Inside Warburg Pincus’s sale of Summit Health-CityMD to Walgreens’ VillageMD

In a complex deal that underscores the elevated role urgent care centers have been playing in the US healthcare system since the arrival of covid, VillageMD agreed in November to acquire Summit Health-CityMD from Warburg Pincus for $8.9 billion. VillageMD is owned by Walgreens Boots Alliance, which boosted its 30 percent stake in the company to 63 percent in 2021. Healthcare insurer Cigna is also participating in the deal, which is expected to close in the first quarter of 2023.

New York-based Warburg became the majority owner of City-MD in 2017 and completed the merger with Summit Health in 2019. Over the course of ownership, Warburg invested $500 million in the combined company. When the deal closes, Warburg is expected to score a multibillion-dollar profit on the sale, a source close to the deal told PE Hub.

To learn more about the transaction from the seller’s perspective, PE Hub spoke with Thomas “TJ” Carella, managing director and head of healthcare at Warburg.

“Our partnership with CityMD was the result of an extended process through which we worked to position ourselves as the best partner to the management team and founders of CityMD,” explained Carella. “We eventually prevailed in what had become a competitive process and acquired a majority stake in the company. We were joined by many CityMD physicians who rolled a portion of their ownership and became minority investors. Those physician shareholders became our true partners in expanding the mission and scope of CityMD, which at the time operated exclusively as an urgent care platform.”

In the early stages of the Warburg investment, the firm saw high customer satisfaction at CityMD but believed there was more to be done for the patient population.

The original model at CityMD often resulted in patients leaving the system to receive follow-up care from other doctors and specialists in the broader community, which meant that the group was only delivering an episodic slice of the medical care for the populations that they served.

“One of the things we liked most about CityMD was its very strong consumer value proposition, which we saw as highly differentiated in the New York metropolitan area as evidenced by net promoter scores north of 70,” he said. “In fact, many New Yorkers used CityMD both for episodic urgent healthcare needs as well as an alternative to primary care, including as a trusted partner to help navigate the complexities of the broader healthcare ecosystem. CityMD had a wide footprint of 70 locations at our initial acquisition, which has since more than doubled as the group grew its presence throughout downstate New York and New Jersey, provided convenient access points for millions and in many ways acts as the ‘front door’ to the broader healthcare system in the New York metropolitan area.”

Covid concerns

One unforeseen complication to the investment was covid, which turned out to be a catalyst for growth.

During covid, CityMD served the broader New York metropolitan area with critical access services to enable people to understand their covid conditions. The company was also responsible for widespread testing, also in partnership with the city to make sure everyone, including the uninsured, were getting access to testing services.

Once the pandemic died down, CityMD also acted as a key point for downstream referrals, sending hundreds of thousands of patients with more serious conditions and needs to specialists, such as orthopedic surgeons or gastroenterologists, as well as to hospitals for cases requiring very-high-acuity care.

“CityMD took on the role of traffic cop around the New York healthcare system, navigating patients to the right specialist at the right setting, ultimately ensuring that patients received high-quality care at a reasonable cost to the system as a whole,” said Carella.

He noted that one of the things that appealed to Warburg was the potential for CityMD to play an expanded role within the healthcare system and to help define a more integrated or “connected care experience than that which was otherwise available.”

Consolidating the sector

“Given its capabilities and reputation with consumers, we thought the company could expand beyond urgent care and start addressing the additional healthcare needs of our patients, which was really the catalyst for the acquisition of the northern New Jersey-based, large-scale physician organization Summit Medical Group,” he said. “This was an important step towards eventual broader market coverage and the combined company’s rebranding to Summit Health.”

This was one of 12 strategic add-ons to the asset during the hold period.

Warburg Pincus invested in CityMD in June 2017 and made 12 add-ons:
FirstMed Urgent Care – May 2018
STAT Urgent Care – May 2018
Franklin Immediate – September 2018
Summit Medical Group – August 2019
Urgent Care Now – September 2020
Rebrand to Summit Health (Summit Medical Group / CityMD) – March 2021
Active Orthopedics & Sports Medicine LLC – April 2021
Gotham Gastroenterology – June 2021
Westmed Medical Group – December 2021
New Jersey Urology – December 2021
Long Island Medical Associates – March 2022
North Shore Cardiac Imaging Family Medical Health – August 2022

“Important elements of that system are assets, such as ambulatory surgery, advanced imaging, and infusion centers in addition to a central lab,” explained Carella. “As patient outcomes often suffer from poor transitions of care, we believed that through a connected model built on a single electronic medical record, we would be able to close the loop on important referrals and follow up on things like medication adherence and care gaps of our patient population in a highly coordinated manner.”

As a result of the merger with Summit Medical Group, CityMD was able to extend the primary and specialty care capabilities.

“CityMD was an important front door to the healthcare system, and Summit Medical Group was where more specialized healthcare services were available to those who needed it; together, the company could satisfy the vast majority of the healthcare needs of our patient population in outpatient care settings,” he said. “The vision was to vertically integrate CityMD and Summit Medical Group into a connected care experience where all patients would benefit from working with a single organization that could satisfy the vast majority of their healthcare needs.”

Carella noted that the healthcare providers at Summit Health/CityMD use a singular electronic medical record system ensuring that every physician and care team member would inform their decisions based on a consistent and more complete view of a patient’s medical history.

“Lack of such coordination, often driven by clinical data fragmentation, is one of the biggest challenges in the broader healthcare system,” Carella said. “We believed that many cost and quality issues could be mitigated, if not eliminated, through this new integrated connected care experience. There are plenty of big problems to solve in our healthcare system and we get really excited about being part of the solution. This investment is very much representative of that.”

Attracting the right buyer

According to sources, VillageMD approached the target earlier in the year and renewed overtures over the summer, following the evolution of VillageMD’s relationship with WBA and subsequent engagement with Cigna. VillageMD was able to coordinate between Walgreens and new partner Cigna to finalize what was a complex but strategically important deal.

“Although the business was not ‘for sale’ per se, we were always open-minded to interesting inbounds,” said Carella. “We considered this business as one that would be bought as opposed to sold, meaning that a company so strategically relevant to one of the most important US healthcare markets would necessarily attract the right buyer’s interest at some point.”