The news: CVS Health is closing in on a deal to acquire senior-focused primary care company Oak Street Health for $10.5 billion including debt, according to a WSJ report.

• Oak Street shares jumped by over 30% following the Monday evening report.

Who is Oak Street? It’s a national value-based primary care company for Medicare-eligible patients, particularly in underserved communities.

• It operates 169 centers in 21 states, employing around 600 primary care providers.
• It cares for nearly 210,000 patients, offering ancillary services for many of them, such as transportation to appointments, a 24/7 hotline, and behavioral health support.
• The company went public in 2020 and has a market cap of around $6.5 billion.

CVS’ value-based care intentions: It appears to be gunning for the Medicare Advantage (MA) market. MA financially incentivizes health insurers to lower patients’ medical expenses and keep them out of the hospital.

MA can be a moneymaker for insurers—they get paid by the Centers for Medicare & Medicaid Services for effectively managing sicker patients’ costs.

• Under its VBC contracts, Oak Street is responsible for patients’ medical costs in exchange for a flat per-member, per-month payment.
• These capitated agreements accounted for nearly 99% of Oak Street’s revenues in Q3 2022.
• CVS/Aetna has been growing its MA membership, with over 3.2 million beneficiaries currently enrolled in an Aetna MA plan.

Key stat: Value-based primary care for seniors is a $700 billion total addressable market, Humana president and CEO Bruce Broussard said during the company's investor day in September.

CVS vs. its healthcare rivals: CVS would be acquiring a smaller provider organization—at a higher price—than its competitors.

• Walgreens-owned VillageMD and Cigna acquired Summit Health, a multispecialty physician group and parent entity of urgent care provider CityMD, in November for $8.9 billion. Summit’s combined footprint is around 370 locations across multiple Northeast states and Oregon, employing 2,800+ providers.
• Amazon acquired One Medical for $3.9 billion last July. The deal is facing regulatory scrutiny, but if it closes, Amazon will reel in the primary care provider’s 800,000+ members across 26 markets.

Our take: CVS hasn’t been shy about its aspiration to acquire a primary care business. But by being late to the primary care buying party, CVS may have lost some pull and paid a premium.

But perhaps the retailer isn’t as concerned with the cost as it is with building a vertically integrated healthcare giant. It is combining pharmacy, insurance, retail clinics (MinuteClinics + HealthHUBs), home health (Signify Health, acquired last year), and now primary care to compete with UnitedHealth Group/Optum, Walgreens/VillageMD, and Humana/CenterWell.

This article originally appeared in Insider Intelligence's Digital Health Briefing—a daily recap of top stories reshaping the healthcare industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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