CVS Health to acquire Signify Health for $8 billion

The two companies announced on Monday that CVS Health will acquire home healthcare provider Signify Health for approximately $8 billion in cash.

The terms of the definitive agreement require the healthcare giant to pay $30.50 per share to Signify Health, the nation’s largest provider of home health risk assessment services. Amazon, UnitedHealth Group and Option Care Health have also reportedly expressed interest in Signify Health.

The acquisition of the Dallas-based company, along with the price of the deal, highlights the critical role of home healthcare in overcoming patient access challenges, especially during the COVID-19 pandemic when healthcare facilities are closed and patients’ fears of contracting the virus are causing them to delay treatment. .

“When we started talking to [Signify Health CEO] Kyle Armbrester and company, we were thrilled to have created Signify and the strategic and cultural alignment between our two organizations,” said Dr. Sri Chaguthuru, Chief Medical Officer of CVS Health. “There are two points of contact here. This is an opportunity for us to connect with consumers in the home, as well as enable providers to better serve the needs of patients across the continuum of care.”

CVS has been a Signify customer for the better part of a decade, Armbrester said, adding that the company offered Signify the best opportunity to grow, diversify and have a greater impact on consumers.

CVS Health has spent the past year teasing plans to acquire a home healthcare provider, assistive technology or primary care assets. During CVS’s Q2 earnings report last month, CFO Sean Gertin hinted that new deals could be struck.

“There are several paths to achieve our vision,” Gertin said. “Our vision is new and differentiated, so there are no ready-made assets here.”

Chaguturu said the company is looking for opportunities in primary health care, primary health care provision and home care services. “Our relationship with Signify allows us to advance two of those three areas,” he said.

Shares of Signify Health were trading at a low price of $20 before it was leaked that this was the purpose of the acquisition. On Friday, the shares closed at $28.77 per share.

The deal is subject to shareholder and regulatory approval. The companies said about 60% of Signify Health is owned by funds affiliated with New Mountain Capital, and those funds have agreed to vote their shares in favor of the transition.

The companies said Armbrester will continue to lead Signify Health under CVS Health after the closing of the deal, which is expected to take place in the first half of 2023.

The deal intensifies competition between Aetna, Humana and UnitedHealthcare, owned by UnitedHealth Group, the top three Medicare Advantage operators and three of Signify Health’s top three customers.

UnitedHealth Group Optum’s healthcare delivery arm operates the second-largest home health risk adjustment provider, HouseCalls, which will make 2 million home visits in 2022, Cowen analyst Gary Taylor wrote in an August research note. Last year, Humana bought the remaining shares of Kindred at Home, acquiring the country’s largest home healthcare provider for $8.1 billion.

CVS Health’s deal with Signify Health could inspire these and other large Medicare Advantage operators to end their business with Signify to avoid doing business with their competitor, Taylor writes.

“We understand that Signify has over 50 customers with health plans other than Aetna, so we see this as a payer-independent opportunity to help support the industry,” Chaguturu said. “We want to improve our service to Medicare Advantage members nationwide, whether with Aetna or any other plan.”

In the second quarter, 84%, or $246.2 million, of Signify Health’s revenue came from home visits conducted for these and other insurance companies. Despite CMS’ proposed reduction in reimbursement, home assessment remains an important way for Medicare Advantage insurers to maximize their profits.

The Centers for Medicare and Medicaid Services pays Medicare Advantage insurers a flat fee to cover patients based on their health status, which insurers measure using risk codes. While most of these codes are recorded during office visits, home care is an increasingly common and controversial means that insurers use to collect these data points. According to a report released last year by the Office of the Inspector General of the Department of Health and Human Services, home health risk assessments “may be particularly vulnerable to misuse by Medicare Advantage companies” because they are performed by companies themselves or by providers hired by insurers. .

Federal auditors are investigating Aetna for inflating Medicare Advantage risk codes.

“The company expects CMS and OIG to continue such reviews,” CVS Health wrote in an August 2021 regulatory filing, announcing that it was under investigation.

In 2021, Signify Health performed 1.9 million in-home assessments for insurance companies, according to the latest annual report from Signify Health. The company will conduct 2.4 million assessments in 2022, Taylor said.

In addition to registering patients’ conditions, Signify Health claims that its services help Medicare Advantage plans earn higher Star ratings, which is also an important metric for determining how much federal dollars insurers receive.

As CMS considers ways to restructure more of its responsible care programs to incentivize tackling health inequalities, Signify Health’s extensive data repository could also be useful to insurers looking to develop new social determinants of health programs.