The news: VillageMD owned by Walgreens and That of Cigna health services division Evernorth On Monday entered into an agreement to acquire a multi-specialty physician group Top Healththe parent entity of urgent care provider CityMDfor $8.9 billion. The transaction is expected to be completed in Q1 2023.
Key provisions of the agreement include:
- Walgreens will invest $3.5 billion through an equal mix of debt and equity to support the Summit Health acquisition and will retain approx 53% ownership in VillageMD after the deal closes.
- Walgreens previously doubled its ownership stake in VillageMD from 30% to 63% with an investment of $5.2 billion – but under the new terms, his stake is reduced to 53%.
- That’s partly because Cigna’s Evernorth is a minority investor in the deal; specific terms of his involvement have not been disclosed.
What the deal means for Walgreens: Although its ownership stake in VillageMD has been diluted a bit, Walgreens is still the largest shareholder of the combined entity.
Last week, we broke down the then-rumored deal with the focus on Walgreens’ large-scale health care plan to capitalize on the shift away from hospital care by being an entry point for patients through multiple outpatient channels such as home health, primary care and urgent care.
- VillageMD and Summit Health will now include more than 680 suppliers in 26 markets.
- The buyers are snapping up 2,800+ Summit Health / CityMD physicians in the transaction, which the new company’s total combined suppliers to more than 4,100 who cares about more than 7 million patients.
- This makes the combined organization one of the largest physician group operators in the US.
What the deal means for Cigna: Health insurers are increasingly buying or investing in medical practices. This control helps them rein in the cost of services they are accountable for when providers deliver care. Cigna needed a doctor’s practice footprint to keep up with competing players who already have one.
- UnitedHealth Group’s Optum has the largest physician network in the US, which includes approximately 60,000 providers.
- Aetnaunder the arm of CVShas passed 1,100 MinuteClinic locations and countless more HealthHubs.
- Humana industry 214 senior-focused primary care clinics.
What about other retail health players? CVS and Walmart was obviously not part of this acquisition, but as retail clinic competitors of Walgreens, they will still feel the effects.
- CVS recently purchased home health provider Means Health and looked around in senior primary care group Cano Health.
- CVS said in its Q3 earnings call—as well as previous ones—that it wants to add a primary care organization through M&A. It could be a necessary step to keep pace with Walgreens in the back-and-forth retail health care arms race.
- Unlike its competitors, Walmart has not sprung a supplier group M&A. Instead, it chose the partnership route, including a small three-clinic tie-up with Oak Street Health in Texas. We think it’s likely that Walmart will continue in this direction, with a focus on suppliers in rural areas.