The company has its eyes set on expansion despite the space proving to be a challenge for disruptors.
As other retailers exit or reconfigure the approach in primary care, CVS Health is choosing to double down.
The company announced it plans to open 25 Oak Street Health clinics alongside their stores in 14 states by the end of 2024, signaling a renewed commitment to their primary care offering.
The first three locations are in Chicago, where Oak Street was founded in 2012 and later acquired by CVS Health in 2023 for $10.6 billion. The other openings will come in markets like New York City, Dallas-Fort Worth, Columbus, Ohio, according to a Forbes report.
By offering Oak Street’s services next to its retail and pharmacy sites, CVS Health is banking on guiding more patients to its primary care business.
“Coupling these two powerful CVS Health assets advances the company’s strategy to deliver personalized health care experience in a more integrated way especially for senior patients with complex or chronic health conditions,” Mike Pykosz, co-founder of Oak Street and executive vice president and president of health care delivery for CVS Health, said in a statement.
“We are already seeing the benefits of Oak Street Health’s value-based model lowering the total cost of care for patients. We believe our evidence-based approach will build upon these results as we more fully integrate with our core businesses.”
CVS Health’s investment in Oak Street clinics comes at a time when competitors have struggled to scale in primary care.
Most notably, Walmart and Walgreens recently announced plans to either completely retreat from the business or scale back significantly. Walmart said it was selling its MeMD virtual care business to telehealth startup Fabric, which followed its move to shut down all 51 of its health centers and virtual care offerings half a decade after launching.
Walgreens, meanwhile, said it was cutting its stake in VillageMD to no longer be majority owner. Earlier this year, the retailer stated it would close 160 VillageMD clinics after reporting nearly $6 billion in net loss for the second quarter.
The advantage CVS Health has over other competitors is its insurance arm, Aetna, which enables the company to offer Medicare and Medicare Advantage members benefits to utilize Oak Street clinics.
Oak Street also has more than 200 standalone centers in 25 states and is planning to add more to the network.
To continue investing in Oak Street, CVS Health may be on the lookout for additional funding. In May, Bloomberg Newsreported that the company was searching for a private equity partner to lessen the financial burden.
One leader of a rural hospital offers his advice to others in his position striving for sustainability.
Being at the helm of a rural provider organization right now is kind of like a highwire act.
“There’s so many balls in the air that you’re juggling,” said Jeremy Davis, CEO of Oregon-based Grande Ronde Hospital and HealthLeaders Exchange member.
Aside from attacking pain points in conventional ways, rural health CEOs must do everything they can on the margins to give themselves a better chance at long-term viability.
Below, Davis offers three tips to rural CEOs for setting their organizations up for success.
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The deal marks the latest effort by the Catholic non-profit to slim down its portfolio.
Ascension is offloading more assets after striking a deal with Prime Healthcare to sell nine Illinois hospitals and four sites of care.
The definitive agreement comes as Ascension works to pare down expenses and narrow its focus in certain markets to achieve profitability.
Meanwhile, the acquisition is the largest in Prime’s history and will see the health system invest $250 million into the properties and no debt put on the hospitals to complete the deal, which is expected to close in the first quarter of 2025.
Prime will take over Ascension Holy Family, Ascension Mercy, Ascension Resurrection, Ascension Saint Francis, Ascension Saint Joseph, Ascension Saint Joseph, Ascension Saint Mary, and Ascension Saint Mary and Saint Elizabeth.
“Prime Healthcare’s Mission and commitment to clinical excellence and health equity will carry on this legacy, ensuring that the greater Chicago area has sustainable, quality healthcare access long into the future,” Polly Davenport, president and CEO of Ascension Illinois, said in the news release.
The sale follows a string of deals by Ascension, including divestures of three Michigan hospitals and an ambulatory surgical center to MyMichigan Health in March. The Catholic non-profit health system also entered a $10.5 billion joint venture with Henry Ford Health last year.
Ascension has been dealing with financial struggles, though the operator has experienced recent improvement. For the first half of 2024, it reported a $237.8 million operating loss, compared to nearly $1.8 billion for the same period in 2023. Challenges with expenses led to Ascension ending 2023 fiscal year with a $2.66 billion net loss.
The deal for Prime allows the system to expand its current fleet of 44 hospitals and more than 300 outpatient locations. In the announcement, the operator said it has “earned national recognition for its unique ability to transform financially struggling hospitals.”
Earlier this year, Prime also acquired five hospitals from Medical Properties Trust for $350 million to grow its presence.
“Our agreement with Ascension reflects our decades-long mission of saving, improving and investing in community hospitals and we are excited to bring these Ascension Illinois facilities into our Prime Healthcare family, preserving our shared values and mutual commitment to patient-centered care,” said Sunny Bhatia, Prime president and CMO.
The hospital operator's quarterly earnings still allowed it to raise its 2024 forecast.
A “flattening out” of acute care demand in the second quarter didn’t stop Universal Health Services from netting a significant profit.
The King of Prussia, Pennsylvania-based health system reported a net income of $289.2 million, which came in the face of a modest increase of 3.4% in adjusted admissions for acute care.
UHS CFO Steve Filton told investors on an earnings call that the operator viewed the 3.4% growth as “relatively flat” and pointed to expense management as a way to offset the stagnation.
“We've been talking I think for some time about the expectation that acute care volumes, both overall admissions and surgical growth, would return to pre-pandemic patterns,” Filton said. “I don't know that that's absolutely where we are right today but certainly, I think we've been preparing for that. And I think a lot of the cost management that you saw during the quarter was an expectation and preparing for that so that as we return to some of those pre-pandemic levels of revenue and volume growth, we could generate the increased EBITDA and margin expansion and remain on that trajectory for at least several more periods.”
Workforce challenges continue to be a priority for UHS as well, specifically the filling of behavioral health staffing positions. Filton highlighted that the turnover in behavioral health is usually higher than acute care, which is causing retention issues for the system.
“This is not just a UHS issue. I think it's an industry-wide issue,” Filton said. “But we are very focused on the things that we can do and want to do to reduce that turnover rate, which includes mentorship programs and educational opportunities and career development opportunities so that when we hire people, they really have an incentive to want to stay with the organization to stay with the facility.”
Nonetheless, UHS’ performance in the first half of the year has enabled it to increase its 2024 forecast for net revenue to be between $15.56 billion and $15.75 billion. The previous forecast was set at $15.41 billion to $15.7 billion.
The trend of production spurring a rise in compensation 'is not sustainable,' says a new report.
To be paid more, physicians are ramping up their levels of production by seeing as many patients as possible.
In response, CEOs of provider organizations wanting to maintain a strong and sustainable workforce must adequately compensate their physicians, as well as find ways to give them more time back to avoid burnout and turnover.
Medical groups and healthcare organizations report an increase in pay of 3.6% for primary care specialties, 5.1% for medical specialties, 5.5% for surgical specialties, and 5.8% for radiology, anaesthesiology, and pathology specialties in 2023, according to a new AMGA report.
The 2024 Medical Group Compensation and Productivity Survey compiles data from 459 medical groups, representing over 189,000 providers from 197 physician, advanced practice clinician, and other provider specialties.
Compared to previous years, primary care experienced a modest rise in pay, whereas all other speciality types had relatively greater gains which aligned with their increase in productivity, measured in work RVU (wRVU).
The median compensation for the rollup of the top three primary care specialties (family medicine, internal medicine, and general pediatrics and adolescent medicine) jumped from $298,726 in 2023 to $311,666 in 2024, representing an increase of 4.3%. Meanwhile, productivity for these providers increased by 4.6%, resulting in a compensation/wRVU ratio with negative change.
"Net collections not keeping pace with necessary compensation growth is a significant challenge for the majority of groups in the country," said Fred Horton, president, AMGA Consulting, which administers the survey. "This issue, especially related to Medicare payment updates, must be addressed in order for organizations to afford necessary increases in compensation without continually relying on a need for providers to see more patients. If not addressed, many groups will soon be in a very challenging position in relation to work-life balance, burnout, and provider satisfaction.
"The big challenge is how to maintain a provider supply when you continually ask providers to do more to fund increases, rather than funding such increases with collections that keep pace with inflation. This trend of production driving increases in compensation is not sustainable."
This means CEOs should be proactive about keeping their physicians happy. One of the most important ways to do that is by creating personal time for them to offset the extra time they spend seeing patients.
While many healthcare leaders recognize the value of investing in and implementing AI, it’s still an area that has room to grow. Technology like generative AI has great potential to target the administrative burden placed on physicians for tasks like documentation or responding to emails.
CEOs must also consider giving their physicians more autonomy and a bigger voice when it comes to clinical and administrative decisions. If physicians feel like they have a say in how they practice and how patients are cared for, they’re more likely to be personally invested in their work and feel an attachment to their organization.
Above all, however, leaders should ensure they’re compensating their physicians to the level of their production. Keeping labor costs down is a primary objective for provider organizations everywhere, but the expenses associated with replacing an exiting physician can far outweigh the increase in pay.
It may seem like a boost to the bottom line at the end of every quarter when your physicians are delivering at high levels, but overworked and underpaid doctors will eventually by costly for a CEO in the long run.
The hospital operator continues to report favorable earnings thanks in part to an uptick in demand for services.
HCA Healthcare beat expectations with a hearty second quarter that allowed the health system to increase its 2024 outlook as it heads into the back half of the year.
For the quarter, HCA reported net income of $1.46 billion, up from $1.19 billion earned in the same period in 2023, and $17.5 billion in revenues, clear of the consensus estimate of $17.05 billion.
As a result, the hospital chain operator revised its guidance range for net income to $5.67 billion to $5.97 billion and its revenue to $69.75 billion to $71.75 billion. Those figures are up form previous projections of $5.2 billion to $5.6 billion for net income and $67.3 billion to $70.3 billion for revenue.
Much of the success for the quarter was attributed a boost in patient volume as same facility admissions increased 5.8% year-over-year. Meanwhile, same facility equivalent admissions rose 5.2%, same facility emergency room visits were up 5.5%, same facility inpatient surgeries increased 2.6%, and same facility outpatient surgeries declined 2.1%. Same facility revenue per equivalent admission jumped 4.4% year-over-year.
“The company's results for the second quarter were positive across the board and reflected strong demand for our services,” HCA CEO Sam Hazen told investors in an earnings call. “In addition, our teams continue to execute our strategic plan effectively and produce positive outcomes for our patients while also enhancing efficiencies in our facilities, including better throughput and case management.”
Hazen said the decline in outpatient surgeries was explained by lower volumes in Medicaid and self-pay populations, which he expects to improve in the second half of the year as patients part of the redetermination process show up in different seasonality categories.
HCA’s ability to manage expenses was also a boon for the system in the quarter. CFO Mike Marks relayed to investors that labor costs improved 200 basis points from the previous year as contract labor declined 25.7% year-over-year and represented 4.8% of total labor expenses.
When asked by analysts whether HCA is targeting M&A to enter new markets, Hazen said the system “is built to be bigger” but will be selective with acquisitions that fit its model.
“Will we enter new markets? Hopefully, yes, but those opportunities haven't necessarily presented themselves,” Hazen said.
Private equity investment in the industry is receding, not increasing.
As private equity's involvement in healthcare continues to draw scrutiny for its potential negative consequences, it's fair to ask just how prevalent PE is in the industry.
A new report by PitchBook, titled Quantifying PE Involvement in Healthcare Providers, offers the answer that PE's role is "vastly overstated," indicating that PE investment is trending away from providers.
The research estimated that the aggregate revenue of PE-backed providers in the country is at $117.7 billion for 2024, which accounts for just 3.3% of total US healthcare provider spending.
Regulatory conversation around PE has seemingly picked up and gained traction, but the report notes that PE investment in healthcare is not new. While the number of PE-backed companies in the industry has increased from 350 in 2017 to 648 at the end of this year's first quarter, the year-over-year growth rate has declined sharply from 24.9% in 2018 to less than 1% in Q1 2024.
"PE firms are actively pivoting away from investing in healthcare providers and are instead seeking investments in other areas of healthcare, such as healthcare IT and pharma services," PitchBook stated.
When it comes to physician employment, the growth is not primarily driven by PE either. Of all the physicians currently employed by either hospitals or corporate entities, 71.1% are hospital employed, while 28.9% are employed by corporate entities.
Interest in hospitals and skilled nursing facilities (SNFs) by PE has also waned. PitchBook highlighted that there hasn't been a significant PE acquisition of a US hospital since 2018, while 98% of currently PE-backed companies are in categories other than hospitals and SNFs.
Finally, PE investors are avoiding out-of-network investment, according to the research. Investors pursued higher out-of-network rates in the past, but they're now staying clear of them in categories including acute-care physician staffing, SUD treatment, and EMT.
Though the data shows PE's role in the industry is not as significant as the narrative may make it seem, high-profile bankruptcies of PE-backed organizations like Steward Health Care are expected to put increased pressure on lawmakers and regulators.
Organizations have opportunities to retain their workers who are eyeing an exit.
It’s impossible to stop the flow of employee turnover at your organization completely, but CEOs can cut down on voluntary exits by taking a proactive approach to retention.
By understanding what’s important to workers who may have a wandering gaze or even a foot already out the door, leaders will have a better chance of avoiding the costs associated with turnover and creating an environment that people want to be part of.
Of the employees who left their organization in the past year, 42% said that leadership could have intervened to prevent them from leaving, according a recent study by Gallup that fielded responses from 717 people.
As CEOs know, replacing outgoing workers isn’t cheap. Gallup estimates that the replacement of leaders and managers costs around 200% of their salary, while the replacement of professionals in technical roles and frontline employees is 80% and 40% of their salary, respectively.
Leadership often doesn’t know of an employee’s intention to leave, which is why CEOs need to impart on managers the importance of communication with workers. Nearly half of employees (45%) who voluntarily left report that neither a manager or leader proactively discussed their job satisfaction, performance, or future with them in the final three months before leaving.
So, what conversations should leadership have with employees to get them to reconsider departing?
Unsurprisingly, the most common answer (30%) among respondents was to provide additional compensation and benefits. It may not always be financially viable for organizations to increase pay, but having annual conversations with employees about where their compensation is trending can go a long way to making them feel valued, Gallup highlighted.
Meanwhile, 70% of exiting employees relayed that managers can take actions to address workplace issues to improve retention. These actions include more positive interpersonal interactions with manager (21%), discussing organizational issues (13%), creating opportunities for career advancement (11%), improving staffing/workload/scheduling (9%), and less negative interpersonal interactions manager (8%).
Especially for younger workers who may put greater value on relationships and culture, leaders should be quick to address problems that can result in burnout and exits.
What’s clear is that leadership can’t wait for their employees to open the dialogue, it has to be initiated from the top and it has to be consistent if CEOs want to minimize turnover.
Primary care hasn't been so friendly to some of the biggest companies entering healthcare.
The road to healthcare disruption is being paved with more and more retailers who are struggling to crack the space.
While there's a consumer demand for a retail experience that can make a trip to the doctor's office even more convenient, big-name companies that have tried their hand at the concept are finding primary care is trickier and less profitable than they imagined.
Whether it's Walmart, Walgreens, CVS Health, or Amazon, the challenges with opening and operating a retail primary care model are causing giants to either reconfigure their approach or drop out of the race entirely.
"Everybody who's trying to enter this industry and trying to slice off pieces of the business, every other week we're finding somebody else that says, 'no más. No more,'" newly retired Banner Health CEO Peter Fine told HealthLeaders. "It's not easy to get into this business. It's not easy to manage to get to scale. It's not easy to manage the cost."
The decision to pivot by these companies is coming in bunches.
Walmart just announced the sale of its MeMD virtual care business to telehealth startup Fabric, which comes on the heels of the move to close all 51 of its health centers and virtual care offerings five years after launching.
Walgreens recently announced plans to cut its stake in primary care clinic chain VillageMD to the point its no longer majority owner, CEO Tim Wentworth told investors in an earnings call. This spring, the pharmacy chain operator said it planned to close 160 VillageMD clinics and reported nearly $6 billion in net loss for the second quarter, reflecting the value of its investment in the primary care business.
Meanwhile, CVS Health is reportedly seeking a private equity partner to help fund Oak Street Health, the primary care provider it purchased a year ago for $10.6 billion. The company also continues to operate more than 1,100 MinuteClinics, which have seen the type of services offered evolve over time.
In the case of Amazon, the behemoth has folded its Amazon Clinic telehealth service into its One Medical primary care business and rebranded to Amazon One Medical pay-per-visit telehealth. To expand its presence, Amazon One Medical has been inking partnerships with employers and health systems.
According to Fine, the shortcomings in primary care by these retailers should come as no surprise.
"For primary care practices, when you buy them and then you think you can run them profitably by just being behind the scenes, having a standardized billing system, it's ludicrous," he said. "We're going to see a lot more crashing and burning because they think this is just an easy business to get into and they're not always totally sure of how to handle insurance and not totally sure about really understanding the behaviors of the consumer."
Traditional providers may continue to hold the advantage in those regards, but it's clear some of these retailers want to be involved in the primary care space in one capacity or another.
As long as there is a need by the consumer to get quicker, more affordable access to services—which traditional providers haven't figured out how to offer themselves—disruptors' interest will be piqued.
However, until retailers figure out how to leverage primary care so they can send patients to more profitable services that they make revenue from, investment in that business is not going to benefit the bottom line.
"This is just basic primary and urgent care. You can't make money because that's not where the money is. Money isn't in primary care," Fine said.
"There'll be more that will say they want to move in a different direction."
Here’s what CEOs should keep an eye on when it comes to hospital and health system transactions.
The second quarter saw a dip in hospital dealmaking following a robust start to the year, according to a report by Kaufman Hall.
Though the 11 transactions announced in Q2 represented the lowest figure for the quarter since before 2017, the deals that were made focused on strategic access to capital investments and realignment over scale.
Two of the 11 transactions were considered “mega mergers,” featuring smaller parties that had annual revenues of $1 billion or more. The average seller size for the quarter was near $1 billion, which was growth of 161% over year-end seller size averages since 2017.
While the total transacted revenue for the quarter of $10.8 billion fell short of the previous two Q2s, it remained around past years’ marks.
The 11 deals consisted of three involving religiously affiliated acquiring entities, two involving academic or university-affiliated buyers, and six involving other nonprofit health systems. This was the first time since Kaufman Hall tracked this data that there were no for-profit health system buyers in the second quarter, which followed just a single deal made by a for-profit acquirer in the first quarter of the year.
Here are three M&A trends for CEOs to monitor from the report:
Pursuit of intellectual capital
Risant Health’s addition of Cone Health to its value-based care network that already included Geisinger Health was one of the two mega mergers for the quarter and indicative of a new approach in hospital M&A.
The blueprint by Kaiser Permanente’s subsidiary reflects a model “in which intellectual capital is as—if not more—important than traditional capital,” Kaufman Hall wrote.
By allowing partners the ability to launch new services and products through its systems, Risant is an appealing buyer to operators seeking operational flexibility and financial stability.
Market reorganization and system realignment
The second mega merger of the quarter saw BayCare buy out the interest of Trinity Health to end the joint operating agreement.
The deal “illustrates an ongoing trend in which large regional and national health systems, both for-profit and not-for-profit, are working to realign their systems to focus on markets with significant growth potential, with divestitures in some markets supporting investments and acquisitions in other markets. In turn, these divestitures enable the growth of regional markets,” Kaufman Hall wrote.
Academic health systems expanding regional care networks
Meanwhile, UAB Health System’s purchase of Ascension’s central Alabama hospitals also demonstrates another trend.
Academic health systems are focusing on partnerships with community-based health systems to alleviate occupancy constraints at their flagship campuses and improve patient access, along with creating more opportunities for residency programs and clinical research programs, Kaufman Hall noted.
As hospitals and health systems explore new ways to achieve transformation, these partnerships models are expected to be at the forefront of dealmaking.
