CVS reports $2.3B profit in Q4, announces Oak Street Health deal

CVS HEALTH Corp. announced on Wednesday better-than-expected results from the final quarter of 2022 and confirmed its purchase of primary care provider Oak Street Health for approximately $10.6 billion. / GENE J. PUSKAR / ASSOCIATED PRESS

PROVIDENCE – CVS Health Corp. announced on Wednesday better-than-expected results from the final quarter of 2022 and confirmed its purchase of primary care provider Oak Street Health for approximately $10.6 billion.

The company’s profit surged 77% in the fourth quarter of 2022 to $2.3 billion, and adjusted earnings totaled $1.99 per share compared to a profit of 1.3 billion, or 98 cents a share, year over year.

Revenue climbed 9% to $83.84 billion, an increase from 76.6 billion in the fourth quarter of 2021.

Analysts expected earnings of $1.92 per share on $76.32 billion in revenue, according to FactSet.

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The company also said it expects earnings to range between $8.70 and $8.90 per share in 2023.

Analysts forecast earnings of $8.84 per share.

For the year, CVS Health Corp. reported a 4.1 billion profit, a 3.7% decline from 7.8 billion in 2021. However revenues increased to $322.5 billion, up 10.4% compared to prior year.

The drugstore chain also confirmed Wednesday it would pay $39 per share in cash for each share of Oak Street in a deal expected to close this year.

“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” said CVS Health Corp. CEO and President Karen S. Lynch. “Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected.”

Oak Street Health employs approximately 600 primary care providers and has 169 medical centers across 21 states.

“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. “Together with CVS Health, we will have access to greater resources and capabilities to expand the reach of our platform, provide more opportunities for our teammates and, most importantly, make a meaningful difference in the lives of the patients we serve.”

Following the close of the transaction, Pykosz will continue to lead Oak Street Health, which will become part of CVS Health’s recently formed Health Care Delivery organization.

Shares of Oak Street Health Inc., based in Chicago, jumped nearly 4%, while CVS Healths stock rose almost 2% before the opening bell is plunging deeper into primary care services, buying primary care provider Oak Street Health for approximately $10.6 billion.

Oak Street runs care centers mostly for lower-to-middle income people with Medicare Advantage plans. Those are privately run versions of the federal government’s program for people aged 65 and older.

With its latest acquisition, CVS Health Corp. aims to capitalize on the federal government’s interest in cutting costs and improving the health of people in its Medicare program.

The government wants more people in value-based care arrangements, which basically focus on keeping patients healthy and any chronic problems like diabetes under control. The goal: Ward off big medical expenses like hospital stays.

In addition to running nearly 10,000 drugstores nationwide, CVS Health also covers more than 3 million people with Medicare Advantage plans through its Aetna arm. Big insurers like that need a major presence in primary care to help control costs, BTIG analyst David Larsen wrote before Wednesday’s deal was announced.

“It is clear that value-based-care is becoming a dominant model in healthcare,” Larsen said.

Oak Street specializes in this type of care.

Its centers use doctors, social workers and other care providers to help people manage their health.

Oak Street CEO Michael Pykosz has said that a lot of costs stem from people with chronic health problems who receive poor care and wind up with big medical problems.

“Solving that problem creates a massive, massive market opportunity for Oak Street Health,” Pykosz said in January at an annual conference hosted by JPMorgan.

Founded in 2012, Oak Street runs 169 locations in 21 states. It expects to have more than 300 locations by 2026.

Oak Street’s revenue grew to $1.43 billion in 2021, and analysts expect that it topped $2 billion last year. But the company is spending heavily to open new clinics and its losses have grown every year.

CVS Health Corp., based in Woonsocket has been expanding the amount of care it provides through its drugstores, and company leaders have been talking for well over a year about adding more primary care as rival health care giants UnitedHealth Group and Walgreens have done.

“We believe it’s an asset that we want in our portfolio,” Lynch told investors at the JPMorgan conference.

UnitedHealth has pushed aggressively to grow its Optum segment that provides care for a few years now. Rival drugstore chain Walgreens is investing close to $9 billion to help its VillageMD care partner acquire the urgent and primary care chain Summit Health-CityMD.

Walgreens and VillageMD are opening next to drugstores primary care centers that also target Medicare Advantage patients. Another insurer, Cigna, also invests in VillageMD.

The retail giant Amazon also is spending nearly $4 billion to buy primary care provider One Medical and recently said it was launching a subscription prescription drug service.

CVS Health likely was “feeling more urgency around finding a high-quality ‘dance-partner,'” Larsen said in his note.

CVS Health is already spending $8 billion on another growth priority: buying home health care provider Signify Health. CVS Health expects that deal to close in the first half of this year.

Shares of Oak Street Health Inc., based in Chicago, jumped nearly 4%, while CVS Health’s stock rose almost 2% before the opening bell.

(Material from the Associated Press was used in this report) 

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