Dive Brief:

• Oak Street Health, a network of value-based primary care clinics for Medicare seniors, plans to enter Colorado this year with new centers in Denver and Colorado Springs set to open Fall 2022.
• Along with a foray into Colorado, which will become Oak Street's 21st state of operation, the medical network is entering additional cities in existing states, with new centers in Augusta, Georgia; Lexington, Kentucky; and Grand Rapids, Michigan expected this year. Currently, Oak Street doesn't plan to expand into additional states this year.
• Oak Street, which announced its expansion Tuesday, has multiple centers planned for each market. Each new center represents a more than $2 million investment, Christina Balgeman, Regional Vice President at Oak Street, told Healthcare Dive.

Dive Insight:

Oak Street has grown rapidly since its founding in 2012 and now operates more than 140 centers across 20 states, representing a diverse geographic footprint in the value-based primary care space. However, that aggressive growth — Oak Street plans to close out this year with almost 170 centers, with most new locations opening in the third and fourth quarter — has dragged on earnings.

Oak Street, which went public in 2020 at a $9 billion valuation, has yet to make its operations profitable, a benchmark Jefferies analysts expect the provider to meet in 2025. The medical group posted a $97 million net loss in the first quarter this year.

Oak Street Health's leadership argues that investing heavily in additional brick-and-mortar locations will pay dividends in the long run.

"As the individual center matures, we expect both platform contribution dollars and margins to expand as we leverage the fixed costs associated with our centers, as well as improving our per patient economics over time," CEO Mike Pykosz told investors in its first quarter earnings call.

When considering new markets, Oak Street focuses on both the density of the Medicare-eligible population and communities that need better access to primary care in that geography, according to Balgeman.

Primarily, Oak Street enters into full-risk contracts with Medicare Advantage plans and assumes full economic responsibility for patients’ medical expenses in exchange for a fixed per-member, per-month payment.

It also participates in CMS’ direct contracting program, where providers are paid a flat fee to cover patients' medical expenses in fee-for-service Medicare.

Direct contracting has proved controversial, with some progressive lawmakers arguing that it could lead to the privatization of Medicare. As a result, the CMS announced a redesign of the program earlier this year, one that analysts noted could stifle the ability of certain legacy entities — like Oak Street — to fully consolidate revenues and earnings from the program.

Oak Street is also currently facing a Department of Justice investigation into its relationships with third-party marketing agents and its provision of free transportation for members. Oak Street is complying with the investigation and has denied all wrongdoing.