Sternlicht-Backed Cano Health to Acquire University Health

Cano Health Inc., a medical provider backed by billionaire Barry Sternlicht, announced it would buy Miami-based University Health Care for $600 million, according to a statement on Monday.

The transaction includes $540 million in cash and $60 million in equity, the statement showed, which confirmed an earlier Bloomberg News report.

Cano Health is among several upstarts focused on providing primary care or insurance to U.S. seniors in the Medicare program. Those that have gone public in the past year include Oak Street Health Inc., which operates Medicare clinics, and Clover Health Investments Corp., which sells private Medicare health plans.

The deal boosts Cano’s market share in Florida, which is among states with the highest enrollments in Medicare Advantage in the country. It’s also capitalizing on a booming market for private Medicare Advantage plans, which often seek to contract with primary care doctors to manage members’ health needs -- a business that health-care giants like UnitedHealth Group Inc. and Humana Corp. have long dominated.

The company aims to become the largest primary care provider in the U.S., Chief Executive Officer Marlow Hernandez said in an interview.

“That’s always been the vision from 2009 when we had one medical center,” he said.

Cano has made smaller acquisitions before and has “a really deep bench or acquisition pipeline, a pool of targets and active negotiations,” Hernandez added.

As the cost and complexity of operating medical businesses has increased, doctors are trading small practices they own for larger organizations. Fewer than half of U.S. doctors now work in private practice, according to a survey by the American Medical Association.

The deal to acquire University Health’s 13 facilities will increase Cano’s medical membership and boost its profit for the year.

The company said the deal would increase its adjusted earnings before interest, taxes, depreciation and amortization by about $10 million, to a range of $100 to $110 million, for 2021.

Gaps in Care

Large hospital systems have been acquiring medical practices. So have some insurers and their affiliates, like UnitedHealth’s Optum unit, with more than 50,000 physicians. Companies like Cano are creating business models for physician clinics to manage larger populations of patients without necessarily joining hospital systems or insurers.

David Kostel, the global co-head of health care at Credit Suisse Group AG, which advised on the deal, said that U.S. spiraling health-care costs are partly caused by care being episodic for patients.

“You go to a traditional primary care doctor or a specialist and they often times don’t think holistically about patients or communicate with each other,” he said. “That creates gaps in care.”

Kostel added that the Cano model reduces those gaps with their programs, technology and just better engagement with the members.

Companies with similar models include 1Life Healthcare, also known as One Medical, which this month announced plans to buy Iora Health in an all-stock deal valued at $2.1 billion. P3 Health Partners, another such company, said last month that it planned to go public through a merger with Foresight Acquisition Corp. in a deal that valued the combined entity at $2.3 billion.

Cano listed on the New York Stock Exchange this month through a merger with a special purpose acquisition company, or SPAC, sponsored by Sternlicht, chairman of Starwood Capital Group Management.

The health-care industry has been moving toward so-called value-based care in which doctors’ payments are linked to the long-term health of their patients rather than fees for each test or procedure.

Like others, Cano collects monthly payments from its health plan patients and is then responsible for their medical costs, essentially taking on the risk from the insurer.

Cano has more than 500 physicians in Florida, Texas, Nevada and Puerto Rico. The company reported about $830 million in revenue in 2020, with revenue in the first quarter of $280 million more than double that for the same period a year ago. The company reported a net loss of $10.5 million in the first quarter.

©2021 Bloomberg L.P.

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