CVS Health (NYSE: CVS) announced that it had agreed to acquire Signify Health (NYSE: SGFY) Monday.

Tuesday morning, the two companies laid out the rationale. Perhaps the most of note, however, was CVS’ clear and consistent commitment to home health care delivery moving forward.

“By acquiring Signify’s home health platform, we gain a foundation for future expansion of home health care delivery,” CVS Health CEO Karen Lynch said on a joint call. “We will be able to design new care models that combine CVS Health resources with Signify’s capabilities, analytics and technology to deliver on our promise to expand our health service offerings and to help patients navigate to the best site of care.”

The Woonsocket, Rhode Island-based CVS will be acquiring the Dallas-based Signify for $8 billion, a massive number that may have been heightened by Amazon’s (Nasdaq: AMZN) rumored interest in the company.

Signify Health works with health plans and providers to deliver assessments and care in the home. Overall, it has a network of more than 10,000 clinicians across the country. Its proprietary data and technology allows it to work within value-based care frameworks.

Reports that Signify was considering a sale first surfaced at the beginning of August. CVS, Amazon and UnitedHealth Group (NYSE: UNH) were all reported as potential buyers. That alone justified the company’s exploration of strategic initiatives. In addition – whether correlated to the strategic change of course or not – Signify had also wound down its episodes of care service segment and further turned its attention to the home, which resulted in 489 employees eventually being laid off.

Signify and CVS were already familiar with each other as partners in the past. When and if the deal is finalized, there are multiple aspects of the deal that CVS believes makes it a worthwhile one – namely the clinical, the financial and the technological.

“This acquisition enhances our connection to consumers and enables our providers to better address patient needs,” Lynch said. “In addition, this combination strengthens our ability to expand and develop new product offerings. Consistent with our multi-payer approach, this deal is attractive financially. It also brings talented and experienced leadership and best-in-class, proprietary technology and capabilities.”

Furthermore, there’s “four main synergy opportunities” from the deal, according to CVS Health CFO Shawn Guertin:

– Improving engagement and health risk assessments, primarily through collaboration with other CVS Health assets

– Clinical care savings through “improved care coordination and new care models that utilize Signify’s home access and member connectivity”

– Tax benefits from the transaction structure

– Pharmacy benefit manager and pharmacy collaboration opportunities

CVS Health originally teased getting into home health care back at its investor day last December. Now – pending approval from Signify shareholders and others – it has taken a giant step in that direction.

“It is a creative and a synergistic [deal],” Guertin said. “This is a platform for the future.”

The Caravan Health piece

One of the aspects of the deal that CVS Health executives are touting the most was Signify Health’s first acquisition as a public company.

In February, Signify acquired Caravan Health – an accountable care organization (ACO) manager – for $250 million.

“We’re very excited about the opportunity we have with Caravan Health and our ongoing efforts to expand our reach in value-based care,” Signify CEO Kyle Armbrester said at the time. “The combination enhances the value proposition to providers, as their services will have a multi-payer applicability to a larger portion of a provider’s panel.”

In particular, Signify saw opportunity in the Biden Administration’s new direct-contracting model – ACO REACH – with Caravan underneath its umbrella, calling it “extremely favorable.”

Caravan is expected to serve ACOs representing over 700,000 attributed lives in 2023, according to the two companies. Additionally, through its partners, it serves Medicare beneficiaries with $5 billion in total spend under management, and generated $138 million in gross savings for them in 2021, according to Armbrester.

“This is part of this that I’m very excited about,” Guertin said. “This is one of the three items of capabilities that we really wanted, and Caravan has a payer-agnostic EMR capability. They are on track to have volume that rivals a lot of the standalone platforms. … A lot of the time, when we talk about management services organizations (MSOs), we talk about them in a very technological sense. But the ability in the future to integrate home care and technology into an MSO offering, I think there’s going to be a real winning model.”

Value-based care has been what Signify Health has done since its inception. CVS Health, as it expands its health care offerings, wants to be in the home more and conducting more value-based care. Signify helps on both fronts.

And Caravan Health is one of the reasons, in particular, that CVS Health believes that this acquisition allows them far more opportunities in the value-based care arena.

“We talked a lot through this journey about home health,” Guertin said. “And the value-based care capabilities that this brings us is where a lot of the power is, I think, for the long haul. I’m very excited about the opportunity that that Caravan could provide us for the future.”

Competitors and risk factors

For now, it is still unclear how exactly Signify will operate underneath the CVS umbrella. But something else underneath its umbrella is obviously Aetna – one of the largest insurers in the country.

Some of Signify’s biggest partners are also direct competitors of Aetna. In fact, as CVS continues to build out its health care delivery capabilities, those companies could be direct competitors of CVS Health as a whole.

For instance, Humana Inc. (NYSE: HUM) is a partner of Signify’s. Obviously both CVS and Humana have their hands in many different sectors, but two are now Medicare Advantage and home health care.

CVS and Signify don’t see this as an issue, at least for now. Armbrester, Lynch and Guertin have had phone calls with Signify’s partners to discuss the transaction, they said.

“They’re trusting us to go into their members homes – it’s one of the biggest trusting relationships you could have with a partner,” Armbrester said. “They’re asking us to do two things when we’re inside the home: bring more resources to bear and help solve more problems to drive better health outcomes. And then two, return folks to care. And I view this partnership with CVS and their nationwide network of MinuteClinics as a real strategic asset for us to make sure that individuals are getting the appropriate level of care efficiently and effectively.”

Guertin added that customer loss is imbedded into the strategic planning when a deal like this is made, but that he also was not ultimately worried about lost partnerships having a major effect on the long-term investment in Signify.