The leaders of CVS Health Corp. are planning to open 50 to 60 Oak Street Health clinics in 2024, a plan that would enlarge by more than 30 percent the network of the primary care platform focused on Medicare patients.
Rhode Island-based CVS in early May paid $9.7 billion for Oak Street—the deal closed just a few weeks after the company also bought home health services provider Signify Health for nearly $7.4 billion—as part of its push to build a healthcare services business that dovetails with both its massive pharmacy network and its Aetna health insurance division. Oak Street, which was launched in 2012, finished June with 177 centers and about 181,000 at-risk lives in its network.
“This is a very important and strategic investment in our future that we’re making, and we continue to believe that there’s high demand for more access to the differentiated Oak Street care model,” CFO Shawn Guertin told analysts on an Aug. 2 conference call. “Our analysis has consistently shown that accelerated clinic growth is the right thing to do in terms of optimizing the long term returns on this investment and expanding access for at-risk populations.”
The CVS team led by President and CEO Karen Lynch has committed to growing Oak Street’s clinic count to more than 300 by the end of 2026. (Two months, they announced a push into four new markets.) When fully up and running, they said, each center has the potential to generate $7 million of adjusted EBITDA annually. On the conference call, Lynch was upbeat about the early integration of Oak Street with other CVS units and said CVS executives now have “more conviction now that the meaningful value that we thought we could unlock will surface.”
To wit: Oak Street’s second-quarter revenues were up 43 percent from the same period in 2022. The 181,000 lives in its network was up 35 percent year over year.
Lynch and Guertin were speaking to analysts after reporting CVS’ second-quarter results, which showed net income of $1.9 billion on revenues of $88.9 billion. (A year earlier, those numbers were $3.0 billion and $80.6 billion, respectively.) Profits were hurt by higher utilization among Medicare Advantage members, a trend other providers and insurers also have noted in recent months.
In response, CVS’ leaders have launched a cost-cutting plan that involves about 5,000 layoffs of people not in customer-facing jobs and have lowered their earnings forecasts for this year and next. Their forecast for capital spending also has been trimmed by $200 million to a range of $2.6 billion to $2.8 billion.
Shares of CVS (Ticker: CVS) rose about 3 percent Aug. 2 to close at $76.41. Year to date, however, they have given up more than 15 percent, trimming the company’s market capitalization to about $98 billion.