CVS wants to be the doctor for Medicare patients

CVS is buying a primary care doctor’s network, moving the pharmacy deeper into providing physician services for patients.

The company announced Wednesday that it plans to pay $10.6 billion to acquire Oak Street Health, a primary care provider mainly for adults on Medicare Advantage. Oak Street has 160 health care clinics in 21 states.

Medicare Advantage, also known as Medicare Part C, is a type of Medicare health plan offered by a private company that contracts with Medicare. It enrolls nearly half of all Medicare beneficiaries.

CVS for years built out retail stores and basic MinuteClinics. It also became a pharmacy benefits’ manager. In 2018, CVS bought Aetna, making it one of the largest health insurers in the country. Although CVS has not been a primary care practice in the past with a network of doctors, the company has said it wants to move into the area.

The company is trying to keep pace with rivals and control costs. In the future, CVS could offer an insurance plan to consumers in Oak Street’s network for lower premiums, said Sean Nicholson, the director of the Sloan Program in Health Administration at Cornell University.

A flurry of deals between health insurers and primary care providers kicked off in recent years. Insurance rivals UnitedHealth Group’s Optum arm and Humana have recently expanded their primary care services.

“In the last three years, health insurers have become increasingly interested in purchasing primary care practices and employing physicians,” Nicholson said.

Traditionally, health insurers have contracted with physicians, not employed them. But insurers believe that if they have a strong physician network, they can better control the cost and quality of medical care, he said.

Additionally, private Medicare plans typically offer higher reimbursement rates from the federal government than traditional Medicare, and CVS wants to capitalize on this, he said. The Biden administration announced a rule last week cracking down on Medicare private plans that have overcharged the federal government.

CVS’ retail rivals have also been moving into primary care.

Walgreens has attached doctors’ offices to hundreds of its stores in a deal with primary care network VillageMD and took a majority stake in the company. Backed by Walgreens, VillageMD purchased primary care provider Summit Health for $9 billion earlier this year.

Amazon said last year that it plans to buy primary care provider One Medical for roughly $4 billion.

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