Benzinga - by Vandana Singh, Benzinga Editor.
CVS Health Corp. (NYSE:CVS) is reportedly seeking a private equity partner to fund the expansion of Oak Street Health, the $10.6 billion primary care provider it acquired last year.
The company is working with financial advisers to secure capital for new Oak Street clinics and is contacting several private equity firms about a potential joint venture.
Oak Street Health focuses on serving seniors in privately managed Medicare plans.
The new clinics typically incur losses for the first few years while recruiting patients. A joint venture could help manage these initial losses by taking them off CVS’ balance sheet, Bloomberg noted, citing the sources.
Healthcare companies have employed similar strategies in the past. For instance, Humana Inc. (NYSE:HUM) and Welsh Carson Anderson & Stowe formed joint ventures in 2020 and 2022 to develop primary care clinics.
In these arrangements, Humana could buy back its interest over time while ensuring Welsh Carson a guaranteed return. CVS is reportedly considering a similar structure.
Citing RBC Capital Markets analyst, Bloomberg highlighted that this potential partnership could be a strategic move to protect CVS’s credit ratings and liquidity, while shielding earnings from startup losses as the company scales its primary care platform.
The analyst also highlighted the benefits of deferring a portion of clinic investment.
The Medicare Advantage business has historically driven growth for health insurers, but recent changes may slow this trend.
The Biden administration has tightened payments to these plans and altered reimbursement methods to address perceived abuses.
Additionally, seniors are returning to clinics and hospitals for elective procedures deferred during the COVID-19 pandemic, which is impacting the revenues of risk-based primary care providers.
Read Next: CVS Health’s Zero-Cost Coverage Paves Way For OTC Birth Control Access.
Price Action: CVS shares are up 0.47% at $56.91 at the last check on Friday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo via Wikimedia Commons
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.