Less than three years after CVS Health (NYSE: CVS) acquired Oak Street Health for $10.6 billion, the healthcare giant plans to close some Oak Street stores and curb growth in the coming years.
CVS plans to close 16 Oak Street stores in 2026, according to reports. The change in Oak Street strategy is due to the evolution of the market, Brian Newman, the company's executive vice president and chief financial officer, said on the company's third-quarter earnings call.
“We have made the difficult decision to close an unprofitable clinic where we see no reasonable path to sustainable profitability,” Newman said. “To be clear, we view value-based care as a key component of our Medicare strategy and look forward to the steps we will take to support improved financial performance starting next year.”
Woonsocket, R.I.-based CVS acquired Oak Street, a value-based primary care provider serving Medicare-eligible patients, in 2023. Chicago-based Oak Street is a primary care provider that does some work from home, and the acquisition symbolized a trend toward primary care and home-based services.
Oak Street last year agreed to pay $60 million to the U.S. Department of Justice (DOJ) to resolve allegations that the company paid kickbacks to third-party insurance agents in exchange for recruiting patients to its primary care clinics. In August, company executives said Oak Street continued to see rising health care costs in the second quarter.
Neumann said on the third-quarter conference call that the company's decision to put a damper on Oak Street's growth trajectory resulted in a goodwill impairment charge of approximately $5.7 billion in the third quarter.
CVS saw increased patient volume from Oak Street and increased patient volume from its dedicated home care business, Signify Health (NYSE: SGFY). Signify has been a bright spot for CVS compared to previous quarters and has previously offset pressures experienced by Oak Street.
Dallas-based Signify is a value-based platform that provides home health risk assessments and other services. CVS acquired the company in 2023 for $8 billion.
Newman said OakStreet and Signify have boosted the company's healthcare delivery revenue. He reported that healthcare delivery revenue increased 25% year-over-year, excluding the impact of the company's exit from the CVS Accountable Care business earlier this year.
