founding father of trade e-newsletter Hospitalogy.
“Given CVS’ capital commitments and profitability steerage, dropping one other $10 billion on an asset that requires further funding and drags on earnings (in contrast to Signify, which needs to be accretive) doesn’t make monetary sense to me,” he mentioned in an electronic mail. “That being mentioned, something is feasible and CVS has been on the hunt for one thing for some time. Maybe they get inventive with a deal construction that features cohort earnout provisions and even usher in a monetary associate to assist shut the deal.”
The $100 million funding in Carbon Well being makes extra sense to Madden, because it permits CVS Well being to nonetheless do one thing within the main care house, and for not an excessive amount of of a value. Carbon Well being will use the funding to maneuver into new markets, signal new value-based care preparations and advance its expertise. CVS Well being will even pilot Carbon’s mannequin in some CVS areas.
“CVS will get entry to fascinating Carbon property, together with a custom-built EHR and its new Connective Care main care mannequin, together with piloting the Carbon pressing care mannequin in sure CVS shops,” Madden mentioned. “And all they needed to spend was $100 million for a fairly nice model title in Carbon Well being, a deal that doesn’t impression the stability sheet in any respect however nonetheless strikes the needle for his or her enterprise.”
To Christina Farr, principal at OMERS Ventures, the Carbon Well being funding may level to a possible acquisition down the road.
“I think this can be a approach for CVS to compete with Optum, particularly because it pertains to the buyer/retail technique,” she mentioned. “I don’t have firsthand data, to be clear, nevertheless it may additionally sign a possible acquisition down the road as is typically the case after strategics make development stage investments.”
CVS Well being CEO Karen Lynch make clear the corporate’s plans throughout a presentation on the J.P. Morgan convention Tuesday. She mentioned CVS Well being has three strategic priorities: main care, dwelling well being and doctor enablement to value-based care. The Signify Well being deal, which is anticipated to shut within the first half of the yr, is a part of the house well being and doctor enablement technique, and the corporate is continuous to search for methods to increase their attain in main care, she mentioned.
“We’ll proceed to work diligently to determine further property, together with main care capabilities, that can complement our foundational companies and additional advance our strategic imaginative and prescient,” Lynch said.
In response to the Oak Road rumors, CVS Well being advised MedCity, “We don’t touch upon rumors and hypothesis.”
Image: CVS Well being