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spk08: Good morning and welcome to the Oak Street Health fiscal fourth quarter 2020 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. Please be advised that today's conference is being recorded. Hosting today's call are Mike Peikos, Chief Executive Officer and Tim Cook, Chief Financial Officer. The Oak Street press release, webcast link and other related materials are available on the investor relations section of the Oak Street website. These statements are made as of March 10, 2021 and reflect management's views and expectations at this time and are subject to various risks, uncertainties and assumptions. This call contains forward-looking statements That is, statements related to future, not past events. In this context, forward-looking statements often address our expected future business and financial performance and financial conditions. It often contains words such as anticipate, believe, contemplate, continue, could, estimate, expect, intend, may, plan, potential, predict, project, should, target, will or would, or similar expectations. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include our ability to achieve or maintain profitability, our reliance on a limited number of customers for a substantial portion of our revenue, our expectations and management of future growth, our market opportunity, and our ability to estimate the size of our target market, the effects of increased competition, as well as innovations by new and existing competitors in our market, and our ability to retain our existing customers and to increase our number of customers. CLE refers to our annual report for the year ended December 31st, 2020, filed on Form 10-K with the Securities and Exchange Commission. where you will see discussion of factors that could cause the company's actual results to differ materially from these statements. This call includes non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures. For example, other companies may calculate similarly titled non-GAAP financial measures differently. Refer to the appendix of our earnings release for reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, I'll turn the call over to Mike Peikos, CEO of Oak Street. Mr. Peikos?
spk06: Thank you, operator. Thank you to everyone that is joining us this morning. Joining me on today's call is Tim Cook, our Chief Financial Officer. Before we dive into our fourth quarter results, I would like to thank our team at Oak Street for their extraordinary dedication to and support for the patients and communities we serve. Our teams adapted to and excelled in challenging circumstances over the course of the year to continue to provide outstanding care. When the COVID pandemic hit the U.S. a year ago, we knew it was imperative for Oak Street to continue to be there for our patients and our communities. Over the course of the last 12 months, That meant standing up telehealth offerings and providing 90% of our visits virtually last spring to ensure our patients continued access to primary care. It meant leveraging our green band to deliver shelf-stable meals to patients facing food insecurity. It meant standing up community testing sites in the fall to help communities navigate the surging cases, all while continuing to run an Oak Street care model and providing outstanding care quality and patient experience. Since the holidays, our team has taken up the additional challenge of vaccinating our patients as well as the older adults in our communities. I cannot be prouder of how our team had stepped up to lead our communities out of the pandemic. We have transformed the community rooms in the majority of our centers to be mini vaccination clinics. We have mobile vaccination teams traveling to senior living facilities as well as sitting on vaccination days at community organizations. We are running a weekend mass vaccination center as part of the City of Chicago's effort to close gaps in vaccine access. Since we started the center, the neighborhood our mass vaccination center is in has experienced the fastest growth in vaccination rates of any community in Chicago. We are currently giving over 11,000 vaccine doses per week and have given 75,000 since the beginning of the year. And that number is accelerating as we are able to access supply in additional states. We have a capacity to administer 80,000 doses per week across Oak Street. What makes Oak Street's efforts incredibly impactful is not just the number of doses we are giving, but the targeted way we are ensuring vaccine access to the patients and communities who need them most. At a time when equitable vaccine access is a national story, Oak Street has leveraged our community outreach team to proactively engage older adults in our communities to help overcome vaccine hesitancy and ensure that challenges using technology or finding limited slots aren't barriers to access. I've had the opportunity to volunteer at our vaccine centers, and it's one of the most rewarding experiences I've had at Oak Street. The excitement at time combined with apprehension from patients receiving the vaccine coupled with the positivity and sense of purpose from the team as we work our way toward the light at the end of the COVID tunnel is something I will never forget. I'd like to share a representative story of two of our patients, Mr. and Mrs. J, husband and wife, who we recently vaccinated. Mr. J was excited to get the vaccine. His wife, not so much. Mr. J scheduled a visit to their doctor at Oak Street for two of them, hopeful to use the trust Mrs. J had for her doctor to get her over the hump to get the vaccine. While Mrs. J was nervous, she was able to get her questions answered by her Oak Street doctor, who had earned her trust over time, and decided to get the vaccine along with her husband. Mr. J left grinning ear to ear, and even Mrs. J had a smile on her face knowing she had taken the first step in relieving the fear and anxiety that COVID had brought. In addition to the impact we were able to make on our existing patients and communities, we were able to continue to bring our model to new communities in 2020 as well. We successfully opened up 28 new locations in 2020. This represents more centers than we opened in the first five years of our existence. Because our care model focused on keeping our patients healthy and improving their outcomes, it's completely aligned with our financial incentives. This outstanding performance by our team in 2020 led to our strong full year and fourth quarter results. We generated record revenue of $248.7 million in Q4, exceeding the top end of the guidance range we communicated to investors. This represents an increase of 43% from the fourth quarter of 2019. Our full-year revenue growth increased 59% in 2020. We achieved this growth despite essentially turning off our sales and marketing function for much of the spring and summer and needing to replace our community event-based marketing approach with new central channels. We finished the year with 79 centers, and from August until Thanksgiving, we opened 23 new centers for an average of two centers per week. We also saw strong center-level performance that continues to reinforce our confidence in our ability to scale the organization. We have previously shared our 2015 vintage as an example of center-level ramps. We have shown the incredibly strong unit-level economics of the DeNovo Oak Street Center, With less than $5 million total capital invested, including CapEx, operating losses, sales and marketing, and overhead, our center's nearest capacity now has a contribution of $9 million annually and growing. We are pleased to share that our subsequent vintages have continued to improve off of our already strong base, with our larger 2018 and 2019 vintages both having higher percent of revenue and higher percent of contribution than 2015 vintages at the same point in its development. We set a goal for ourselves every year to both improve the center of the ramp from previous vintages, as well as put more new centers up than previous years. We were clearly successful in both in 2020 and are confident in our ability to continue hitting both goals in 2021 and beyond. In order to improve center economic ramps, we will focus on investing in our care model and patient acquisition approach while leveraging the new direct contracting program to increase the percentage of our patients we receive risk-based economics on. We will continue to invest in our care model in Canopy, our technology and data platform. We believe the best patient experience and care quality comes from availability of in-center, in-home, and virtual visits for both longitudinal and on-demand care. Having this suite of options from the same organization allows both access to the preferred and clinically appropriate care venues, along with coordinated care across venues. Additionally, as we gain scale in Oak Street, we are able to invest in the development of programs for more specific patient conditions. For example, we will be implementing a new program focused on our patients with end-stage renal disease this year, and we're excited to invest to improve health outcomes and lower costs for the small but complex group of patients. Along the same lines, we will continue to invest in our chemistry applications and data science capabilities to drive insights from our growing patient data sets and deliver those insights to our teams in the field with easy-to-use tools to ultimately drive better patient care. We're excited to see the results of these investments on our quality of care and financial metrics in 2021 and beyond. Along with investing to improve our care model, we will also look to accelerate our outreach model to increase the pace of patient acquisition. This will include continuing the expansion of our digital and telehealth channels. While we are proud of the results we have achieved as we ramped these channels in order of magnitude over the second half of 2020, we believe they are still in their infancy and we continue to expand and optimize both, allowing us to increase the number of patients brought in through them without increasing the cost of acquisition. Additionally, we'll continue to invest in training for our field-based outreach team so we're prepared to successfully relaunch our community-based channels in the back half of this year. If we're able to maintain our central marketing performance while returning our field outreach team performance to 2019 levels, we'll see an increase of patient growth of over 50% percent from where we're at today. And our team believes there's ample opportunity to improve performance from there. Finally, We believe the direct contracting program has the ability to meaningfully improve our center of the room. We expect to have between 6,000 and 7,000 direct contracting members on April 1st. We continue to volunteer line patients to the program every day and expect that number to increase by 2,000 to 3,000 per quarter, depending on flow through an MA enrollment, leading to 10,000 to 13,000 direct contracting patients by October. We're confident that over the next year, This number will continue to increase, leading to a significant increase in the percentage of our patients that are on risk-based contracts. Because we are already incurring the cost of care for our traditional Medicare patients at Oak Street, moving them to a risk-based contract will allow the expected patient contribution to improve 10x and drop straight to the bottom line, leading to an improvement in center-level revenue and proportionally larger improvement in center-level patient contribution over time. In parallel to improving our center-level economics, We will also look to leverage our platform to accelerate the pace of our expansion. We plan to continue to increase the pace of de novo center openings. We are targeting 38 to 42 new centers in 2021, up from the target time of our IPO of between 25 and 30 de novus. With a similar level of performance as historic vintages, we expect our 2021 vintage alone to generate $1.3 billion of revenue and $250 million of center contribution in 2026. We believe we have the infrastructure and talent pipelines in place to support this pace of expansion and more, consistently ensuring strong center-level performance and ultimately providing the same return on the investment in early center ramps that we've seen in our mature vintages. With continual strong center-level performance, we'll look to continue to increase the number of new centers per year next year and beyond. In summary, we are thankful for the strong contributions from our street team, leading to a strong finish to a challenging year. and we are pleased with the results from our fourth quarter. Looking to 2021, we believe we have the team, technology, culture, and mission to truly transform how care is delivered for the patients who need it most. In doing so, we believe we can create the new standard for primary care for older adults and are excited to take the next steps on our mission to rebuild how it should be. I'll now turn it over to Tim Cook, who will walk you through our financial results in more detail. Tim?
spk11: Thank you, Mike, and good morning, everyone. We were pleased with our fourth quarter results with our key metrics coming in ahead of the guidance we communicated in November. In terms of our membership, total patients grew roughly 23% year over year, while our at-risk patient base, which drives our financial performance, grew by 34% to 64,500 patients. At the end of 2020, we operated 79 centers, an increase of 28 centers compared to December 31, 2019. Note that our year-end 2022 will now include our three Walmart locations. Capitated revenue of $234.9 million for the year grew 39% year-over-year, driven by the growth in our at-risk patient base. Total revenue grew 43% year-over-year to $248.7 million. I note that in the fourth quarter, we recognized capitated revenue of $3 million from one-time events related to settlements with health plans, and $9 million from capitated revenue that was booked in the fourth quarter but related to full-year performance. Additionally, we recognized approximately $4.2 million of other revenue from one-time events, of which approximately $2.2 million was related to HHS provider relief funds. And we recognized $2.4 million of other revenue that was booked in the fourth quarter but related to full-year performance. Even when adjusting for these amounts, we still finished Q4 comfortably ahead of the guidance provided in November. Our medical claims expense for fourth quarter 2020 of $175.5 million represented growth of 39% compared to fourth quarter 2019. Fourth quarter medical claims expense included $6.5 million in one-time medical claims expenses associated with settlements with health plans and a potential reserve against potential incurred but not reported COVID-19 claims relating to 2020 dates of service. Our cost of care, excluding depreciation and amortization, was $61 million for the fourth quarter, an increase of 36% versus the prior year due to the growth in the number of centers we operated as well as growth in our patient panel. Sales and marketing expense was $26.8 million during the fourth quarter, representing an increase of 88% year-over-year. We saw the benefit of a greater investment in sales and marketing in 2020, be it greater at-risk patients at year-end and greater expectations for Q1 2020 membership, which I'll discuss at the moment. Corporate general and administrative expense was $72.9 million in the fourth quarter, an increase of 143% year-over-year. The majority of this year-over-year increase is related to an increase in stock-based compensation expense, which was $41.7 million in the fourth quarter of 2020 compared to $1.9 million in the fourth quarter of 2019. This growth in stock-based compensation expense was driven by an accounting change related to awards issued prior to our IPO in August 2020 and is not a function of stock awards issued since our IPO. Excluding stock-based compensation, corporate general administrative expense was $29.9 million in the fourth quarter of 2020, an increase of 7% during the fourth quarter of 2019, driven by increases in headcounts as part of our organizational growth. I will now discuss three non-GAAP financial metrics that we find useful in evaluating our financial performance. Patient contribution, which redefines capitated revenue plus the medical claims expense, grew 41% year-over-year in the fourth quarter to $59.4 million, faster than capsulated revenue growth at 39% for the period. We expect at-risk per-patient economics to improve the longer that our patients are part of the Oak Street platform. Platform contribution, which we define as total revenue less than the sum of medical claims expense and cost of care, excluding depreciation and amortization, was $12.1 million, an increase of 397% year-over-year. As an individual center matures, we expect both platform contribution dollars and margins to expand as we leverage a fixed cost base associated with our centers, as well as improving our patient economics over time. Adjusted EBITDA, which we calculate by adding depreciation and amortization, transaction and offering-related costs, and stock-based compensation, but excluding other income to net loss, was a loss of $43.5 million in the fourth quarter of 2020, compared to a loss of $36.2 million in the fourth quarter of 2019. We finished the fourth quarter with $409.3 million in unrestricted cash. Cash used by operating activities totaled $77.2 million in 2020, and our capital expenditures totaled $21 million. I want to talk for a moment about direct contracting and expand on Mike's figures. We received a file from CMS last week that identified approximately 13,500 Medicare beneficiaries aligned to Oak Street via our direct contracting entity. However, this file did not include exceptions, which account for the delta between this figure and Mike's range of 6,000 to 7,000 patients. These exceptions include patients that have since enrolled in Medicare Advantage, patients that are aligned to other government programs such as ACOs, and patients that are disqualified either due to prior MA enrollment or lack of Part A and B Medicare coverage or other reasons. For those patients currently enrolled in Medicare Advantage, we are indifferent as those patients are helping to drive our MA at-risk patient base, which is growing more quickly than we originally anticipated. For patients aligned to other programs, those patients remain with that program regardless of their voluntary alignment preferences for the first year of the direct contracting program, given the direct contracting program is starting mid-year in April. We are hopeful that as we move to performance year two in January 2022, CMS will give priority to the voluntary alignment preferences of those patients, which would result in them moving to the Oak Street direct contracting entity. For the disqualified patients, we will continue to work with these patients and expect them to be added to our direct contracting patient base in future periods. In summary, there are significant buckets of patients not included in our 6,000 to 7,000 estimate that we believe will flow through in future periods, and those patients are incremental to the 2,000 to 3,000 patients we expect to add per quarter that Mike mentioned. I'll now turn to our 2021 financial outlook. As of December 31, 2021, we expect to have 105,000 to 110,000 total at-risk patients, including direct contracting patients. For the full year 2021, we are establishing an expected revenue range of $1.275 to $1.325 billion in an adjusted EBITDA loss of between $215 million and $165 million. We anticipate having 117 to 121 standalone centers opened by December 31st, 2021, including our Walmart centers. Our 2021 EBITDA guidance includes the impact of several factors. The first factor is related to our accelerated growth rate. As discussed, We are increasing the pace of new center expansion, and the startup expenses tied to these dinobos will lay upon near-term profitability. As Mike discussed, we expect to continue making these investments, provided we continue to see recent cohorts operating at levels that further validate the unit-level economics of our operating model, which they currently are. When you consider the impact of center contribution and sales and marketing in G&A dollars associated with accelerated growth, We will invest approximately $50 million in these new centers above what we would have expected at the time of our IPO in August 2020, given the 73 and 98 centers we initially estimated we would be operating as of year end 2020 and 2021, respectively. The second factor is related to investments in our care model programs in 2021, as we believe these programs can drive improvements in patient outcomes and medical claims expenses in future periods. As we continue to grow our patient base, we are reaching a scale where it is economical to invest in certain programs that we believe will improve our patients' well-being and result in lower per-patient medical costs in the future. We expect the investments in these programs to be approximately $20 million, and we expect that we will recoup these investments in the future period through improved MLR. We have not assumed any benefit in 2021. The third and final factor pertains to patient contribution and impacts both per-patient revenue and per-patient medical costs. We estimate our per-patient revenue will be lower than we would ordinarily expect due to lower risk scores. Consistent with recent commentary we have heard from Medicare Advantage payers, we expect the low utilization experience in 2020 due to COVID will result in lower risk scores for new at-risk patients who join Oak Street in 2021, creating a headwind as we grow this year. On the medical cost impact, 2021 is a challenging year to estimate our medical costs. In a typical year, we would evaluate the prior year's experience and make an estimate of trend based upon a number of input factors. Given the impact of COVID-19 on 2020 medical costs, the baseline is harder to establish. Furthermore, it is unclear what impact, if any, COVID-19 will have in 2021 medical costs, as we did see an increase in COVID-19 cases in Q4 2020, and new variants of the virus represent a risk to the efficacy of the current vaccines, making it difficult to predict what Q2 2021 and beyond will look like from a medical cost standpoint. Additionally, the Consolidated Appropriations Act passed in December 2020 included an increase in the Medicare physician fee schedule for 2021 and suspended sequestration for Medicare payments for the first quarter of 2021. We expect the net combination of these two factors will result in an increase in per-patient medical costs related to specialist care provided to our patients. Lately, offsetting these headwinds is the impact of direct contracting. When we met all of these factors, patient contributions can be approximately $40 million or lower than we would have otherwise expected. It is important to note that we are basing these assumptions on very preliminary data, and we believe this impact to be a function of COVID-19 and limited only to 2021 results. For the first quarter of 2021, we are forecasting revenue in a range of $280 to $285 million. We are forecasting an adjusted EBITDA loss of $25 to $20 million. We anticipate having 84 to 85 centers in at-risk patient count of 74,000 to 75,000 by March 31st. I'll make one final point regarding growth and seasonality of our business. 2020 was an unusual year in that at-risk patient panel grew by 9,000 patients, or 17% from the end of Q1 2020 to year-end 2020. As a point of comparison, for the same period as in 2019, we grew our at-risk patients by approximately 15,000, or 42%. This was driven by the decision to lower sales and marketing during the spring and summer of 2021 as we learned to operate during the pandemic, and something we do not plan to repeat. We expect our growth in 2021 to be more consistent with pre-2020 periods, with at-risk patients growing 47% from the end of Q1 2021 to year-end 2021 based upon the guidance I just provided. As we had new patients over the course of the year, we expected our aggregate per-at-risk patient economics to decline as our newer patients are less profitable than our tenured patients. And with that, we will now take any questions you may have. I'll turn it back to the operator.
spk08: Certainly. At this time, if you'd like to ask a question, please press star 1 on your telephone keypad. Robert Jones with Goldman Sachs. Your line is open.
spk11: Great. Good morning, Mike and Tim. I guess just to go to the headwinds and a lot of detail there, so very helpful. I guess the sizing of the COVID headwind to MLRs in the AK was really helpful. And Tim, you just touched on some of this again. But I was wondering if you could break down or give us any sense of the size of the impact specifically to treatment and testing related to COVID. And then just as we think about the rollout of the vaccine, how variable is that estimate to the overall headwind that you're sizing to EBITDA in 2021?
spk06: So on the first one, as far as increases in third-party medical-related COVID, it is The testing, et cetera, is pretty minimal, you know, on the big scheme of things from a cost perspective. But the largest cost setting for us is acute hospitalizations. And obviously, to the extent that, you know, our patient population is catching COVID, they're obviously at a much, much higher likelihood to go to the hospital because of it. So where COVID impacts us financially is really on the hospitalizations. So we saw that to some extent in Q4, the deaths were preliminary. But as there were surges across most of the country and certainly most of the markets we were in, we did see that play out in our financials and our third-party med costs. So I think that's where you see the biggest impact from COVID. The cost of vaccinations or the cost of COVID testing is is de minimis when it comes to the third party med costs. So we are hopeful. We are optimistic that, you know, with the combination of lower case rates and, you know, our efforts to vaccinate our patients in our communities that, you know, we won't see, you know, the surge of hospitalizations. That said, you know, we're obviously watching the new variants closely like everyone in the country is. And, you know, there's just a lot of unknowns. We haven't come down from a 100-year pandemic in 100 years. So, you know, there's a lot of error bars around there. So I think your last question around kind of how much we know and how certain we are. I mean, the answer is, you know, we're not on the third-party Medi-Cost front. So if everything goes well and we don't see another surge of COVID and we don't see any hospitalizations, you know, I think, you know, we can certainly perform better than probably in our estimates. But, you know, this is – if COVID has prevented anything, it's unpredictable. So we want to make sure we are being thoughtful as well. Got it.
spk11: So on the treatment side, clearly taking more of a conservative approach in the initial guidance, it sounds.
spk06: We hope so. But again, hopefully we'll talk to you guys in a couple quarters, and life will be back to normal, and you can remind us of this.
spk11: Yeah, we can hope. I guess just one second question on the accelerated center rollout. Any sense you can give us on the split between existing versus new geographies and then just given the decision to accelerate the rollout, you know, any motivating factors there? Was it related to just opportunity, increased competition? Just curious what sparked the decision to, you know, to accelerate the rollout of the centers.
spk06: Yeah, I don't have the breakdown of new versus existing, you know, at my fingertips. It's going to be roughly – roughly proportional between the two, depending on how you find a new market. Some of our markets, like New York City, are technically existing markets in 2021, because we were there in 2020. But obviously, we're just at the start of building them out, versus places like Chicagoland, where we'll also continue to grow in 2021, or have been there for a while. It'll certainly be a combination that obviously we've announced multiple new markets as well. And I think we'll continue to announce more on top of what we've announced over the next month or two. As far as the decision, honestly, it has nothing to do with competitors and it has everything to do with, you know, we see it's just a absolutely massive market opportunity, a very open market, you know, regardless of what your competitors are doing. and really strong performance historically, that really leads us to feel like it's the right decision to invest. I shared this a little bit in my earlier remarks, but if you look at the unit level ramp of Oak Street Centers, it's absolutely phenomenal. It's an incredibly good decent capital and incredibly strong And so the question we ask ourselves is, do we feel like we have the kind of internal capacity to put more centers up? And what has happened historically to the ramps over time? And I think we opened up two centers per week during a surge in the pandemic not too long ago. So I think we feel very good about our capacity to put more centers up in full year of 2021. along the same lines, the performance isn't eroding. It's actually the opposite. The performance over time is improving. So when you're seeing those factors, you're seeing such a huge open market, we need to grow more. Frankly, right now, the limiting factor to our growth is not market opportunity. put up an order of magnitude more centers in 2021 and still be scratching the surface of the overall market opportunity, it really comes down to us having the appropriate level of confidence in our ability to execute. And I think we will see what I call titrate up the number of centers every year to make sure that, you know, everything is going smoothly and we are continuing to see the same kind of trajectory of improvements of our vintages. As long as we're seeing that, we'll put up more centers the next year and repeat. So, again, we're really, really excited about the future opportunity, and putting up more centers was a pretty easy decision because, you know, the market can support 10,000 Oak Street centers, so we are a long way from making it into that market, and we feel a huge need to put up more centers because we also feel like the quality of care we are providing is just differentially better, and so we want to bring some more people. All makes sense. Thanks, Mike.
spk10: Sean Marlin with Piper Sandler. Your line is open. Hi. Thank you. Good morning. So you called out a $20 million investment to manage medical claims expense. Can you give us a little bit more specifics on what this entails exactly? And also, just describe how managing medical claims expense in the direct contracting program is different than that in the MA program.
spk06: Yeah, to your first question, there's a number of programs embedded in that number. Part of what I call it out is generally we will implement a series of new, you know, med costs and care model programs every year. For any time you're developing a new program, there's the cost to develop a program. There's the cost to pilot the program. There's the cost to build out the kind of technology and training to roll it out more broadly. There's the implementation cost of rolling it out more broadly. And then obviously, we wouldn't be developing a rolling program if we didn't have a strong conviction that that program would ultimately lead to better health outcomes for our patients and therefore lower medical costs overall and, you know, obviously have a strong ROI in that program. But there's a period of time where you're rolling out the program and not getting that return, number one. Number two, when we think about budgeting and guidance, we don't bake in a lot of the benefit right away. We do bake in all the cost. And so in this case, there's a number of programs under that number. The biggest one is a program focused on our end-stage renal disease patients. We're not offering dialysis. Obviously, we'll work with partners on that. But actually, the majority of cost for a patient with MCA renal disease is not dialysis. It's actually all the other kind of acute episodes that occur. If you go on to dialysis, for the most part, you have a number of chronic conditions that cause you to have end-stage renal disease. And so we feel like it's a huge opportunity to really improve the quality of care for these complex patients. It's right in line with what we've proven with other parts of our care model. And now that we are getting bigger and we have a critical mass of those patients, we can really make that investment. And so that's the biggest one. There's a couple other ones underneath there, some more care in the home components and transition components and things. So we really believe strongly these programs will pay off over time. And kind of latter part of this year and really more into 2022, we'll see a pretty big benefit from the programs. But you have that upfront investment. And this year is kind of a unique year because I think we'll have more of those investments than we otherwise would have because A lot of the things we were going to roll out in 2020 didn't happen, right, because the same teams that would have rolled those out were focused on inspection control protocols and testing and COVID care programs, now vaccinations, et cetera. So, again, that's kind of what's in those numbers. And, you know, we hope we are confident that there will be a return on those investments, you know, not too long from now.
spk10: Okay, and then just more broadly, what's different about managing medical claims expense in the direct contracting program versus members enrolled in M.A.? ?
spk06: I think it's actually one of the reasons why Oak Street is very well situated for the direct contracting program. You know, you think about the program overall, you don't have the kind of traditional managed care levers in direct contracting, right? So you don't have networks. It's open access like traditional Medicare. You don't have prior authorizations or kind of the gatekeeper model. So I think some of the more traditional kind of, you know, call them kind of MSO-type models that are going to be harder to implement in direct contracting. That's really not what Oak Street does. And so from our perspective, the focus of our care model and our approach is really to provide a phenomenal experience for our patients so they come to us voluntarily, really focusing on how do we ensure we understand all of our patients' conditions really well, and we're leveraging data, technology, and our model to get ahead of any potential acute episodes and keep patients healthy in our hospital. If we do that, we'll generate a lot of savings. And so nothing, what I just said, will change within direct contracting. We are already taking care of these patients. We believe strongly we're already lowering the admissions and keeping these patients healthier and improving their outcomes. And so really what it becomes is a financial mechanism where we'll be paying differently, and I think that allows us to capture the savings we're generating. So I don't look at it for Oak Street. It's very different, although I think that depends on what is your model and your approach. That factors in a lot of how different the approach will be for those patients.
spk10: All right. Thanks. Can I slide in one quick one? Of the 38 to 42 Donovos this year, how many of those are going to be under Walmart?
spk09: None.
spk10: Oh, I thought you said that your forecast includes Walmart.
spk11: No, sorry. I was saying the 117 to 121 I mentioned would include those three Walmart centers in 2020. You know, we are Walmart is going well thus far. It's still obviously very early to be making any final determinations. We continue to talk to Walmart about how we can work together beyond those three centers. But at this point, as we think about 2021 and the 30 to 42 centers that we're going to open, none of those will be in Walmart. So sorry if that wasn't clear, but that is what we assumed. All right.
spk10: Thanks for the clarification.
spk08: Thank you. Thanks, John. Ricky Goldwasser with Morgan Stanley. Your line is open.
spk00: Yeah. Hi. Good morning. First question on patient acquisition. With the vaccine rollout, are you starting to see traditional patient acquisition channels already returning? And what are kind of like your expectation to when you will be able to host these events as, you know, community events and start up again? And how should we think about the cadence of those costs throughout the year?
spk06: So, you know, from a, start from the back of the question, from a cost perspective, we are bearing the cost right now of our community marketing team. They all, they all, they have a really, an FTE team. You know, we have the teams, they're all at their centers. You know, right now they're doing the best they can. You know, next job, all things considered of, you know, engaging people they've met in the community telephonically and working with different community groups and doing what they can do. But obviously, you know, it's more limited without kind of the more traditional event-based in-person activities that we kind of built the team for. But we, you know, made a decision to keep the team in place, keep investing in the team because we are confident that that will pay off, you know, relatively soon. uh you know we are not despite the i think early success we've had of getting our patients and our communities vaccinated one we're still early in doing that um number two you know society hasn't changed uh even you know the cdc gave guidance um you know recently so i i think we're we're not in a place now where at least in our markets and what we're promoting that you know a group of 15 20 older adults are doing a zumba class in an indoor in an indoor community center right um And so we really haven't turned those channels back on yet. I'm hopeful, optimistic. You know, maybe in the summertime we'll see that. You know, again, it's going to be, you know, when you start seeing society returning more to normal, then I think that'll kind of come along with it, right? It's both from a safety perspective, like the last thing we want to do is rush those things and, you know, and cause, you know, infection spread in an at-risk population. And, you know, number two is people have to be willing to do it as well. The only thing I'll say to that is the one thing we've kind of seen as a proxy for that that's been pretty exciting is as we vaccinate people in our communities, you know, in some ways we've kind of had the closest thing to a community event we've had in over a year because, you know, we are having a lot of people that aren't O Street patients coming to our community centers to get their vaccines, and they're seeing O Street for the first time on them. And I think a lot of them have been, if you see what we've done, have been very impressed by the centers, the team, the operations, and how smooth everything's gone, especially when you see the horror stories, other places of weights and confusion. And so we're really excited about the number of people we're able to make a really strong impression on. Historically, that was one of our biggest goals of our community marketing models, to get people to come to our center and meet our team, see it, because we knew that they would be very likely to schedule afterwards. So we're hopeful this will kind of be the beginning of that. Obviously, that's not the goal of the vacuuming campaigns, but I hope it'll be a nice side benefit of just getting more people introduced to what we're doing.
spk00: And my second question is on the cost. I mean, Tim, you went through sort of the list of the incremental costs that we're seeing in 2021. So just to clarify, what do you expect to revert in 2022 as we think ahead versus what part of this cost is now more kind of like structural to the model and we should kind of update our 2022 and beyond models to adjust for that?
spk11: Sure. So the $50 million that we will invest in new centers between new center ramps as well as sales and marketing sports centers in G&A, I would say that's all consistent with how folks would be modeling center growth. So I don't know how everyone has developed their own forecast, but I'm assuming that as centers grow and there are greater investments in sales and marketing, there's a greater investment in G&A. And so I'd say, look, As we roll forward, as we expand from 25 to 40 centers, and from last year, you know, the incremental six centers we opened, you know, we are running the same math on those centers as we would in the other centers. So that, in my mind, isn't, you know, necessarily a headwind to 2022, and it just will have more centers in 2022. You know, that will probably increase the losses in 2022 as those centers continue to ramp to break even. But I would say that's business as usual, right? It's just more of the same, more centers than we otherwise had, than we had earlier anticipated. On the CARE program's investments, assuming those work, I would expect to continue to see those dollars in the P&L. So I think that's a new baseline for those expenses for 2021, 2022, and beyond. Obviously, we said that we're not seeing the returns that we mentioned. We would dial those back, and we're very optimistic that we will, given the opportunity that is presented by those programs. So what I'd hope to see in 2022 is some offset to medical claims expense from the benefit of those investments. Obviously, again, we did not incorporate any of that into 2021, but as they look forward to 2022, I hope to see that. And then finally, on the patient contribution dynamics I mentioned, we'd expect, to the extent that those are meaningful, right, we think the RAP issue will be real based upon what we're hearing in the marketplace. We expect all of those to reverse out in 2022. Obviously, that assumes that COVID, as we know it, fades out of existence. I'm sure that won't be entirely the case, but at least from medical cost perspective, it would be less of a phenomenon. I think we've got every reason that we can manage our patients from a documentation and a risk score perspective. The harder question to answer is what will happen to medical costs. But again, I think perhaps optimistically speaking, but sitting here early March, I feel as though we can be hopeful that by the end of the year, as we look forward to 2022 medical costs, that COVID won't be much of an impact there. So I'd expect all of the patient contribution impact, whatever that might be in 2021, to not be a headwind in 2022 and beyond. So, sorry, you know, Ricky, in summary, I don't think any of it is really an impact to future periods from a sort of a change to the profitability profile of the business. Again, more growth would require more investment, and as you roll your model out to 2023, 2024, 2025, we'll see greater profitability because of those new centers, and we expect to see a nice return on our care programs investment. So hopefully that gives you a sense.
spk08: Justin Lake with Wolf Research. Your line is open.
spk04: Thanks. Good morning. First question around churn. I know that's a number you haven't historically provided, but one of your peers held an analyst day, talked about churn in one of their specific markets, and the business being about 30%, which I think sounded high to a lot of people. So just curious if you can't share your churn number, just any thoughts around that 30%, because I think that's kind of an industry average, and we're all kind of learning about this business as we go.
spk06: Yeah, you're right, Justin. We have not historically shared our churn numbers. I don't have the exact numbers right in front of me. They're certainly not 30%. So I think that number feels high to us as well. I don't know which company you're referring to or what release. So hard for me to comment upon the number other than to say that certainly has not been our experience.
spk04: Got it. And then a question on direct contract. There are a couple of questions. One, it'd be, so you're going to get the 10 to 13,000 numbers. Curious if you could tell us whether you're, you know, what percentage of your kind of, you know, DC eligible patients that makes up meaning kind of what your, what your penetration rate there. And then I know you've said that you expect to do better on a voluntarily aligned patients. So maybe you can give us the mix there out of the 10 to 13. How many are voluntary versus claims? Thanks.
spk06: Yeah, I think in reverse order, um, And, again, I say all these with the caveat that, you know, we're working on preliminary reports and our analysis on those reports in a program that is brand new. So I just want to caveat everything I say with those. As far as claims aligned versus voluntary aligned, you know, we think initially less than half of our direct contact with patients will be claims aligned, and that we don't think the claims aligned number, you know, kind of by definition will grow much at all, you know, over the next year or so. And so all the growth from there will be voluntary aligned. or the vast majority of the growth. So I think it'll be kind of less than half to start on plains blind and obviously, you know, shrinking from there as we keep adding more fish. So that's the latter question. You know, the percentage of eligible is a hard question to answer because we're still trying to determine kind of, you know, who's eligible and all the different kind of eligibility requirements and, you know, reasons people wouldn't be in, right? So we get a report and, you know, we'll be surprised that, oh, you know, this set of patients were previously aligned to an ACO because their former doctor was part of a health system that was in a Medicare Shared Savings Program ACO. And therefore, looking back at the preponderance of their claims over 2018, 2019, and 2020, they got aligned to this system's ACO. And in 2021, for example, because this program is starting in April and the ACO program started in the beginning of the year, like they always do, the CMI decided that claims alignment to a MSSP ACO would trump direct contracting. Actually, that's going to change in 2022. But again, there's no way for us to know which of these patients happen to have a former doctor who was part of the health system that was part of an ACO. And so we kind of find a lot of these things out kind of as we go. So it's hard to answer the question of what percentage of our eligible patients, because I think we're still trying to understand exactly who our eligible patients are, and even that definition is changing over time with the program. So, again, what I think our goal is is to really understand where every patient is, make sure every patient does follow the voluntary alignment form, and then if they don't flow through, understand why they didn't flow through and see what we can do to change that, right? That's always our goal. The other thing that always moves, right, is, you know, as patients are engaged with us to help, a lot of them will choose Medicare Advantage. And so, you know, people who come in, follow the form, are on traditional Medicare, you know, if they end up choosing an MA plan, which obviously we're very happy with if they do, you know, then they won't be part of the program as well. So there's a lot of moving pieces that change over time, and we're obviously continuing to add patients. So it's just a little harder number to pin down. I understand what you're asking for, but I can't answer it.
spk08: All right, Daniels, we're filling in Blair. Your line is open.
spk01: Yeah, good morning. Thanks for taking the questions. In my opinion, perhaps one of the more important data points fundamentally is the improvement in the ramp of your stores. And I'm curious if you could go a little bit more into the centers and what the key factors are driving that, meaning is it faster member ramp? Is it revenue per member, medical cost management? I'm sure it's certainly an element of all of that. But in your mind, is there any key to that metric that's giving you that increased comfort? Thanks.
spk06: Yeah, you know, it's a combination, right? So if you go back to, you know, the 2015 vintage is always the baseline vintage. And, Ryan, I remember our conversation, you know, in the – Early IPO days when we shared that as kind of example vintage and all the questions we got were, okay, well, is that your best vintage ever? And, you know, have your economics eroded over time? And so we were excited to share with the group, you know, more data points around that that actually know the opposite of that and they've gotten better over time. If you go back to 2015, right, I'm proud of our performance then and the team then, but, you know, we are a significantly more sophisticated organization today than we were then. So I think a lot of the change has been the technology, right? Building out our, Canopy wasn't a thing in 2015. So we built out our Canopy applications that has really locked in workflows and gave in teams, you know, better access to the data they need to drive our care model kind of at real time within our care model, right? And that's something that's not stopping, right? We are rolling out more Canopy modules, you know, every quarter of this year. And if those modules are on, I think it'll continue to drive you know, better performance, better consistency of performance, and better kind of top line outcomes from our care model. That's certainly part of it. You know, similarly on the outreach side, you know, we pilot new things, we try new things, and we, you know, we learn ways to engage people and bring on more patients. And, you know, if things work, we hardwire them to continue them. So we're constantly innovating there. 2020 was a little bit of a strange year on that front because um you know as we talked about a lot uh we had to stop a lot of the things that work really well and develop a whole bunch of new things and so again we can't be more excited for the back half of this year in 2022 we can kind of take all the new things we figured out that worked with all the things that we knew worked in the past and do them all at the same time so we're excited we're really excited about that so it really it's one that's one thing it's really just kind of incremental improvement across all the levers of our model and that drives better patient outcome that drives more patients and you put those two things together and drive better performance of integers. Tim can quantify, but can you give me some numbers on the quantifications of improvements in 2015?
spk11: Yeah, if we look at our 2020 performance for the centers that we opened from 2016 through 2019, those centers in aggregate generated about $400 million in revenue. It's 36 centers and about $9 million of center-level profit. We compare that to the 2015 cohort and see what would these centers have done if they had performed similar to the 2015 cohort in 2020. Revenue would have been about $355 million, and profit would have been about $4 million. So we're 13% ahead on revenue, 140% ahead on profitability, albeit on a small number. But the point is we're seeing really nice ramps in our earlier vintage relative to that 2015 baseline vintage.
spk01: Okay, that's very helpful. Tim, one for you, if we think of the headwind from COVID-19 into the current fiscal year, how much of that relates to newer patients? I assume the bulk of it is somewhat related to that, meaning that, one, the risk scores on newer patients are probably going to be a lot lower than what you've been able to do with your consistent customer base. And then number two, is there more concern about medical claims among that group because perhaps people entering didn't get the appropriate preventive care or versus your patients and therefore might have higher institutional costs this year versus your core group? Thanks. Sure.
spk11: As we think about the potential impact to patient contribution related to COVID, I would say new patients are part of it. I would say it's easier to draw the distinction within that revenue. For our existing patients, we did a great job engaging them in 2020. Our ability to document them and their risk scores look consistent with what we've seen historically. So as we think about 2021, it's really the uncertainty around what will new patients look like. And from what we've heard from others, we'd probably expect that, again, we'd expect those risk scores to be lower. To the extent that they're not, the question could be, well, if they're higher, are you getting patients that are sicker, and therefore will the cost be higher? And so we haven't made any specific assumptions around newer patients being more costly than existing patients due to COVID-19. Candidly, we're probably not that sophisticated in how we're thinking about our new patients at this point. So as we think about MedCost, it's less a function of new patients and more a function of uncertainty around the entire population.
spk08: Kevin Fishbeck with Bank of America. Your line is open.
spk09: Great, thanks. I wanted to ask a question about direct contracting profitability. It sounds like you guys expect it to actually be additive this year as you're already incurring a lot of the costs. But can you talk about the ramp of profitability in that business over time? And if you're already incurring the costs, shouldn't it already come in at, you know, max profitability in year one? What would cause the improvement?
spk11: Thanks, Kevin. This is Tim. For the random profitability for direct contracting patients, we think about it in two different buckets. The first is what are the economics of the underlying patient, and then what are the costs to manage that patient from our cost of care perspective? We expect very minimal of any incremental cost to manage those patients, so we're really talking about what are the revenues left in medical expenses for these patients, and what I'd say is Similar to what we experience in our MA book of business, we see an improvement in patient economics over time as a function of both better understanding of the disease burden of those patients and documentation, and therefore better calibration of our care model to better manage the medical costs of those patients. so we see nice improvements i think as folks know over years two three and four patients being on our platform we expect something similar for direct contracting patients that's my earlier comments our goal is to hasten that ramp every year but the reality is that it does exist somewhat a function of how medicare advantage works sort of the annual cycles of the program so given the fact that direct contracting is essentially drafting off that program i expect to see a similar rank over time where we see more modest profitability in year one for these patients and then as you know as they become uh on the platform for years two and three we expect to see a nice ramp in profitability so uh along with the way of saying the 2021 contribution from those patients those direct contributions won't be all that meaningful because again they're in their first year with oak street and i'd expect the the patient level probably would be lower than it would be for a patient that's more tenured okay that makes sense and just maybe to ask a question or follow-up question something else asked earlier about the
spk09: consistency of some of the costs that you're including in your guidance today. I guess if we were to – how do you think about the boost in clinics? I mean, is this number that you're adding this year now kind of a new way to think about new clinic growth going forward? So we should kind of be thinking about $50 million, you know, of costs next year as you add a similar number of sites, or is this kind of a one-time season or an opportunity?
spk06: I don't expect it to – lower the number of new centers we put up in a subsequent year. I think if we're performing to the level we've performed historically, we will keep increasing that number. Obviously, and you know this better than I do, but if you think about the financial results of Oak Street Health, right, it's really driven by how many mature centers you have and how many, you know, immature centers you have. And, you know, when you get a high enough portion of your centers mature, that can cover, you know, all of your new center growth and beyond, right? And so if you think about today, the, you know, 79 centers we have today actually – half of those centers are within the first two years of being open, right, so when they're losing money. If we put up, you know, 40 more centers this year, give or take, right, and we have 120 centers at the end of this year, give or take, you know, more than half of those, right, the 28 we put up in 2020 plus the 40 we put up this year, so that's, you know, 68 of the 120 will not be in their first two years. So we're actually, as we accelerate the pace of center ramp, we are increasing the number of immature centers related to mature centers. As I shared with you earlier, our centers that are nearing capacity are contributing $9 million, give or take, each. And so you can offset a lot of new centers with a couple mature centers. But obviously, as we look to accelerate our growth into this huge market opportunity, that's the investment period. And so, you know, we're definitely in 2021, and I expect to be 2022 to kind of be in this investment period where we are, you know, putting out this, you know, putting out more centers, obviously feeling very confident in our ability to operate and execute that number of centers, but putting out more centers to meet what is, you know, just a massive market demand. And, you know, in a couple of years, those centers that I shared before, just the centers we put up this year, you know, we expect to be $1.3 billion in revenue, $250 million in center contribution. In five years. And so, you know, again, the model is really strong, but we feel like the right thing to do is to invest against putting out more centers. And so, you know, what are kind of the extra 50 million to describe is really kind of how much more than the baseline of 25 centers would it take to put up 40? And, again, so if your baseline is still 25 in future years, yeah, you'll incur extra costs. But, obviously, pretty soon, right, that cost will be offset by the investment we've made in prior years.
spk11: Kevin, one thing I'd add is it's relatively formulaic for us, right? A new center has a ramp. We see that ramp over time. So from our perspective, it's just the number I gave you that I provided is just a function of if we open more centers, what would the cost be? Nothing more than that.
spk08: David Larson with DTIG. Your line is open.
spk07: Hi. The cost of care increased by about 50% sequentially, and obviously the medical claims expense was up about $20 million sequentially. Can you talk about what drove that and how much of that was related to, say, inpatient admissions tied to COVID, if any? Thanks.
spk11: Sure. So on the cost of care, the largest driver there is just a function of the number of centers we open in Q4 relative to Q3. So just to remind folks, we held off on opening new centers during the depths of the pandemic, if that's the right term, for Q2, early Q3 of last year. We really started reopening centers in August. So you're seeing in Q4 a bunch of new centers coming along as well as a full quarter of the centers we open in Q3. So that's going to lead to greater cost of care, in addition to all the other costs that we have to manage a growing patient base. On medical costs for the quarter, we did see an increase in COVID related to the surge in cases between, can I call it mid-November to the end of the year, and it consisted of what the broader market had seen. As we close the books for 2020, in early January, or even as we wrapped up our audit in mid-February, it's still hard to know exactly what claims you'll get in December related to COVID. So we did make an estimate, per my comments, of potential costs related to COVID in Q4, above and beyond what we'd received. It was about $9 million. So you're seeing that in those numbers, in that Q4 number two. So that's going to be an expected sequential increase from Q3 to Q4, David, just given the seasonality of our business. But also you're seeing an incremental step up because we did take a reserve against potential COVID costs that we might incur in Q4 that we hadn't received, but we felt it was prudent to do so versus, you know, having negative development in Q1 or Q2 of 2021 related to 2020.
spk07: Okay, great. And just one more quick one. Under MA, I think you're getting about $12,000 a year per patient in revenue. What is it under direct contracting, please?
spk11: Yeah, so in MA, it's probably closer to the average basis, probably closer to $14,000, about $1,200 per member per month, so about closer to $14,000, $15,000 per year. Direct contracting, we don't know. It's a simple answer. Yeah, we'll know here shortly, in a couple weeks. But what we would tell you is that for a voluntary aligned patient, we would expect their revenue to be greater than that because... CMS is, the withhold from CMS is 2% versus what we typically experience with a health plan, which is cultured at 15%. That being said, we expect the medical cost to also be greater because traditional Medicare is more of an open access product versus an MA product. Most of our patients are on HMO, which is more restrictive. You tend to see higher medical costs to the extent that a plan design is more open. So we expect higher revenue from those direct contracting patients, higher medical costs. The net of those two, we'd expect to be about the same. I say that that's predominantly for voluntary-aligned patients. There are some program differences between voluntary-aligned and claims-aligned. We'd expect the claims-aligned patients to probably be a little bit inferior to what we expect in the voluntary lines, but again, you know, a lot for us to learn over the coming months as we get more data from CMS as to what patients were actually, what specific patients are aligned to us and what the underlying economics of each individual patient are.
spk05: Richard Close with Canaccord Genuity. Your line is open. Richard Close Yeah, thanks for the questions. Maybe to go back to Ryan's question on the core cohorts performing better, I was curious if you could maybe give some description of the different markets or geographies. Are you seeing any major differences in the performance of centers based on certain states or whatnot new and existing markets?
spk06: No, and I think that's one of the reasons we have so much confidence in our ability to expand. We really see little to no variation between markets. Actually, you'll see more variation within a vintage between centers in the same market, right? And so, you know, what we see is the, you know, The needs of our patient demographic are similar across markets, both from a patient experience perspective, how we can offer something that is much more compelling than a traditional doctor's office, and from a care perspective, how we can generate much better outcomes. A lot of markets have different organizations of how healthcare systems organize and how primary care fits within hospital systems, etc. From a patient perspective, there's not a lot of differences and we're able to make a big difference. What you really see is, one, we're incredibly consistent across our centers. All of our early centers are profitable. We've never had to close the center, et cetera, et cetera. But I think even when you look at the variations between centers, it's usually driven by things like kind of, you know, the leadership in the center or the team in the center. And it's pretty actually – it doesn't have to be easy. It requires, you know, focus and management. But, you know, the levers to turn around are pretty similar. If you follow the Oak Street – care model with fidelity, you'll get great results. We have all the technology tools, reporting, dashboards, et cetera, to kind of monitor that. And so, again, we see a lot of consistency across all of our different markets, you know, whether it's Dallas or North Carolina or Philadelphia or Flint, Michigan, or Youngstown, Ohio, or kind of, these are all very different places and I'll see very similar results.
spk05: Okay. That's helpful. And then Tim, just on the direct contracting and the, Mike's comments on six to seven for the year and then two to three, you know, per quarter going forward. It sounded based on your comments that there was some opportunity for that number to come in ahead of the targets you just sent stated. Is that, am I looking at that correctly or no?
spk11: So I'd say, look, you know, There's a lot of movement between $13,500 to kind of take them in front of the range $6,500. And so our best guess is we end up between $6,000 and $7,000 based upon all the sort of the inferential math we're doing. Is it possible that it's higher? I mean, I guess it could theoretically be lower too, right? Those are possible. I mean, we're pretty close at this point, so we hope we're making – we're being – our math is – I know the math is right, but the assumptions that are aligned to math are accurate, but we'll obviously know more. I'd say, you know, Yes, there is the potential that we could do better, of course, either through faster patient growth or through some of those patients that were excluded rolling in over the course of the year. You know, I think it depends on what you assume, Richard. So, I mean, if you were only to assume 2,000 per quarter, maybe you have upside. Is there upside above and beyond 3,000? Yes, theoretically. So a lot to learn. So, yes, it is possible. It's a simple answer. We'll know more as we continue to progress throughout the year.
spk08: Gary Taylor with JP Morgan. Your line is open.
spk02: Hi, good morning. I wanted to check on a few things with direct contracting. So just listening to the conversation about your expectation around the per member per month, the accounting is finalized on that, that you'll have the grossed-up revenue per member per month in your net revenue. That's how the revenue recognition will work.
spk11: Hey, Gary, it's Tim. It is not final. We have had conversations with our auditors. We've been through one or two rounds. We are working on getting the final determination. Candidly, we've just been more focused on getting through our last follow-on offering as well as to this earnings period. Obviously, we need to have that determination made here shortly because we're can close our books for, or start our accounting for Q2 when the program goes live. No changes to our expectations based upon those conversations that it'll be treated the same as our MA book of business where we would recognize the full premium as revenue and obviously the full metal cost as medical expense.
spk02: And if you're around this 1,200 per member per month with voluntary a little above, aligned a little below, I'm sort of ballparking about 60 million of revenue contribution for the year, just given sort of the phased enrollment? Is that about what you have embedded in your 21 revenue guidance?
spk11: Yeah, I'd say you're within the ballpark here. It's probably a little bit higher. I'd say, you know, we would expect – remember, we expect voluntary – 1,200 is what MA is. We'd expect voluntary to be above that, right, given the differences in the discounts with MA plan versus the CMS. So from a revenue perspective, it's probably a little bit more than what you mentioned, just given that dynamic, but you're doing your math right.
spk08: John Ransom with Raymond James. Your line is open.
spk11: Hey, good morning. You know, you're rolling out this diabetes solution. How do you feel philosophically? At last count, they were exactly 8,412,000. point solutions out there. How do you think about kind of a build versus buy when you integrate point solutions into your pop health cost management?
spk06: Yeah, so we do have a very comprehensive diabetes approach as well, although the program we're talking about is NC8 renal disease for dialysis. But regardless, for any program we think about, look, we always want to push ourselves and say, is there something we can get on the market that is going to be as effective or more effective than we can build ourselves? Because there's no reason to reinvent the wheel or put a lot of our energy into building something. So we're always looking at what are the solutions out there And also, how important is it to integrate that solution into our overall care? And I think one reason why we have been so successful at OsteoHealth, we are not an aggregation of dozens of point solution programs that are all siloed, but everything we do is integrated together. So our behavioral health program is more successful and impactful because it is completely integrated with our disease management programs and with our transition programs and with our in-home care and telehealth programs, etc., etc., etc. So I do think it's something where your whole is much greater than some of the parts. I think it's a mistake that healthcare makes generally is having a lot of parts, but those parts don't necessarily talk. And a lot of times the same people, right, that have the worst outcomes and drive a lot of the cost and really need the most help have multiple of these problems, and they all exasperate each other. So I think that that's a really important aspect of why Oak Street's successful and how we think about programs and how we integrate. So, I mean, the extreme example I'll give you, I don't ever expect to have an MRI at Oak Street Health, an MRI machine, because there are more MRIs in Chicago as an entire country of Canada, we can get great access to them. And, you know, reading an MRI image does not need to be integrated to our care model, right? So, like, so, you know, well, I've had plenty of radiology salespeople call in Oak Street over the years and tell us how much money we can be making by, you know, capturing the radiology volume on our patient base. That is something we'll never do because there's plenty of it. We don't need to have more costs to the system. But what we did do is we built a behavioral health program, really leveraging social workers as the base of that program. Not really a versatile black fee-for-service, not something you see a lot, in the community, but actually you can make a huge difference to your patients. And that difference is magnified when it's closely integrated with the disease management programs and the overall longitudinal primary care. So that's a long answer to your question, but, you know, how we think about it is always assessing, is there a better solution we can buy and kind of integrate with our model? And if we feel like we can do it really well ourselves and it's incredibly important that it's integrated, that's when we go out and build ourselves Tim has given me the look that we are already running over time, so I think at this point we probably need to end the questions. Really appreciate all the engagement. We're really excited about the fourth quarter, and more importantly, we're really excited about 2021 beyond Oak Street because, again, I think we've really demonstrated the the scalability portability and effectiveness of our model but we are we are not even starting to scratch the surface on kind of the demand and need for what we do and so we're really excited to continue to uh to invest to bring some more people and very confident we can kind of continue to keep improving our results while while really expanding enough in a big way so uh everyone on the oct was excited hopefully hopefully that excitement is shared so thank you everyone
spk08: This concludes the Oak Street Health fiscal fourth quarter 2020 earnings call. We thank you for your participation. You may now disconnect.
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