'A waste of $10B': Health system CIOs on CVS' Oak Street acquisition

'A waste of $10B': Health system CIOs on CVS' Oak Street acquisition unknown

On Feb. 8, CVS Health entered into an agreement to purchase primary care company Oak Street Health in an all-cash deal worth $10.6 billion, but some hospital and health system CIOs say this deal isn't transformative as it isn't big enough to "rattle" the provider industry.

According to Saad Chaudhry, chief digital and information officer of Annapolis, Md.-based Luminis Health, the deal looks like big numbers, but compared to the 1.02 million physicians and 4.2 million registered nurses in the U.S., the deal is very unlikely to make much of a difference.

"If you take this latest Oak Street Health acquisition for $10.6 billion under consideration, you'll note that it includes 160 centers across 20+ states — again, big numbers. Until you realize that there are over 600,000 ambulatory sites and over 6,000 hospitals in the country," said Mr. Chaudhry.

Mr. Chaudhry said CVS' deals — which now includes Oak Street and a $8 billion deal for home health company Signify Health — don't equate to the deals similar retail disruptors such as Amazon and Walgreens are entering.

"By themself, the CVS acquisitions may not indicate a large enough beachhead in the proverbial skirmish but taken in together with the other similar encroachments made by Amazon, Walgreens, etc.," said Mr. Chaudhry. "One of the key factors in how well they do will be the digitization of their provider operations via technology and modern and standardized workflows for provision of care."

Wasting billions of dollars?

Randy Davis, senior vice president and CIO of CGH Medical Center, based in Sterling, Ill., said CVS' purchase of Oak Street Health "makes no sense."

"Billions for an entity not making money?" said Mr. Davis. "CVS better have a plan they implement in 18 months or they'll get slaughtered. No one makes a worthy Wall Street margin on primary care. No one. And Oak Street is focused on Medicare Advantage, where the big game is to increase severity scores. You can't make money on primary care unless you have significant ancillary revenue and downstream referral income. That's the deal. Even hospitals employing primary care for the first time can quickly figure that one out."

According to The Wall Street Journal, Oak Street Health operates more than 160 centers across 21 states, and focuses on the care of patients enrolled in Medicare. The company also said it cares for about 159,000 patients.

Mr. Chaundry said primary care, specifically care that focuses on patients enrolled in Medicare, has been an uphill battle for most health systems in the country, and could prove to be a challenge for CVS as well.

"Will CVS and others get on the same difficult road? Sometimes this is inherent to being in the provider space. Or will they figure out a novel approach that the 400-plus health systems in the country could not, due to their consumer-centric, retail, tech-based roots?" asked Mr. Chaudhry. "To me, that is the more important question."

Or a dominant force in primary care?

But, other hospital and health system CIOs see potential in this deal as one that can make CVS a dominant force within the primary care arena.

"Other countries such as the UK who heavily invest and focus on primary care and keep patients well certainly demonstrate better outcomes and lower healthcare delivery costs overall," said Zafar Chaudry, MD, senior vice president, chief digital officer and CIO of Seattle Children's. "This acquisition will make CVS a dominant force in primary care and value-based contracts and allows CVS to keep patients out of the ER, drive down costs, improve outcomes and better drive patient engagement."

Simon Linwood, MD, CIO of Riverside, Calif.-based UCR Health echoed Dr. Chaudry's remarks stating that the acquisition could better serve communities that have been historically underserved.

"By integrating Oak Street Health's expertise in population health, CVS Health will be able to identify and address the health needs of specific communities and improve overall health outcomes for these populations," Dr. Linwood said.

The Oak Street Health deal is expected to close this year and would be CVS' second multibillion-dollar purchase in the last seven months.