CVS Health’s Pivot to Primary Care Services
CVS Health is no longer just the corner drugstore where you pick up prescriptions and buy greeting cards. Over the last few years, the company has executed a massive strategic shift to become a dominant player in healthcare delivery. Through multi-billion dollar acquisitions of Oak Street Health and Signify Health, CVS has vertically integrated its business model. This means they now own the insurance company (Aetna), the pharmacy benefits manager (Caremark), the retail pharmacy (CVS Pharmacy), and now, the actual doctors and clinics treating patients.
The Strategy: Beyond the Pharmacy Counter
The retail pharmacy business is facing significant headwinds. Reimbursement rates for drugs are falling, theft in retail stores is rising, and consumer shopping habits have shifted online. To survive and grow, CVS Health decided it needed to own the entire patient journey.
This strategy focuses on “value-based care.” In the traditional fee-for-service model, doctors get paid for every visit or test. In value-based care, providers are paid to keep patients healthy and out of the hospital. By acquiring primary care providers, CVS gains control over medical costs. If their doctors can manage a diabetic patient’s condition effectively, that patient avoids the emergency room. Since CVS owns Aetna, preventing that ER visit saves the insurance arm thousands of dollars.
To execute this, CVS spent nearly $19 billion in 2023 on two major acquisitions: Oak Street Health and Signify Health.
Oak Street Health: The Brick-and-Mortar Anchor
In May 2023, CVS Health completed its acquisition of Oak Street Health in a deal valued at approximately $10.6 billion. CVS paid $39 per share in cash for the company. This was a clear signal that CVS is betting its future on the growing senior population.
Focus on Medicare Advantage
Oak Street Health is not a typical walk-in clinic. It specializes in primary care for older adults, specifically those on Medicare Advantage. Their business model relies on high-touch care. Oak Street doctors spend more time with patients than average providers do, aiming to manage chronic conditions like heart disease and diabetes proactively.
The Numbers and Reach
At the time of the acquisition, Oak Street Health operated roughly 169 medical centers across 21 states. By owning these clinics, CVS creates a funnel. An Aetna Medicare Advantage member can be directed to an Oak Street clinic for care, pick up prescriptions at the CVS pharmacy, and utilize CVS Caremark for drug benefits.
CVS plans to expand Oak Street’s footprint significantly. The company aims to open dozens of new centers annually, often placing them adjacent to or near existing CVS retail locations to leverage their massive real estate footprint.
Signify Health: Bringing Care to the Home
Before closing the Oak Street deal, CVS acquired Signify Health for approximately $8 billion in March 2023. While Oak Street provides the physical clinics, Signify Health provides the logistics and network for home-based care.
The Home Health Assessment Model
Signify Health operates a network of over 10,000 clinicians (mostly doctors and nurse practitioners) across all 50 states. These clinicians visit patients in their homes to conduct comprehensive health assessments. They check for social determinants of health, such as whether a patient has access to nutritious food or faces fall risks in their home.
Strategic Synergy
This acquisition fills a critical gap for CVS. Signify’s clinicians see millions of patients annually. When a Signify clinician visits a home, they can identify health gaps and route that patient back to other CVS services. For example, if a home assessment reveals a patient is not taking their medication, the clinician can coordinate with CVS Pharmacy to sort out the prescription or refer them to an Oak Street Health clinic for ongoing primary care.
Analyzing the Financial Risks
While the strategy is logical on paper, the pivot has been expensive and complex. Integrating these massive organizations requires time and capital.
- Stock Performance: Wall Street has been skeptical of the execution risks. Following the acquisitions, CVS stock faced pressure throughout 2023 and early 2024 as investors worried about the cost of the deals and rising medical utilization rates among seniors.
- Retail Contraction: To fund this pivot and streamline operations, CVS announced it would close 900 retail stores between 2022 and 2024. This confirms the company is moving away from being a “store on every corner” to becoming a focused healthcare destination.
- Operational Hurdles: Managing physicians is different from managing pharmacists. Doctors require clinical autonomy, and corporate ownership of medical practices can sometimes lead to friction regarding patient volume targets versus quality of care.
Competitors in the Race for Primary Care
CVS is not the only giant attempting to corner the primary care market. The landscape is crowded with well-funded competitors making similar moves:
- Amazon: The tech giant acquired One Medical for $3.9 billion, giving them a network of concierge primary care clinics and a strong digital health platform.
- Walgreens Boots Alliance: Walgreens invested billions to take a majority stake in VillageMD, which also acquired Summit Health-CityMD. However, Walgreens has recently had to close many VillageMD locations to cut costs, highlighting the difficulty of this business model.
- Walmart: In a surprising turn, Walmart announced in early 2024 that it would close all 51 of its Walmart Health centers and shut down its virtual care business, proving that even massive retailers struggle to make the economics of primary care work.
What This Means for Patients
For the average consumer, specifically those insured by Aetna or utilizing Medicare, the CVS pivot aims to simplify the healthcare experience.
The vision is a seamless ecosystem. You might receive a call from a Signify Health nurse to schedule a home check-up. That nurse updates your electronic health record, which your Oak Street Health doctor reviews. Your doctor prescribes medication that is ready for pickup at CVS, where the pharmacist can see the doctor’s notes. This coordination aims to reduce the fragmentation that frustrates so many patients in the US healthcare system.
Frequently Asked Questions
Did CVS buy Oak Street Health? Yes. CVS Health completed the acquisition of Oak Street Health in May 2023 for approximately $10.6 billion. Oak Street continues to operate as a primary care provider within the CVS Health portfolio.
What is the difference between MinuteClinic and Oak Street Health? MinuteClinics are retail health clinics located inside CVS stores staffed by nurse practitioners. They handle minor illnesses (strep throat, flu) and vaccinations. Oak Street Health centers are full-service primary care practices staffed by doctors who manage complex, chronic conditions for seniors on an ongoing basis.
Why is CVS closing retail stores? CVS announced the closure of roughly 900 stores to reduce store density and shift resources toward their healthcare delivery strategy. They are prioritizing locations that can offer expanded health services or “HealthHUB” formats.
How does Signify Health fit into CVS? Signify Health allows CVS to send clinicians into patient homes. This helps CVS gather data on patient health, close gaps in care, and ensure patients follow their care plans, which reduces costs for their insurance arm, Aetna.