In healthcare, scale often promises stability — but the latest move by CVS Health to close 16 Oak Street Health centers reveals the growing tension between ambition and affordability in the primary care landscape.
The decision, announced as part of CVS Health’s $2 billion cost-cutting plan, underscores how even well-capitalized organizations are struggling to reconcile rising medical costs, payer volatility, and regulatory shifts with the long-term vision of value-based primary care.
After the closures, 230 Oak Street Health centers will remain operational across 27 states, a substantial footprint but a sobering reminder that growth in healthcare retail does not guarantee financial immunity.
The Economics Behind the Decision
CVS Health acquired Oak Street Health in 2023 for $10.6 billion, signaling a strong bet on the future of value-based primary care for Medicare patients. Oak Street’s model — physician-led clinics designed to reduce hospitalizations and improve preventive outcomes — positioned CVS to compete with players like Humana, Optum, and ChenMed.
Yet, despite its clinical promise, Oak Street faced mounting financial headwinds:
- Higher medical loss ratios driven by post-pandemic care utilization surges.
- CMS risk adjustment model changes, which lowered reimbursements for some complex Medicare populations.
- Payer contract tightening and regional reimbursement variability, pressuring profitability.
CVS Health’s statement framed the closures as part of a “sustainable, long-term growth” strategy — but the reality is that Oak Street’s economics have yet to reach scale efficiency. The cost of operating brick-and-mortar clinics with integrated staffing, care management, and technology is substantial, and margin pressures are accelerating across the industry.
A Signal to the Industry: Primary Care Retail Is Not Recession-Proof
The closures also highlight a broader recalibration across the retail healthcare sector. While CVS continues to emphasize its primary care strategy, others — including Walmart Health and Walgreens VillageMD — have already scaled back or restructured their own ventures.
The pattern is clear: retail-based primary care has proven harder to sustain than to start.
It requires not only patient acquisition and engagement but also sophisticated data integration, actuarial risk management, and payer alignment — capabilities many traditional retail models lack at full maturity.
Unlike pharmacy operations, primary care clinics operate on thin margins, vulnerable to even minor changes in reimbursement or patient mix. The CMS risk adjustment revisions have added a new layer of complexity, forcing all players in value-based care to revisit their cost structures and network designs.
The Strategic Trade-Off
For CVS, these closures may represent a necessary consolidation, not a retreat. By realigning resources toward higher-performing markets and rebalancing fixed costs, the company can strengthen its value-based infrastructure before expanding again.
It’s a pragmatic shift from expansion mode to optimization mode — and perhaps a warning to others chasing rapid growth in healthcare without fully modeling financial sustainability.
Still, CVS’s continued investment in primary care and payer integration differentiates it from competitors that have pivoted away entirely. It signals that while the path is narrowing, the destination remains the same: integrating care delivery, pharmacy, and insurance to capture the full continuum of patient value.
Final Thoughts
CVS Health’s Oak Street closures serve as a reality check for healthcare transformation.
Even the best-designed clinical models cannot thrive without economic endurance and regulatory adaptability.
The lesson is clear: Value-based care is not just about outcomes — it’s about staying solvent while achieving them.
Sustainable innovation in primary care will depend not only on mission but on mastering the math behind the model.
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