Dive Brief:
- Oak Street Health brought in revenue of $545.7 million in the third quarter — an all-time high for the value-based primary care chain, up more than 40% year over year and ahead of Wall Street expectations.
- The provider’s capitated revenue, which makes up the large majority of its topline, would have been slightly higher, but included a small hit from matters related to the Medicare direct contracting program, including CMS retroactively removing a “small number” of patients from Oak Street’s rolls after reviewing its patient panel, CFO Tim Cook told investors on a Tuesday morning call.
- Oak Street raised its full-year guidance for at-risk patients and total revenue on the results.
Dive Insight:
Chicago-based Oak Street, which primarily serves Medicare seniors, cared for roughly 145,000 risk-based patients in the quarter. The provider’s at-risk membership is a key driver of its financial performance, as its capitated revenue comprises almost its entire net revenue at $537.9 million in the third quarter, up 43% year over year. The impact of the direct contracting headwinds caused Oak Street to experience an almost $6 million revenue reduction in the quarter, Cook said.
Next year, the CMS will once again look at Oak Street’s patient roster, and will drop patients from 2022 if the agency determines they shouldn’t have been in direct contracting. Cook said Oak Street will continue to proactively manage that risk, which — though not impactful from an EBITDA perspective — “creates choppiness” for the value-based provider.
Oak Street reported a medical loss ratio of 79.5% in the quarter, lower than analyst expectations. Its medical claims expense was $427.4 million, up 38% year over year.
“OSH did a good job managing medical spend during the quarter,” SVB Securities analysts wrote in a note on the results.
Cook said that COVID-19 continues to impact Oak Street’s medical costs, and that the virus has caused an estimated $21 million in medical claims expense year to date. “We remain cautious on its impacts for the remainder of the year,” especially as more contagious variants threaten Oak Street’s elderly population, Cook said.
Oak Street’s cost of care increased 49% year over year as the provider increased the number of centers it operates and hired new team members. Its sales and marketing expenses were up 45% year over year as Oak Street invested more heavily in patient acquisition.
Oak Street launched its first meaningful television advertisement in the quarter, and plans to expand on that campaign in 2023 and beyond, CEO Mike Pykosz said.
”The company continues to execute on both its center and at-risk membership recruitment efforts, which drove the top-line outperformance,” SVB analysts said.
Oak Street now expects to manage between 157,000 to 159,000 at-risk members by the end of this year. Currently, the primary care chain operates 161 centers across 21 states, but plans to add 30 to 40 new centers in 2023 and 2024.
The primary care space has seen a rash of M&A as larger, consumer-focused entities like CVS and Amazon snap up smaller chains to make inroads into primary care. On Monday, VillageMD — a primary care company majority owned by pharmacy giant Walgreens — entered into a definitive agreement to buy medical practice Summit Health for almost $9 billion.
On the call, Pykosz said he doesn’t see such acquisitions having an effect on Oak Street. “I think that really highlights a couple things — one, the market size and market opportunity for primary care,” Pykosz said. “I think we coexist quite well with [Summit]. I don’t look at them as competitive at all today.”
Oak Street reported a net loss of $130.4 million in the quarter, compared to a loss of $110 million at the same time last year.
