Thread by @dp_oneill

I'm late to this, but the @OakStreetHealth S-1 is well worth a tour.

Lots of fascinating detail on the economics of capitated primary care, building a business that straddles fee-for-service & value-based care, and even some tidbits on #COVID19's (mild) financial impact. 1/n

Big picture:

- 85K patients as of March 2020, of which about two thirds are capitated and at-risk

- $556M in 2019 revenue

- Very rapid growth - revenue up 75% YoY in FY 2019 and 72% in the first quarter of 2020

- Lost ~$100M last year

Hard to avoid a comparison to @onemedical, which reports 5x the # of patients, but half the revenue, primarily because Oak's at-risk/HMO model runs most medical spend for 55K patients through its own P&L.

ONEM's patient growth is also much slower, up ~22% in 2019 vs. 75% for Oak

Or, as an alternative comparison, @Clover_Health claims to have added 15K members in 2019 (+37%), as compared to 30K for Oak Street (+60%).

Given the times, Oak is at pains to note that COVID is not a financial threat. Only about 1% of Oak's revenue depends on FFS visit volume, and the cost of PPE and other COVID supplies is relatively immaterial.

Capitated primary care for the win.

On to the business model! Oak appears to have started as a standard-issue PCP group drawing Medicare patients and billing FFS. After 2-3 years, they started striking at-risk contracts with payers (read: mostly Humana), and have since quintupled their at-risk patient panel.

On the economics, it looks like Oak generates $600 - 700 in revenue from each fee-for-service patient, in line with typical FFS primary care spend. But, those patients are also leads, since providers have substantial leeway in marketing Medicare Advantage plans to patients.

*At-risk MA patients,* meanwhile, appear to generate $12 - 14K in top-line revenue, and perhaps $3,500 - 4,000 annually after netting out medical claims expense (paid to other providers, Rx costs etc).

Oak then spends somewhere around $2,200 of that on its own care delivery.

This math is fuzzy, because the S-1 mentions a higher-touch (i.e. costlier) approach for fully-enrolled, at-risk patients. But, it seems plausible that Oak loses as much as $1,000 PMPY on FFS patients, w/ a "care margin" of $1,000 - 2,000 on its MA members (rev - all care costs).

Right now, that's producing sizeable losses. It meant ~$30M in care delivery contribution in 2019, while the company shelled out $133M on sales, marketing and G&A.

But, there is data showing material margin improvement as local clinics build scale.

And, if we return to ONEM as a comp, BOTE math suggests that the two incur similar G&A per clinic (~$1.5M), but Oak can cover those fixed costs w/ half as many patients on its current FFS/MA mix, and perhaps only a third as many if the risk business reaches 80% of its panel.

Last, there are hints of an interesting SaaS-ish dynamic in the numbers.

Oak spent ~$25M on sales & marketing in 2018, which appears to have yielded ~30K add'l patients in 2019 and ~$25M of incremental "care contribution" (revenue less medical claims & Oak's care delivery costs)

Assuming most patients stick around for several years, the return on patient acquisition could look pretty healthy, particularly if Oak can steadily trim medical claims expense without a big uptick in its own primary care delivery costs.

In sum, then, there seem to be five levers for margin expansion at Oak:
- Expand the clinic footprint
- Boost the patient panel at each clinic
- Shift more patients to the at-risk book
- Improve care mgmt efficacy to lower other costs
- Risk adjustment coding (sigh...👇)

On care mgmt, Oak touts impressive results (albeit w/out independent analysis)

Specifically, they claims to cut hospitalizations and ED visits by 51%. The baselines they use seem high-ish, but possible given Oak's mix of dual-eligibles, and might outperform an average duals plan

That highlights a key diff vs. One Medical. ONEM argues that its employer clinics can cut ED use by 33%. But, baseline commercial utilization is quite low, so this may only save $150 - 200 PMPY.

More avoidable costs in the Medicare population = more margin opportunity for Oak.

Bottom line, Oak Street's growth seems impressive, both in patient count (50-60%) and revenue (70-75%).

And, while the company is still burning north of $10M per month, its at-risk model creates a lot of pathways to boost margins as the business scales. /n