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spk14: Hello and welcome to the Oak Street Health 4th Quarter 2021 Earnings Conference Call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I will now hand over to your host, Sarah Cluck, Head of Investor Relations. Over to you, Sarah.
spk11: Good morning and thank you for joining us today. With me today are Mike Peikos, Chief Executive Officer, and Tim Cook, Chief Financial Officer. Please be advised that today's conference call is being recorded and that the Oak Street Health press release, webcast link, and other related materials are available on the investor relations section of Oak Street Health's website. Today's statements are made as of March 1st, 2022, and reflect management's view and expectation 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 performance and often contain words such as anticipate, believe, contemplate, continue, could, estimate, expect, intend, may, plan, potential, predict, project, should, target, will, and would, or similar expressions. 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 expectation and management of future growth, our market opportunity, 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. Please refer to our annual report for the year ended December 31st, 2021, filed on form 10K with the Securities and Exchange Commission, where you will see a 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 an in addition to and not a substitute 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 a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. With that, I'll turn the call over to our CEO, Mike Peikos. Mike?
spk19: Thank you, Sarah, and thank you to everyone for joining us this morning. Joining me on today's call, in addition to Sarah, is Tim Cook, our Chief Financial Officer. In this call, I'll start with a review of our 2021 performance, then turn it over to Tim to discuss more specifics around 2021 financial performance. We'll then turn to 2022, and I'll share more on our goals for the year, and Tim will provide guidance for Q1 and the full year of 2022. I want to first thank our team for the continued dedication and focus on our patients, our communities, and our mission. Our team continues to navigate through a challenging operating environment, including the Omicron COVID surge and the historically tight labor market, especially in healthcare. Despite these headwinds, we achieved strong results across all the major drivers of performance for the fourth quarter. We had strong revenue growth driven by new patient ads in both new and existing centers. We finished the year with 129 centers, including 50 new centers opened in 2021. Third-party medical costs, which we'll cover in more detail, were in line with expectations going into the quarter, despite significant headwinds from Omicron-driven hospitalizations, which were obviously not factored in the guidance we gave in early November. Direct cost of care and corporate costs were all in line with expectations as well. The net result is a quarter in which we exceeded the top end of our guidance range against revenue, membership, and adjusted EBITDA. The fourth quarter, we generated a record revenue of $394.1 million in the quarter, exceeding the high end of our guidance range and representing a 58% growth compared to Q4 2020. For the year, we generated $1.43 billion in revenue, representing 62% growth compared to 2020. Our revenue growth continues to be driven by our organic B2C marketing approach. This includes both central channels, such as digital marketing and our core community-based outreach team. Metal costs are trended in line with guidance we shared following Q3. This, combined with cost of care, sales and marketing, corporate costs, all in line with expectations, and higher than projected revenue growth, resulted in an adjusted EBITDA loss of $228.9 million for the year, which is favorable to the top end of our Q4 guidance. When we look back at 2021 as a whole, we exceeded our revenue, center growth, and patient growth targets. Our third-party metal costs were higher than anticipated, driven directly and indirectly by the COVID pandemic, leading to lower adjusted EBITDA performance. Tim will cover in more detail how these trends progressed across the year and their expected impact in 2022. Beyond the financial metrics, we took a big step forward in 2021 in our mission to rebuild healthcare as it should be. We made significant accomplishments across the key components of our business.
spk04: This will lead to a greater impact on our patients and communities, which will drive our future financial performance. We opened 50 new centers in both existing markets as well as across eight new states.
spk19: Put that into context, it took us seven years to put up our first 50 centers. This expansion will allow us to serve additional communities and patients, invest in continuous improvement in our care model and patient experience, and greatly increases the embedded profitability in the business. To help mitigate 2020 high winds in running our community-based marketing model from the Delta and Omicron surges, we markedly scaled our central marketing channels to help fill the gap and continue to see strong results from these channels. We are excited for the time when we can have both our community and central marketing channels working in concert. We were selected by the ARP as our exclusive primary care partner, a relationship that we believe will lead to increased patient growth and retention while being a differentiator for years to come. Additionally, we continue to build on our core platform, adding new care model capabilities and services for patients, which we believe will continue to improve health outcomes and lower third-party medical costs. For example, we publish results around the impact of enhancements to our data and technology platform, such as implementing new machine learning algorithms to better risk stratify our patients. We expect the acquisition of Rheumatocon MD will allow us to integrate their virtual specialty network into our care model, creating an innovative and differentiated approach to specialty care, resulting in improved care quality, lower unnecessary medical costs, and improved patient experience. We accomplished all of the above while navigating the twists and turns of 2021. We operated vaccine clinics early in the year and delivered 200,000 plus vaccine doses. We navigated COVID surges in the second half of the year while still executing against all aspects of our business. We hired thousands of team members, including hundreds of providers, despite historically tight labor markets. I couldn't be prouder of what our team accomplished in 2021, and I'm excited to see what they can accomplish in 2022.
spk04: Before I turn it over to Tim, I have two recent topics I'd like to address quickly.
spk19: The Department of Justice inquiry that we disclosed in November and the recent announcements from CMS related to the direct contracting program. On the status of the DOJ inquiry, we have begun and will continue to provide documents in response to that inquiry. Our discussions with the DOJ have to date largely been about the scope of the request and the document collection process and not about the substance of the inquiry. As such, we are currently unable to make any meaningful predictions about the timeline or outcome in this matter. As we have said previously, we strive to operate in a compliant manner, and we will work with the DOJ in a collaborative and transparent manner as we address their inquiry. On direct contracting and the recently announced changes to the program, we are participants in the direct contracting program as it enables Oak Street to provide our care model to patients with traditional Medicare with increased supporting services than are typically provided in primary care for traditional Medicare patients. In fact, in 2021, 100% of Oak Street's health patients in the direct contracting program were located in areas designated by HHS as medically underserved, mental health provider shortage areas, or both. Last week, CMS and CMMI announced important changes to the program aimed at advancing health equity to bring the benefits of accountable care to underserved communities, promoting provider leadership and governance, and protecting beneficiaries in the model with more participant vetting, monitoring, and transparency. Having been a Medicare Shared Savings Program ACO participant for several years prior to joining direct contracting, we are excited to participate in the ACO REACH program and appreciate the time and effort CMS and CMMI invested to modify the program while also taking into account stakeholder concerns. We believe these changes fit well with Oak Street's model, given the communities we serve and our longstanding focus on health equity. The exact details from the CMMI are still pending, but if the ultimate changes are consistent with what was communicated last week, we do not expect a material impact to Oak Street. With that, I'll turn it over to Tim to cover some more of the details regarding our financial performance in 2021.
spk16: Thank you, Mike, and good morning, everyone. We continue to generate strong growth for the Oak Street platform in 2021. To recap the year, we eclipsed $1 billion in revenue, generating $1.433 billion in revenue in 2021, representing growth of 62% from 2020. We exceeded the high end of our initial 2021 revenue guidance issued in March 2021 by 8%, and better than the high end of the revenue guidance provided during our third quarter 2021 call. As of December 31st, 2021, We cared for approximately 114,500 patients on an at-risk basis, 4% ahead of the high end of our initial 2021 guidance and above the high end of our guidance range on our Q3 call. We opened 50 new centers in 2021, increasing our total center count to 129 as of December 31st. This represents eight more centers than the high end of our initial guidance range. Capitated revenue for the year of $1.397 billion, represented growth of 64% year-over-year, driven by increases in our at-risk patient base and our capitated rates. Total prior period development related to capitated revenue from prior years, primarily 2020, was favorable by $20.8 million, driven by the result of our 2020 full-year risk adjustment payments compared to our accruals and patient retroactivity. Other revenue for the year was $36 million, representing growth of 13% year-over-year. Approximately $6.5 million of the $36 million was related to favorable prior period developments from our performance in 2020 under our shared savings arrangements, the majority of which was related to the results of our ACORN ACO. Our medical claims expense in 2021 was $1.109 billion, representing growth of 80% compared to 2020, given by the increase in patients under capitated arrangements and an increase in medical costs per patient. Total prior period development from prior years, primarily 2020, related to medical costs was unfavorable by approximately $6.7 million, driven primarily by patient retroactivity. The majority of these costs were directly offset by the capitated revenue prior period development. As a reminder, patient retroactivity is typical and occurs when health plans pay Oak Street retroactively for patients managed in prior periods but not previously included in our rosters and therefore not previously recognized in revenue or medical claims expense. During our last two earnings calls, we highlighted three drivers of our elevated medical costs. These areas represented an estimated $110 million headwind in 2021, but we continue to believe they are direct results of the pandemic and largely temporary in nature. The first, costs from COVID admissions. In our Q3 earnings call, we shared that in the first three quarters of the year, Oak Street experienced approximately $25 million of costs directly related to COVID admissions. We estimate full-year COVID costs were approximately $38 million in 2021, including an estimate for the surge in COVID cases related to the Omicron variant in December. We expect January and February 2022 to have elevated costs from COVID admissions as well. We remain focused on ensuring our patients are vaccinated and have received their booster shots. We also have programs in place to ensure our patients have access to new oral antivirals. We hope as these therapies become more available, they will be effective in reducing hospitalizations and other poor outcomes in future COVID waves for our patients. The second element was non-acute utilization. In our Q2 earnings call, we discussed that non-acute utilization, including specialist visits, diagnostics, and outpatient procedures, increased in March and April following the vaccine rollout for older adults compared to our historical experience. We believe the increase in cost during the spring was partially driven But patients increased comfort accessing medical care once they were vaccinated. Relaxed payer standards due to the public health emergency and specialist and hospital system behavior. In our Q3 earnings call, we shared that these costs began to decrease in late spring into the summer. As the year progressed, this trend continued. Comparing to our historical experience, we estimate non-acute utilization with the $35 million headwind in 2021 driven in large part by the elevated costs in the spring. However, we do not expect it to be as significant to headwind in 2022, given the lower run rate exiting the year. This is also the cost category where we feel the acquisition of RubiconMD will have the greatest impact. The final driver was new patient economics. In our Q3 earnings call, we discussed how new patient medical costs were elevated compared to historical levels, while per patient revenue for new patients declined to a level less than what we received for new patients in 2019, both on an absolute basis and significantly less than what we would have expected when considering premium trend. The net result is a decline of new patient economics driven by a combination of higher costs and lower revenue than what we have experienced historically. We estimate patient contribution for new patients was $38 million lower in 2021 compared to our 2019 new patient economics. We have looked at new patient contribution by geography, center vintage, provider tenure, and marketing channel, and we saw a similar decrease across all cuts of the data. For this reason, we do not believe the new patient economics in 2021 were negatively impacted by new centers or markets, but instead continue to believe the primary driver of lower new patient economics is lower engagement of older adults, especially those in lower income communities, by the healthcare system in 2020. Lower engagement results in both higher medical costs because of unaddressed medical conditions and lower revenue because these conditions go undocumented. As a reminder, risk scores lag by a year and depend on diagnoses captured during provider visits. Thus, the lack of engagement before joining Oak Street likely had a double effect of reducing the incoming risk score while also increasing disease burden. As discussed on prior calls, we expect the increase in per patient revenue in 2022 for these patients who joined in 2021 to be larger than our historical experience, which we believe will largely offset the higher medical costs from these patients. At this point in 2022, It is too early and we have too few new patients to have a firm view on what revenue, medical costs, and therefore patient contribution will look like for our new patients in 2022. While these three drivers led to higher than anticipated medical claims expense and therefore lower profitability than we expected coming into the year, we are seeing these higher costs begin to subside and continue to believe that the remainder will subside over time as COVID evolves from pandemic to endemic. Moving on to cost of care. Cost of care excluding depreciation and amortization in 2021 was $294 million, a 57% year-over-year increase driven by higher salaries and benefits expense from increased headcount, as well as greater occupancy costs, medical supplies, and patient transportation costs. The growth in these costs were related to the significant growth in our patient base at our existing centers, as well as the growth in the number of centers we operate. Sales and marketing expense was $119 million during the year. representing an increase of 86% year-over-year and was driven by a $36 million increase in advertising spend to drive new patients to our clinics, as well as an increase in salaries and benefits of $17 million related to headcount growth. As a reminder, growth in year-over-year sales and marketing expense was artificially inflated as our costs were partially depressed during Q2 and Q3 of 2020 due to the pandemic, which included the temporary suspension of community outreach activities and other marketing initiatives. Corporate general administrative expense was $307 million in 2021, an increase of 65% or $121 million year over year, primarily driven by headcount costs necessary to support the continued growth of the business. Stock-based compensation represented $156 million of total corporate general administrative costs in 2021 and $79 million of the year over year growth. Excluding stock-based compensation, corporate general administrative expense grew 39% compared to our total revenue growth of 62%. As a reminder, the vast majority of our stock-based compensation expense is related to the accounting treatment of equity awards issued prior to our IPO in 2020. I will now highlight three non-GAAP financial metrics that we find useful in evaluating our financial performance. Patient contribution, which we define as capitated revenue less than medical claims expense, grew 23% year-over-year to $288 million. 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 some of the medical claims expense and cost of care, excluding depreciation and amortization, was $31.5 million, a 59% decrease year-over-year from $77.5 million. This year-over-year decrease was driven by the previously discussed increase in medical claims expense, as well as a significant recent growth in our center base, and therefore the portion of our centers which are immature. The data we provided during our JPMorgan presentation reflected the losses we expect for new centers as their performance ramps over time. We expect new centers to generate an operating loss for the first two years of operation, and approximately break even in year three. As of December 31st, approximately 60% of our centers have been open for less than two years, and approximately 70% have been open for less than three years. Adjusted EBITDA, which we calculate by adding depreciation and amortization, transaction offering-related costs, income taxes, and stock or unit-based compensation, but excluding other income, to net loss, was a loss of $228.9 million in 2021 compared to a loss of $92.6 million in 2020. We finished the year with a strong balance sheet and liquidity position. As of December 31st, we held approximately $790 million in cash, restricted cash, and marketable debt securities. In Q4, we closed our acquisition of RubiconMD. The base purchase price was $130 million and was paid in cash. Our liquidity position will support our continued growth initiatives, primarily our de novo center-based expansion. For the year end of December 31st, 2021, cash used by operating activities was $197.2 million. while our capital expenditures were $81.3 million. I'll turn it back to Mike now to discuss our focus areas for 2022.
spk04: Thanks, Tim.
spk19: Turning to 2022, we are excited to continue on our journey to transform care for older adults. Our focus for 2022 will be on our four core objectives at Oak Street. Provide the best care anywhere, deliver an unmatched patient experience, grow the number of patients and communities we serve, and be the best place to work in healthcare. For the last two years, we've required a huge amount of nimbleness and flexibility from our teams in order to meet the needs of our patients and community. In Q2 2020, we essentially morphed into a telehealth company for a time, going from near zero to 90% of our visits being virtual. In Q1 2021, we ramped up vaccine clinics across dozens of our locations to ensure equitable access to vaccines for older adults in the neighborhoods we serve. I'm incredibly proud of these and many more efforts from our teams to be there for our patients and communities. 2022, we are excited to have our teams both at our corporate offices and at our centers, focusing on the core of what we do and advancing our performance across all of our objectives. We believe this focus will result in continual improvement to and scalability of our model. As we shared in our January during our JPMorgan Healthcare Conference presentation, we expect the Oak Street platform to drive strong center economic performance in 2022. Our expectation is that our centers that are over six years old will continue to be highly profitable with a subset of these centers that have 2,300 or more at-risk patients driving center contribution of approximately $8 million each. Additionally, as we shared at the conference, our intermediate centers are ramping better financially than our mature centers did at this point in their maturation, and our newest vintages are starting off similar to or stronger than our mature centers for the key KPIs that drive center results. It is for these reasons that we are confident in the unit economics of our centers and the return they will generate for investors while improving the well-being of thousands of patients. Tim will share in more detail in a couple minutes. Our view of 2022 center-level performance that we shared at the conference remains unchanged and is a basis for our guidance. Because of our confidence in our unit economics, the differentiation of our model, and the massive market opportunity that will enable sustained growth over the next decade, we believe we can pursue a strategy that delivers meaningful near-term and longer-term value creation for all stakeholders while mitigating risk from current market volatility. We are updating our new center target to 40 new centers in 2022. Our plan is to open 30 to 40 new centers per year through 2024. By titrating growth to 40 new centers per year over the next three years, Oak Street will achieve substantial growth with an expected revenue compounded average growth rate of over 40% while reaching profitability in or before 2025. Additionally, Oak Street will continue to grow our already substantial embedded EBITDA. with embedded EBITDA of over a billion dollars for centers opened by year-end 2022, and more than $1.5 billion for centers opened by year-end 2024, assuming the unit economics we shared in January. As we have previously indicated, we have considerable control over our capital consumption through the cadence of new center growth. If we are able to further improve our unit economics, lowering capital needed over the next couple of years, we will reinvest that capital into an accelerated pace to center openings. By titrating our new center growth in this way, We believe that we owe sufficient capital to fund center growth until the business is cash flow positive without the need to raise equity capital now or in the future. Given the recent market volatility, we think this is the most prudent path to control our own destiny, mitigate any risk for market volatility, and build value for our shareholders. As noted above, we remain confident in our unit economics and our team's ability to execute across the range of new center openings we've considered. We believe this approach allows us to build a fast-growing, value-creating, transformative organization with sustained compounded annual revenue growth of greater than 40% and significant and better profitability. We remain excited to continue to execute our mission to rebuild healthcare as it should be.
spk04: I'll turn it over to Tim to discuss in more detail guidance for 2022.
spk16: Thanks, Mike. As Mike just discussed, we are setting our initial guidance for our center growth at 40 centers, resulting in a year-end center count of 169 centers. We expect to care for total at-risk patients in a range of 152,500 to $157,500 and generate revenue for the year in the range of $2.1 billion to $2.135 billion, representing growth of approximately 45% over 2021. We expected our adjusted EBITDA loss to be $325 million to $290 million. Implicit in our adjusted EBITDA loss guidance range is platform contribution performance within the range that we outlined in the JPMorgan conference for each vintage. Recall that our JP Morgan range took into account unknowns around future direct costs from COVID hospitalizations as well as new patient economics. Our guidance incorporates the realities that there will be COVID costs, particularly given the Omicron surge in Q1, and new patient economics are largely unknown at present, given we have relatively few of them at this point in the year. Note that due to the fewer centers in 2022, we will not generate the same level of operating leverage as we would have had we opened 70 centers. continue to invest in our platform to drive future performance. We will manage our 2022 new centers to minimize potential costs from delayed openings, but we do expect to incur one-time dead costs included in our guidance related to centers originally scheduled to open in 2022 that will now open in 2023. As we look forward to 2023 and 2024, we would expect to open 30 to 40 centers in each of these years. At this pace, we will continue to strategically grow the business while minimizing the potential for a future equity raise. With performance consistent with our 2022 guidance, this pace would result in 2022 being the trough of our adjusted EBITDA losses in cash burn, and will position us to be adjusted EBITDA positive in 2025, while generating a revenue CAGR from 2021 through 2025 in excess of 40%. For the first quarter of 2022, we expect the following. Total centers in the range of 138 to 139, At-risk patients in the range of $122,500 to $123,500 as of March 31st. Total revenue in the range of $505 million to $510 million. And an adjusted EBITDA loss of $45 million to $50 million. And with that, we will now open the call to questions. Operator?
spk14: Thank you. We will now proceed with the Q&A. If you'd like to ask a question, you can press star 1 on your telephone keypad. you would like to withdraw your question you may press star 2. please ensure you're unmuted locally when asking your question please note for today we'll be limiting questioners to one question and one follow-up question only thank you our first question for today comes from lisa gill of jp morgan lisa your line is now open uh thanks very much and thank you for all the details mike and tim um you know just going back to our conference where you talked about 70 centers opening
spk10: What's really ensued in the last seven to eight weeks? Is it just simply the current markets and not wanting to have to go back to the equity markets to gain additional capital? Or has something else changed in the way you're thinking about center growth for 2022?
spk19: Thanks for the question. From an operational or market opportunity standpoint, in our view, nothing has changed. As Tim noted, the The range of center ramps that we shared 7 weeks ago, the conference remains the basis for our guidance. I think we still see a huge market opportunity out there for us in some ways. I think the change in center growth is actually so much driven by that size of that market opportunity. We don't feel like this is a land grab. We feel like we'll be putting up centers over the next decade and beyond. And so when we looked at the market volatility. We didn't want to be in a position where we had to access the equity capital markets in the future. We wanted to make sure we really controlled our own destiny and felt that with this level of growth, we can achieve, you know, as we discussed, very strong growth, bring up the timeline to profitability, and really remove the need for an equity capital raise. And kind of that combination felt like the right approach to us given the volatility in the markets.
spk10: That's very helpful. And then, Mike, just a quick follow-up. You kind of rushed across the new direct contracting that CMS came out with. There were two areas that I feel people are really focused on. One, governance. Maybe you can just address that. I don't think that's an issue for you since you employ your doctors. But then, secondly, how we think about risk adjustments and the cohort of patients that they're looking at.
spk19: Yeah, on the governance one, I think we have the same read you did on that one that, you know, we are a provider organization, so I think the governance rules will be more relevant for organizations that are more contractual or aggregators of doctors versus a group like Oak Street where that's what we are. So that one's pretty straightforward for us. With all things risk adjustment, the devil's always in detail, so we'll, you know, we'll take close attention as more and more details are released. But our initial read is this shouldn't be a big change or impact on Oak Street. I think one of the things that's unique about Oak Street, and I think we're very proud of, is we've been taking care of traditional Medicare patients since the onset of the company. And over that time period, we haven't differentiated the quality of care and the investment we make in our patients based on insurance types. And so the type of care that patients received in 2014, 15, 16, 17, 18, 19, you know, all before direct contracting was a program was very similar. And, you know, our baseline patient population was a patient population was directly cared for by Oak Street at that time as well. And so because of that kind of changing the reference here or kind of how you're measuring that baseline of patients has, you know, we believe limited impact on Oak Street, therefore, should have limited impact going forward. So, obviously, if more details come out, we'll pay close attention, but our initial read is that shouldn't really make a big difference for us in the program.
spk10: Great. Thanks for the comments.
spk14: Thank you. Our next question comes from Ryan Daniels of William Blair. Ryan, your line is now open.
spk17: Yeah. Good morning, guys. Thanks for taking the questions. Thanks for all the data as well. Uh, Tim or Mike, maybe one for you guys regarding the archetype model that you shared recently at JP Morgan with the various vintages. And I'm curious if you could compare or contrast that to kind of where we were maybe pre IPO a few years ago and how that's evolved. Now I realized COVID probably has an impact here that's transitory in nature, but just any commentary there would be helpful.
spk16: Thanks, Ryan. This is Tim. I'll handle that. I know there was some unintended confusion after JP Morgan regarding how the cohort data shared at that time compared to our expectations at IPO. And I kind of think of this through three different lenses. The first, to the point of your question, is what has changed? You know, our initial model, archetype model, was created in the latter half of 2019 ahead of a potential 2019 IPO that we subsequently delayed until 2020. When we updated the model in the summer of 2020, you know, at that time we were hopeful, like I think many in the marketplace were, that COVID would be relatively short-lived and the financial impact would be limited and also time bound. You know, as we sit here today, you know, we continue to be impacted by COVID both via direct costs as well as indirect costs impact, or excuse me, indirect impacts such as the growth of our centers as well as the slower growth we experienced in 2020, which has a cumulative effect on results. today. So as we step back and think about the net present value of the center, which is how we evaluate our center performance, we believe the impact from all these changes related to COVID was about 5%. So relatively immaterial overall, just given the fact that our centers are still achieving the same level of ultimate profitability that we thought they would at the time of IPO. The second lens is just the number of proof points substantiating our performance. So at the time of the IPO, we had four centers that were that we categorize as most scaled, and they generated approximately $8 million each of annual contribution. Today, that number is 10 centers that we expect to generate $8 million each of contribution in 2022. Additionally, we had 19 centers today that are six years or older versus only seven at the time of the IPO, and we expect those 19 centers to generate on average about $6.5 million of contribution in 2022. And that kind of leads me to the third, which is our IPO archetype wasn't based upon our oldest center's performance, whereas what we provided in January is based more upon historical performance. And our more recent centers that are outperforming that historical performance, which is why we have a lot of confidence as we think about our future results.
spk17: Okay, that's a super helpful color, clarifies a lot. And then Paul Cecala, As my follow up just looking at growth in the expected at risk lives, it looks a little bit lower on a absolute basis. Paul Cecala, Year over year versus 2021 so i'm curious if you can go into some thoughts around that and. Paul Cecala, Maybe as part of that you can address just how your marketing may change here is coven appears to be winding down and. Paul Cecala, We had in the spring with things warming up do you expect your Community based marketing to ramp up a little bit here past punch key day thanks.
spk19: Ryan, I like the reference. That's a Chicago reference right there as opposed to a Tuesday. Yeah, great. But on the kind of patient acquisition front, our assumptions that we're using for guidance project a similar level of kind of growth percenters as we saw in Uh, 2021, so I think obviously what we're projecting to is net growth. And so there's multiple factors that go into it more centers, but obviously a larger insult patient base, et cetera. Last year was bullied by direct contracting coming in in Q2 where that's obviously in the baseline starting this year. But I don't, I don't our numbers today aren't assuming we, we. reach what I talked about earlier as a goal of maintaining our central channels, but getting our community marketing back to where we had in 2019. Obviously, that's our goal. And as COVID transitions from pandemic to endemic and people become more and more comfortable beyond the communities, our hope is we can get our community events ramping back up again and really get back to the types of activities from our center-based teams as we were doing a couple of years ago. We still have the same kind of staffing and approach there. So that's really our hope operationally, but that kind of both of those working in concert is not baked into our guidance because there's one thing I've learned over the last couple of years, Ryan, is to stop predicting what's going to happen in the twists and turns of this pandemic. So we'll keep assuming kind of performance for 2021 and hope we can improve from there.
spk14: Thank you. Our next question comes from Justin Lake of Wolf Research. Justin, your line is now open.
spk12: Hi, this is Harrison on for Justin. I think you just touched on this a little bit earlier, but I want to make sure I'm not missing anything. If I'm looking at this correctly, currently your 1Q risk-based patient guidance implies 8,500 patient ads in the first quarter, which would appear to imply 11 000 patient ads in each of the following quarters that hit the four-year guidance i think historically we've kind of seen the ma member grow it's more weighted towards you know the first quarter versus the other quarters is there anything to be unique this year that's driving the shifting cadence is it maybe the voluntary attribution of dc patients or anything else to call out thanks yeah i i do think direct contracting has uh
spk19: kind of slightly changed the shape of growth across quarters. Historically, we had a fair amount of traditional Medicare patients coming into the AAP period, and a set of those would change from traditional Medicare to Medicare Advantage, and so they would go from non-risk to at-risk. Obviously, with drug contracting in place, you know, a large portion of our traditional Medicare patients are in that program, and so they're already at risk. And so if those patients who are on direct contracting choose to move over to Medicare Advantage, right, they move, they remain at risk, and you don't really see that movement in our numbers. So I think that what used to be a time in AEP of getting a bump in the beginning of the year from traditional Medicare patients moving to risk, the good news is those patients are already at risk. And so it's an improvement overall, but I think you'll see more kind of, I don't want to say the word, kind of similar growth quarter over quarter where you won't have as much seasonality, which again, I think that's a nice positive for us that we can be very consistent growth across the year versus being reliant on one period of the year.
spk12: Got it. Super helpful. And maybe one last one. Just on offering leverage, would you mind expanding upon maybe your updated thoughts on the pacing of the leveraging of the cost ratios, given that you're slowing center growth and you know, presumably, you know, still have, you know, a certain amount of overhead spread across tier centers, and maybe, you know, just relative to how you're thinking about it prior to the change in center growth cadence or growth.
spk16: Sure, Harrison. This is Tim. Thanks for the question. You know, as you know, what you're referencing is we provided a framework about G&A growth during the J.P. Morgan Conference. You know, that was sort of just a simple heuristic of, If you think about it on a more nuanced level, our G&A costs have, there's a fixed component, there's a component that's more driven by patient volumes, and there's a component that's more driven by center volumes. The fixed cost component obviously is what it is. There won't be any change to that based upon the change in the number of centers we're going to open. I'd say the patient-driven costs will not be that significantly reduced this year given the relatively few patients the 30 centers that were pushed would have had because those are likely centers are going to be open later in the year anyhow. If a center was ready to open in April, obviously we weren't going to push it to 2023 and incur the dead cost of almost an entire year for those centers. And then on the center-based costs, you know, there are going to be some savings here, but, you know, much of these costs are regional in nature. And while we may be opening fewer centers, that isn't necessarily fewer regions in this instance. So we were going to have six centers in a region before it might be four today. We'll get the benefit of that in future years as we ultimately do open those, you know, incremental two centers in that example. So we are still going to see nice year-over-year improvement in operating leverage, just not to the same degree that we'd expected at JPMorgan and, you know, fundamentally just given the fact that we were doing the math based on center months, and there's going to be obviously fewer center months in 2022 than we had contemplated at that time.
spk03: Got it. Thanks.
spk14: Thank you. Our next question comes from Kevin Fishbeck of Bank of America. Kevin, your line is now open.
spk05: Great, thanks. Maybe just to follow up a little bit on that question there, when you think about opening up 40 new sites a year versus maybe the 70 plus that you might have been thinking about previously, is there a change at all about where those sites are being opened? You mentioned You entered eight new states this past year. Would you expect the new sites to be concentrated in states that you're already in, or would you still expect to be entering new geographies, entering new states?
spk19: Thanks, Kevin. Appreciate the question. No, I think the approach is the same. We'll open centers both in existing markets, like some of our centers we plan to open will be in Chicago as we continue to see opportunity to to take care of more patients and see demand that exceeds the number of centers we currently have. We'll also be opening up in new markets. In Q1, we opened up our first centers in Phoenix, Arizona. We'll continue to build out those. So it'll be a combination of both as it was prior. Probably the way I think about it a bit more is the 70 centers we were planning to open this year, we'll still open all of those catchments. We'll just push some of those into 2023. But I don't think the approach is different.
spk05: Okay. And then maybe just to better understand the economics of opening up these centers, you know, does opening up a center adjacent to an existing center, you know, is that a better long-term investment, albeit maybe at the risk of short-term dilution from the existing or surrounding centers? or entering a new market kind of a better investment?
spk19: I don't think there's a huge divergence between a new center in an existing market or a new center in a new market. You know, we have, if you look at our kind of mature centers, the first 19 we put up, the ones Tim referenced earlier, You know, there's a huge amount of variability in the types of markets those centers are in. So obviously, a number are in Chicago, our first market, but even in Chicago, some of them are in kind of more blue collar, middle class, you know, kind of think retired teacher type neighborhoods. Some of them are in kind of dense inner city neighborhoods that are, you know, have a much, you know, higher rate of poverty. Some of them are in predominantly Hispanic communities. But also, in addition to Chicago, those first C19 centers are in places like Rockford, Illinois, and Fort Wayne, Indiana, where we have one center each. And those centers are actually doing quite well and are certainly in line or better than the average in those vintages. We're also in Hammond and Gary, Indiana, Indianapolis, Detroit, and all those places are part of those first 19. And so the reason I say that is I think our approach remains similar to go to that breadth in that type of market, both from a size of market perspective and from a kind of demographic income perspective. And when we look at, you know, kind of the ramps of the centers, it's very, very similar, which I think speaks to the scalability and replicability of what we do. And I think a lot of ways to think about it, Kevin, is almost kind of more retail in nature. What, you know, what drives your market is the, or the center is the catchment around the center. And so, you know, whether you're going to Rockford or the south side of Chicago, it's really about, you know, who are the 20,000 or so, you know, older adults you're trying to serve. And, you know, are you able to engage that community and bring people in? And, you know, our teams have been historically very good at that across a wide range of markets.
spk05: Great. Thanks.
spk14: Thank you. Our next question comes from Jessica Tassan of Piper Sandler. Jessica, your line is now open.
spk08: Hi, thank you for taking the question. So, if that's the case, can you just remind us of the impact that payer diversification has on patient recruitment, revenue, and operating expenses? Thanks.
spk19: You broke up there in the middle of your question.
spk04: Do you mind asking it again?
spk14: Sorry, my apologies, Jessica. Your line isn't the most strongest. Is it okay if I can just disconnect your line? Is this better? And if you press star one, you can re-ask a question. Apologies for that. Our next question comes from Jamie Purse of Goldman Sachs. Jamie, your line is now open.
spk13: Hey, good morning, guys. I wanted to go through some of those areas of increased medical costs this year, and what you're assuming for 2022. It sounds like on non-acute utilization, you're expecting that to be in line with prior trends on a PMPM basis and adjusted for vintage and all that. If you can confirm that. And then in the ranges, the low and high end of your guidance range, what are you assuming for COVID costs and for the new patient economics relative to prior trends?
spk16: Sure. This is Tim. Thanks for the question. I think you categorized the non-acute utilization well. My guess is there's probably going to be some carry forward effect, particularly given Omicron and how it impacted not just patients, but more of the system's ability to manage patients. I know even at our centers, we had a number of employees who were out because they were sick. So we'll see if there is any potential carry forward in 2022, just from the end of the year, but I would expect it to be relatively limited. From a COVID and new patient experience, I think that it's hard to be overly specific with COVID, just given the number of unknowns at this point in the year, and sitting here with the Omicron surge, knock on wood, behind us. And if we think back to 2021, I think when we got to May, we all felt pretty comfortable with the level of vaccinations increasing, the vaccination rate increasing that, you know, we were going COVID and then we had Delta and Omicron. So we had about 35 million, or excuse me, $35 PMPM, or about $38 million of COVID costs in 2021. And I'd say that PMPM rate would be implicit at the bottom end of our range. And then new patient economics are, again, very much an unknown, but I'd say at the low end of the range, we're assuming a similar level of experience than what we had in 2021.
spk13: Okay, thanks for that. There's been a lot of discussion on just the MA environment in the last couple months, and just curious what you're seeing in terms of MCO pricing for MA patients and how that impacts you on a longer-term basis for your PMPM assumptions when you get to that $1 billion and $1.4 billion in contribution for your 22 and 24 centers. Just any thoughts around that? what's going on in the MA market and impact on Oak Street.
spk19: Yeah, obviously the MA market, and this is a continuation of a trend that's been going on for probably a decade now, the MA market continues to get more competitive with more new plant entrants and the large existing players continue to expand into new markets and invest to grow share. And so we're obviously seeing, as you're well aware, higher benefits across markets and across plans. And so that creates kind of two implications for Oak Street. On the one hand, obviously, being at risk, we're also at risk for the benefits. And so if there's richer supplemental benefits or You know, Richard cost sharing that that obviously creates a expense for Oak Street. Although oftentimes that expenses also offset by higher benchmarks and higher rates, the plans are higher stars performance, et cetera. The other side of it as Medicare advantage penetration increases a higher percentage of the people that we mean, the community are already a Medicare advantage, which obviously helps us get a higher percentage of our, our patients at risk faster and. And so there's also some benefits from that, you know, increasing penetration as medical events becomes more and more compelling for people. So, there's some countervailing factors there as we think about not just 2022, but into the future. Obviously, a higher percentage of our patients at risk helps, obviously, as plans are in investing and something we'll watch closely. And, you know, but again, I think it's, you know, I think they're positive trends overall because what also it means is that, you know, patients, especially the patients we serve are getting more benefits to help them stay healthy and increase their overall being. And so that's the most important thing. And that also does help us take care of them. Okay. Thank you.
spk14: Thank you. Our next question comes from Elizabeth Anderson of Evercore. Elizabeth, your line is now open.
spk07: Hi, guys. Thanks so much for the question. Tim mentioned that part of the difference in terms of how you're thinking about the model for this year versus maybe some of the expectations you laid out earlier in the year was sort of a result of the deferral of center openings originally planned from 2022 to 2023. Is it possible to sort of quantify the impact on that so we can sort of see kind of the run rate difference in those sort of core versus some of that, you know, which is presumably sort of like a more one-time cost shifting model? you know, to the center openings in 2023. Thanks. Hey, Elizabeth.
spk16: It's Tim. Thanks for the question. I'd say for those 30 centers, as you can imagine, as Mike walked through before our thought process on reducing the number from 70 to 40, we did not – we were focused – set it back for a second. We've had great success across all the centers we've opened over time. never closed the center and therefore as we thought about one versus another we're you know fairly indifferent uh with rare exception and therefore you know we were we had a mind towards what can we move most effectively both from a from a team bandwidth perspective as well as a cost perspective into 2022. as you can imagine the centers that were slated to open earlier in the year by and large are going to open earlier in the year and the centers that uh that were moved to 2023 were centers that were going to probably open later so on average, those centers were going to have less of an impact in 2022 from a loss perspective than what an average new center might have in 2022. From a dead cost perspective, I'd say it's going to be, you know, probably approximately $5 million of costs that will occur in 2022 that we otherwise wouldn't had we opened 70 centers. Obviously, the benefit is that we would have lost far more than that on the 30 centers that we are no longer going to open.
spk07: Got it. That's helpful. And I know you've been helpful in providing us updates previously. Do you have anything to say in terms of the hiring market in terms of both doctors and then for sort of the other clinical staff at each of the centers in terms of just sort of wages and hiring pace?
spk19: Yeah, it's certainly a more challenging hiring market than we've seen in the past. But from a provider standpoint, I mean, provider hiring has obviously never been easy. There's been a shortage of providers since, you know, the day we started Oak Street. And we've had a lot of success over the past, you know, months and year, you know, continuing to expand, continuing to hire more providers, both for new centers and also for providers to give us capacity to existing centers. And I think that speaks to our team and our provider service team that does that work, right? And for us, we really feel like we have a differentiated value proposition for our providers, just like we feel like we have a great value proposition for our patients, where they can really practice medicine the way that they want to to help care for patients. They have all the resources to help them care for patients. Their incentives are all against quality of care versus volume, et cetera. And we see that in our scores, right? Where 95% of our providers say they'd recommend Oak Street as a place to work to friends or family, and 99% of them say Oak Street allows them to do their best work. And we're very proud of that. And so I think that, despite it being a tough labor market to hire in, I think that value proposition allows us to continue to hire and be successful in this environment. And so our recruiting, I'd be in trouble if I said it was easy. Our recruiting team would be outside the door waiting for me. But, you know, they're doing a great job in a tough environment and kind of, you know, allowing us to execute. And so, so far, the labor shortages haven't had an impact on, you know, our ability and our goals.
spk07: And that's true on the other clinical staff and sort of as well as the provider sort of level.
spk19: Yeah, I think that, you know, I obviously highlighted providers, but I think that same concept is true across the board. Okay, perfect. Thanks.
spk14: Thank you. As a reminder, if you'd like to ask a question, that's star one on your telephone keypad. Our next question comes from Jessica Tassan of Piper Sandler. Jessica, your line is now open.
spk08: Thanks for coming back. So curious to know if 2022 is the first year where Oak Street has zero exclusive centers, and if so, just what's the impact of that payer diversification on patient recruitment, revenue per patient, and OPEX at the impacted cohort in 2022? Thanks.
spk19: Thanks for the question, Jess. We haven't opened exclusive centers up for a number of years now. That was really something that was – we did a large number of them in 2015, 2016, and And 2017 at a very different period of time for Oak Street, and they were good learning experience. And I think we learned as you kind of alluded to that. It's harder to grow centers are exclusive and so that impacts the economics. And so we also didn't have any last year or the year before that, or I think the year before that either. So, so I think I think that the kind of ramps we shared 7 weeks ago. You know, that's kind of our expected ramp going forward and that kind of takes into account. These are all multi payer centers and we actually highlight in that in that presentation kind of what centers look like, what the co-workers look like without the exclusivity. So I kind of would guide you to the non exclusive boxes in that presentation.
spk08: Got it. I thought there were a couple still rolling off this year. That's my mistake. And then just as a follow-up, can you clarify if the 190,000 sales and marketing plus G&A per month per center is still kind of the correct way to think about OPEX in 2022, given the much slower center growth? Thanks.
spk16: Hey, Jess. It's Tim. Thanks. I'd say that 190,000 number that we provided a few weeks ago is more was contemplated more center months in the year, obviously going from 70 to 40. We are still going to need to make many of the investments we are otherwise going to make. So based on my earlier comments, that number will be higher. I believe I'm doing this from memory that that number in 2021 was about $215,000. So it won't be that high. We'll still see some year over year leverage, but it won't be as low as 190, just given many of those costs we will still incur.
spk08: Thank you.
spk14: Thank you. Our next question comes from Gary Taylor of Cohen. Gary, your line is now open.
spk01: Hey, good morning. I think that last answer sort of hit on what I was wanting to get after just from a little bit other angle. But when we think about your archetype with the lower center openings, it looks like platform contribution would kind of be targeting around $80 million. this year, and then I'm presuming the $35 million EBITDA range in your guidance is probably more around the platform contribution than the G&A spend?
spk16: Yes, that is correct, Gary. I'd say the range is really driven by the two variables that I mentioned around COVID costs and new patient economics. We have a high degree of control over our G&A expenses as well as our sales and marketing. And so there's relatively little range for that included in the guide.
spk01: Got it. And then just to follow up, AR days were up a lot. sequential and year-over-year, but also days claims payable or just your third-party medical expense payable was up a lot year-over-year and sequential. I know usually that medical claims is more tied to health plan final settlement timing less so than your reserving, but can you comment on either one of those, the AR days or the medical claims days?
spk16: Gary, I apologize. Here's some sirens in the background. We had a car accident outside our office. But the way our contracts work, and I'll be brief and happy to follow up with folks if there are questions. For some of our contracts, we are paid, I'll call it sort of on an ongoing basis, where we're making an estimate of what our surplus is, our surplus being the premiums that the plans would pay to Oak Street, less the medical costs that are being paid to third-party providers. And so for some of our contracts, we're paid sort of an estimate of what that net amount will be, because obviously you don't ultimately know what that net amount is until all the medical claims settle for a period. That's about half our contracts. The other half are paid more in a manner where we're given a payment upfront by the health plan that covers some fixed costs. This is an arbitrary number called $150 PMPM. And then what we're doing is we're settling up that 150 relative to our actual surplus performance in arrears. Because of the way the accounting works, until we settle with the health plan for that period of time, we're carrying that full balance of both the receivable related to the revenue and the payables related to medical claims. And so you're going to see that build up over time. It's actually not IB&R. It's just a function of how those contracts settle. So there's nothing unusual in there or different in Q4 than there would have been in periods past, other than the fact that we're continuing to grow the business, and that's obviously going to grow those amounts. And direct contracting is also going to factor in that a bit at your end because it's a bit of a different flavor, but more akin to that last, excuse me, the second structure I mentioned where we're not getting paid an estimate from CMS as to our performance.
spk04: Okay. Thank you.
spk14: Thank you. Our next question comes from Ricky Goldfasser of Morgan Stanley. Ricky, your line is now open.
spk00: Yeah, hi, good morning. So when we think about slower center growth, 22, 23, 24, this is a compounding effect, right? It adds up to hundreds of centers ultimately. So how does that impact your long-term top-line targets beyond 2022 is my first question. And then the second question, just going back to the question about labor and and you being successful in hiring physicians, which clearly is great, but at what cost? What are you seeing in terms of wage inflation and how does that impact sort of your 22 guidance in SG&A trajectory?
spk04: Yeah, thanks, Vicky.
spk19: On the first part of the question around the growth, Um, maybe just nomenclature, but I wouldn't, I wouldn't say, you know, hundreds of centers impact if we're thinking, you know, 70 centers and now we're updating that to 40 centers, you know, over over the 3 years, it would be, you know, would be 30 centers or 90 centers. So it is a, it is a decrease, but, you know, we'll still have by the end of 2024, we'll still have 250 centers and that, you know, that should give us an embedded. uh even of over a billion and a half dollars so i'm still building you know a large profitability and then from a revenue growth rate um you know we think that the the compound average growth rate over the next three years will be uh 40 plus um so again we still think it'll be a robust revenue uh growth rate uh to your second question around um at what cost um i i think our physician compensation packages you know have remained similar to what they've been in the past um you know we haven't we haven't uh change them in a meaningful way. Obviously, we always have cost of living increases every year and have small adjustments, but as Tim shared in the guidance, it's still based on the same range we did for the JP Morgan presentation. And one other note I would say about inflation, this is more of a longer-term view, but Oak Street is actually very insulated from inflationary pressures in healthcare in the longer term because our revenue Um, it's derived from the benchmark costs, right? For Medicare and to the extent that there is higher cost for labor in health care, right? Would that be doctors or nurses or medical systems, et cetera, right? That will directly impact the cost to church from Medicare, which obviously directly impacts the benchmarks, right? Which directly impacts our revenue. And so. Obviously, in any given year, the benchmark doesn't automatically increase real-time, so it may have some headwinds and tailwinds any given year. But if you think about in the two, three, four, five, six, seven-year period of time, any inflationary pressure that the whole healthcare market is feeling may be felt by Oak Street, but it will be offset by an increase in our revenue. To think about it very simply, the cost of hospitalization will go up to the extent that healthcare labor costs go up, and that means the value of the hospitalization we save will also go up.
spk14: Thank you. Our next question comes from Brian Tanquillette of Jefferies. Brian, your line is now open.
spk18: Hey, good morning. This is Jax Levin. I'm for Brian. Thanks for taking my questions. TAB, Mark McIntyre, Not to belabor it on on sg and a but maybe i'll ask the question is slightly different way we're shaking out at about a $30 million gap. TAB, Mark McIntyre, That is sg nice 30 million higher at the high end of your guidance range versus the low end assuming that the cohort data you provided is is consistent. TAB, Mark McIntyre, For the the low and higher end of the ranges you had provided previously, so I guess you know I just want to understand. what sort of driving that delta and i know mike you alluded to it a little bit in terms of the variable costs that are in those buckets but is it is it more sales and marketing to hit a higher patient number um is it systems cost that that comes in on a per member basis i guess any any color to to help us bridge that gap would be helpful hey jack it's tim it may be best to uh compare notes on i'm not exactly certain what numbers uh you're using to get to that as i mentioned uh to getting with the gary uh
spk16: We have a relatively narrow range or assumption around G&A and sales and marketing between the high and low end of the range. So I'm not certain if it is something different. My guess is it's something, whatever's driving that is more in platform contribution. Maybe we'll just, you know, refine assumptions around what's going into that number. Because I wouldn't expect to see that wide of a range on the, for G&A and sales and marketing.
spk18: Okay, got it. Yeah, no worries on that. And then maybe just a quick follow-up. I think an interesting point on conversions from direct contracting to MA, I guess along that line, have you seen conversion from either MSSP lives under ACORN into MA consistently or anything from direct contracting in 21 over into 22? Is that something that's actually happening and worth noting?
spk04: And if so, how should we be thinking about impacts on PMVMs? Thanks.
spk19: Yeah, historically, we've always seen some patients who will be on traditional Medicare and choose Medicare Advantage. And obviously, there are some patients who are on Medicare Advantage that move back to traditional Medicare. It works both ways. Although, in general, we see a net kind of increase in the number of patients who choose MA compared to those that move back out of it. And then that's, you know, that's obviously micro for Oak Street, but that's a macro trend across healthcare over the last decade as MA penetration continues to increase. So we certainly see that. And, you know, direct contracting or, you know, the Medicare Shared Savings Program, ACO, is obviously a claims-based alignment. So the patient, you know, frankly, generally didn't know that existed or that were part of the program in the Shared Savings Program. And, you know, so that program has zero impact on the patient's choice of health plan coverage, right? Again, so definitely whether we get shared savings or not is relatively irrelevant to how the patient thinks about their health plan coverage. And direct contracting, it's a little more known to the patient because, you know, they have to sign a form to volunteer line. Well, a lot of them do. Some of them are also claims aligned. You know, from a patient standpoint, direct contracting, and now the ratio reached next year, it doesn't have an impact on what the patient gets from. There's no, it's not insurance coverage. It's not benefits. It's about how we get paid. And so a patient's still going to have the same choice. Is Medicare Advantage a better way to get my Medicare coverage than traditional Medicare, right? So that choice hasn't changed just because those two get paid differently for the patient's care. And so that's why I think you still see that, you know, the same movement you've seen in past years.
spk04: Awesome. Thank you.
spk14: Thank you. Our next question comes from Whit Mayo of SVB Lyric. Whit, your line is now open.
spk06: Thanks for keeping the call going for just a little bit. Can you guys just spend a minute on just the competitive landscape? I mean, we're obviously seeing more providers put a strategy around primary care and it just feels like perhaps we're seeing a little bit more capacity in some of your legacy or new markets and, and just, you know, obviously a lot of new lookalike Oak street models, which is, you know, flattering and probably frustrating at the same time. I guess I'm just trying to get a handle on, you know, how this is maybe coloring your views internally about, you know, some of the economics in your existing legacy markets and future markets. Just how do you guys, think about what feels like more and more people sort of encroaching on your turf. Thanks.
spk19: Yeah, I appreciate the question. Look, I think overall, I think we think it's a positive that more and more people are entering value-based care and investing in value-based care. It is the right answer for healthcare. And, you know, we need higher quality at a lower cost in this country. And so I think one of the things that we're proud of at Oak Street is that there are you know, to use your term, lookalikes out there, because that means we're, you know, we're helping catalyze change. And so we think that's great. There's a lot of, obviously, investment in the space and different groups in the space, but there's a huge variety of how people are addressing the problem, how they're going to market, and their relative performance. And so, you know, Value-Based Care was around long before Oak Street started, and it's hard to do what we do. And I think we've really proven out a level of success and scalability And so, from our perspective, the market is still massive as many as much as you hear kind of noise around different groups, doing things, et cetera. A lot of them aren't center based models are more partner with existing provider groups, which we don't really feel like is that's a competition per se, because from a patient perspective, their experience is still the same. Right? Even if their doctor gets paid differently. So from our perspective, it's all about creating a really compelling patient experience, which is what really drives our growth. And so I think a lot of the groups that are attacking the problem, I hope they're very successful, but they're really not doing it the same way we are. We don't think it's really directly competitive. And even the small number of groups that are more similar to Oak Street and kind of more of a center-based model, we're all just a drop in the bucket compared to the number of providers out there. I think we shared in JP Morgan, there's something in the magnitude of 450,000 kind of primary care doctors and primary care nurse practitioners at this time. So even if Oak Street had, you know, a thousand full centers, right, with six care teams each, you know, we would still be like, you know, percent, percent and a half of the total providers out there.
spk09: You've mentioned a couple times new center cohorts are progressing a little faster towards profitability than old cohorts. Could you give us any color on why that's happening and if you expect that trend to continue?
spk19: Yeah, look, we are a much more effective organization today than we were in 2013, 2014, 2015, 2016. So if you look back and you say that the 19 centers we opened up in those years, obviously they're making, as Tim said, kind of $6.5 million this year in contribution and the ones that are closer to full are making, you know, eight or more million. You know, those centers were started in that period of time, right? And so we are better across the board, whether it's our care model has more programs, is more robust, we use data better, we have better technology, we have better training. Kind of across the board, I think we are better at operating than we were in those days. And so we are seeing improvements. Our 2018 and 2019 vintages, despite being, you know, much bigger vintages than the ones I did, than the earlier ones, ramped much faster. I mean, we shared that data in our presentation seven weeks ago. You can see kind of the ramps at light years from those centers. And then we look at the, you know, 2021 and 2020 centers that we just – that are relatively recently opened. If you look at the KPIs, you know, the kind of pair model metrics or the growth metrics are kind of similar to or better than those same centers. So, I think that one of the things that gives us a lot of confidence going forward is that, you know, obviously the return from those early centers, right, they're very profitable. They're working very well. And we feel like the model is better than it was then. And we have a lot of data to support that. That's what gives us confidence that all the centers we're putting up now will, you know, in three years or five or six years, depending on, you know, when they opened, will be at that kind of six and a half and eventually that $8 million in contribution range. Thank you.
spk14: Thank you. Our final question for today comes from David Larson of BTIG. David, your line is now open.
spk15: Hi. Congratulations on publishing your EBITDA breakeven timeline. Just one quick question. For fiscal 23, the Medicare Advantage advance rate notice looked pretty good in terms of expected change in revenue for MA plans coming in well above 2022. Just any thoughts around that, and I guess, what are you, what are you modeling in your longer term plan for growth in revenue per capitated patient? Like if it's anywhere near 8% in 23, would that be above in line with, or how would that compare to your model? Thanks.
spk04: Thanks.
spk19: Appreciate the congrats. On the 2023 rate notes and revenue. I think one thing to always keep in mind is that we are one step removed from kind of the benchmark and rate changes because the health plan is in the middle. And the health plan actually provides a buffering mechanism when you think about Oak Street economics. And so to the extent that rates go up, generally plans will take some of that increase and they'll invest it in better benefits for patients, which obviously to the conversation we had earlier And the call is a net benefit, right? Because it will drive more penetration and more patients on risk for Oak Street. But from an economic Oak Street perspective, even if our revenue goes up, so will our metal costs and they'll largely offset. And so, the same thing happens if there's a worse rate increase notice, it wouldn't have necessarily a negative impact on our per patient economics because the same buffering mechanism exists. And so, again, I think we are less Sensitive to those types of things and can then say a health plan and from a patient revenue growth rate. Yeah, I think we had a higher step up in 2022 from 2021. than we would see in an average year. And that is in part because we have a full year of direct contracting. And obviously, without the plan in place, direct contracting has a higher PMPM revenue than a health plan would, kind of at the same risk score. And then number two, as we talked about pretty extensively, as you know, you know, we felt that our patient base, especially new patients, were very under-documented in 2021, driven by lack of engagement with the healthcare system in 2020. And so obviously, now that we've had a chance to understand the patient's conditions and document them accurately in 2021, we're kind of reversing out that under documentation. So I don't think that's going to be an ongoing phenomenon. I think it's more of a one time catch up in that case. So hopefully that gives you a little bit more color on how we think about the increases.
spk15: That's great. Thanks very much.
spk14: Thank you. We have no further questions for today. That concludes today's conference call. Thank you for joining. You may now disconnect.
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