Sternlicht-backed Cano said to near deal for University Health

[NEW YORK] Cano Health, a medical provider backed by billionaire Barry Sternlicht, is nearing a deal to buy Miami-based University Health Care for US$600 million, according to people familiar with the matter.

The transaction includes US$540 million in cash and US$60 million in equity, said the people, who asked not to be identified because the information is private. An agreement could be announced as soon as this week, they said.

Representatives for Cano Health and University Health declined to comment.

Cano Health is among several upstarts focused on providing primary care or insurance to US seniors in the Medicare program. Those that have gone public in the past year include Oak Street Health, which operates Medicare clinics, and Clover Health Investments, 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 capitalising 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 healthcare giants like UnitedHealth Group and Humana have long dominated.

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

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.

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 US$2.1 billion.

P3 Health Partners, another such company, said last month that it planned to go public through a merger with Foresight Acquisition in a deal that valued the combined entity at US$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 healthcare 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 US$830 million in revenue in 2020, with revenue in the first quarter of US$280 million more than double that for the same period a year ago. The company reported a net loss of US$10.5 million in the first quarter.

BLOOMBERG