Q3 2020 OAK STREET HEALTH, INC. Earnings Call
Good morning, and welcome to Oak Street Health third quarter Twentytwenty earnings call.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session in order to ask a question. Please press star one on your telephone keypad. Please be advised that todays conference is being recorded.
Hosting today's call are Mike.
Chief Executive Officer, and Tim Cook, Chief Financial Officer, The Oak Street Press release, a webcast link and other related materials are available on the Investor Relations section Oak streets website.
These statements are made as of November 10th Twentytwenty 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 and often contain words, such as anticipate believe contemplate continue could estimate.
Expect intend may plan potential predict project should target will or would or similar expressions forward looking statements are by their nature address matters that are to be 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 and maintain profitability.
Our reliance on limited number of customers. The first substantial portion of our revenue.
Expectations and management of future growth, our market opportunity and our ability to estimate the size of our target markets.
The effects of increased competition as well as in.
Innovations by new and existing competitions in our markets and our ability to retain our existing customers and to increase our number of customers.
Please refer to our quarterly report for the quarter ended September Thirtyth Twentytwenty filed on form 10-Q, with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the companys actual results to differ materially from these statements. This.
This call includes non-GAAP financial measures. These non-GAAP financial measures are in addition to and not as 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 somewhere similar titled non-GAAP financial measures differently refer to the appendix of earnings release for the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.
With that I will now turn the call over to Mike Heico's CEO of Oak Street, Mr. Pecos.
Thank you operator, and thanks to everyone joining us this morning.
On the call me, Tim Cook, our Chief Financial Officer.
Before I review, our operational and financial performance for the quarter.
I will start by once again think narrow street team for their exceptional dedication to patient care during tokenizing.
It starts their care team and every step.
Worked diligently every day to engage our patients and ensure we are properly executing our care model, while maintaining strict safety protocols to minimize any transmission risk through our team our patients and our community.
I'm proud to report that our clinical remain open throughout all 2020, and our infection control protocols are proving to be exceptionally affected everybody's spreading the virus.
Given the effectiveness of our protocols and our performance. This year, we are confident that regardless of the duration extends the pandemic what would you be able to operate successfully provide outstanding care to our patients.
I also want to acknowledge and thank our average teams that are working to bring more patients to our platform to meet Unprecedent huh.
By using patient and their care and ensuring they have access to the care they need they're making an impact on our communities and chipping away at health disparities everyday.
Finally, I want to thank our corporate teams, which have now been remote for seven months, yes still managed to help achieve all that we will discuss today.
Over the last several months you guys part of the IPO process.
We have an opportunity to describe our care model and success in the investment community, including many on this call.
I think you've heard me say, what we do is hard enterprise tremendous focus across all of our team members.
There's no silver bullet when it comes to improving the health and well being of our patient instead.
Consistently applying a focused and differentiated approach every day.
All of our centers for all of our patients.
I always find the stories from our centers to me hopeful and bringing our care model to life.
We have a patient in one of our Chicago centers first came to Oak Street about a year ago.
Prior to Reengage buyer community outreach team and if I had to go through channels.
And it's been a doctor in over 40 years.
As part of our screenings and vaccination program, you've given a fit test.
Positive result.
Our provider recommended you get a call out to be but the patient very resistant to anyone.
However, because of the relationship we have with this provider Oak Street as well as her persisting follow up. He finally completed one Omar let me masses found it caught just in time before it spreads.
The patient currently cancer free.
This is just one of thousands of source about our team will provide patients the care they need to improve their overall wellbeing.
Switching gears we.
We are pleased with our third quarter performance.
Which demonstrate the financial and operational strength of Oaktrees business model.
We generated record revenue of 217.9 million exceeding the top end of the guidance range, we communicated to investors.
This represents an increase of 57% from third quarter 2018.
We carry roughly 59500 at risk patient up 38% from third quarter's routine.
We generated this patient growth despite essentially put a halt on our community outreach and marketing efforts from early spring through mid summer due to uncertainties around <unk>.
I spoke up in more detail, we ramped up these activities during the course of Q3.
As we mentioned on our last call, while we temporarily halted new center openings.
We restarted our center expansion August opening 13 finished in third quarter, and finishing the quarter with 67 centers.
This represents the greatest number if anything in the quarter in the company's history.
I'm incredibly proud of our team for delivering this level of growth and that's both the operational challenges probably by coconut team and the upper part of it our IPO on August six.
I will now touch briefly on a few of our key initiatives selfishness for sustainable long term growth.
First as I mentioned earlier, we continue to look to scale our network to Novo centers as we've discussed we practically chose the whole new center openings earlier this year as we learn more about how to effectively operate during the covert pandemic.
However in addition to the 16, we opened the first time up to 2020, we expect to open additional 60 standalone kind of in the fourth quarter, bringing up the 22 to 24 openings for the year, excluding our Walmart Sams.
In October we also opened our first tenants did in New York in Brooklyn, and we expect to expand into additional states over the next several months, which will bring our integrated care model to even more communities.
Second.
I want to provide a brief update on our pilot collaboration with Walmart doubling up in September.
I'm pleased to report that we recently opened our first former location and remain on track to open up all three pilot patients by year's end.
Production remains in its early days, but we look forward to communicating our progress as we gain experience with the cooperation.
Third in addition to opening new locations. We're also squarely focused on driving growth in our existing infrastructure.
As a reminder, a typical oaktree center can serve approximately 3500 patients at full capacity.
Implying that our quarter ending portfolio 67, Standalone centers has the capacity to care for approximately 235000 patients.
Which is over two and a half times the actual patient on our platform in Q3.
We are constantly refining expanding and improving our average properties embedding lesson learned throughout our history.
We've continued to deliver strong patient growth despite being forced by Copel <unk> many of our core community based patient acquisition channels.
Do this we've drilled alternative engagement channel that can be effective despite one patient cosmic Hogan.
We are confident that we seem to be successful and drive strong patient growth in the current environment.
When community events return, we believe we can leverage our broad portfolio paychex channel to take our patient growth to yet another level.
Lastly.
I'm delighted to know that in October we began enrolling patients entresto Medicare in the Medicare direct contracting program, which they knew voluntary risk based programs that allow CMS to directly contracted all providers for traditional Medicare patients.
We're very excited this program allows us to capture risk based economics similar to what we receive on our Medicare advantage patients on attrition magnetation.
Allowing us to benefit financially from the investment, we're making in our patient care.
Yesterday evening, we posted an updated investor presentation to our Investor Relations website that includes several five detailing how we participate in the program and our initial thoughts on both membership and patient economics.
For those less familiar with the direct contracting program. It is part of the strategy to use the redesign of primary care trust expenditures improved quality for Medicare beneficiaries.
During this program Oak Street, and other participants will track directly with CMS in a similar fashion to how Oaktree currently contracts with that May plan.
We're currently operating or care model for our traditional Medicare patients in a similar manner to our Medicare advantage patients.
We moved from the fee for service payment. We are currently receiving FERC traditional Medicare patients.
Atlas model similar to how are your paper I may patients. We believe we are well positioned to generate similar patient economics for attrition aggravation as we cheaper I may patients today.
Yes, its expectation correct, they will significantly improve patient economics pressures from Medicare patients.
The slides, which you can on page 23 of our current investor presentation detail, how we participate in the program.
I want to work over the by the way the membership patient economics.
There are two ways in which CMS Caroline beneficiaries to direct contracting entities.
The first claim Wyman, where by CMS will find beneficiaries to providers based on historical claims data second.
Second in voluntary mine.
We're beneficiaries choose to line with jet contract entity by designating specific provider.
We've been offering ultimate patients the option to voluntarily line with Oak Street over the past month and the vast majority of patients we have seen at Philadelphia required paperwork for voluntary alignment.
It's still early.
And we don't have full visibility to how many of our current interest on Medicare patients will end up shooting Medicare advantage or how CMS will treat patients are aligned to multiple CMS program. So it remains premature for us to communicate any firm estimates on precisely how many patients will ultimately flow through the program beginning in April 2021.
Perfection revenue will vary based upon how the patients enrolled.
For voluntarily align patient per patient revenue will be determined by applying the risk adjustment model using Medicare advantage to county level benchmark.
This methodology similar to the way per patron revenue determine for any patient that Oak Street.
Proclaimed blind patients the primary difference from voluntary when patients are one benchmark for claims blind patients incorporate the patient specific historical cost and resource.
First only regional based on rate for voluntary line and two there's a cap on the annual growth for risk scores of claims base station.
Because we do not know which patients will be line D. C. At this time it is not possible to calculate per patient revenue.
Based on our understanding the program and our expectations around which pays to be line, we would expect per patient revenue for voluntary allowing patients to be greater indirect contracting then isn't that may assuming the same documented patient or so.
Primarily because there are no supplemental benefits provided if there aren't in may and we do not have to share larger portion surplus with CMS as we do I make one.
The claim why patients we expect the perficient happened to be lower and voluntary line patients. That's our historical work with these patients, resulting in lower health care expenditures, which are incorporated into their historical benchmark.
Due to lack of traditional health plan functions I should never design Prioritizations you Alicia management, we expect the metal costs object controversy patients to be greater than our average I mean patients for both whining about it.
We expect the net profitability, a voluntary allowing patients to be roughly comparable to our I may economics, assuming comparable risk in the population.
We expect claims line patients have worse economic and voluntary on patient driven by lower revenue and comparable metal costs, although still significantly better than what we are reimbursing fee for service today to care for our traditional Medicare patients.
I want to stress that we are still working with CMS to make sure we understand the nuance of the program and our economics will ultimately depend upon the underlying factor those specific patients enrolled Oak Street.
In summary, we're pleased with our third quarter results as I said in the beginning I could not be prouder of the way our teams have navigated through incredibly challenging circumstances to make a massive impact on our patients and our communities.
But the challenges our teams continued to put up any care for our patients and therefore drive stronger itself the organization.
As we navigate through the remainder of the year well continue to focus on positively impacting our patient communities at a time when the great need our support and delivering on our mission to reveal how can it should be.
I will now turn it over to Tim Cook, who walk you through our financial results in more detail Tim.
Thank you, Mike and good morning, everyone as Mike mentioned, we delivered record results in the third quarter. Despite the challenges of the COVID-19 pandemic highlighted by both our recurring revenue model as well as continued growth in the markets, which we serve.
As a reminder, we expand our network in two important ways first we seek to drive patient growth in our existing centers and second we strive to expand our network of centers across both existing and new markets in terms of membership total patients grew roughly 28% year over year, while our at risk patient base, which drives most of our financial performance grew by 30%.
At the end of the third quarter, we operate 67 centers an increase of 13 centers from the second quarter 2020, an increase of 21 cents as compared to the third quarter 2018.
We generated Kevin to Capitated revenue of $211.8 million, representing 59% year over year growth driven by the F. mentioned growth in our at risk patient base total revenue grew 57% year over year to $217.9 million driven entirely by growth in Capitated revenue.
Our medical claims expense for Q3, 2000 $20 million to $154.6 million representing growth of 50% compared to Q3 2018.
Q3 medical claims expense was not meaningfully impacted by prior period adjustments.
We continue to assess the impact of medical claims expense related to coated however is still too early to determine the net effect, particularly as many of our markets are experiencing a surgeon cases similar to national trends.
Our cost of care, excluding depreciation and amortization was $43.2 million for the third quarter, an increase of 17% versus the prior year due to the growth in number of centers, we operated as well as growth in our tool patients.
I would note that the recognition of CMS provide early funds favorably impacted cost of care by $3.9 million in the third quarter.
Sales and marketing expense was $15.5 million during the third quarter, representing an increase of 29% year over year, but slightly below our expectations simply due to timing, which we expect to reverse in Q4.
Corporate general and administrative expense was $57.1 billion in the third quarter, an increase of 164% year over year. The majority of this year over year increase is related to an increase in stock based compensation expense, which was $29.7 million in the third quarter 2020 compared to $1.4 million in the third quarter 2018.
Excluding stock based compensation corporate general and administrative expense was $27.5 million in the third quarter 2020, an increase of 36% compared to third quarter 2019, driven by increases in headcount to support our organizational growth.
The increase in stock based compensation of third quarter 2020, compared to second quarter, 2020, which related primarily to items first awards granted to employees in June 2020, the head of our then planned IPO, which represented $5.7 million of stock based compensation expense for the third quarter 2020.
It was only partially reflected in our second quarter financial results due to the timing of their issuance.
And second the modification of the vesting terms of our equity incentive awards following our IPO following our IPO, which represented $18.2 million expense in the third quarter 2020. This.
This incremental expenses not related to new equity award issuances beyond those awards described our prospectus dated August 2020.
I would note that less than $200000 of our stock based comp as compensation expense in the third quarter 2020 related to new equity awards issued since the IPO in August.
I will now discuss three non-GAAP financial metrics that we find useful in evaluating our financial performance patient contribution, which we define as capitated revenue less medical claims expense grew 63% year over year to $57.2 million, we expect at risk per patient economics to approve the longer that our patients are on the XP platform.
Platform contribution, which we define as total revenue less the sum of medical claims expense and cost of care, excluding depreciation and amortization was $20.1 million, an increase of 387% year over year as an individual center matures. We would expect will platform contribution dollars in margins to expand as we leverage the fixed cost base associated with our.
Centers as well as improving patient economics overtime.
Adjusted EBITDA, which we calculated by adding depreciation and amortization and stock based compensation play schooling. Other income to net loss was a loss of $22.8 million in the third quarter 2020, compared to a loss of $20.1 million in third quarter 2018, we.
We finished the third quarter with $474.6 million unrestricted cash.
Cash used by operating activities totaled $22.4 million in the first nine months of 2020.
Our capital expenditures totaled $12.6 million in the first nine months of 2020.
I'd now like to talk about our 2020 annual outlook, we are increasing our expected revenue to a range of $854 million to $858 million up from our prior outlook of $843 million to $853 million. We're also forecasting an adjusted EBITDA loss of between $93 million in $99 million versus our prior outlook.
I have a loss between 101 hundred $10 million, we anticipate having 73 to 75 Standalone centers opened by December 30, Onest 2020, slightly above our prior forecast of 72 to 74 centers.
We're also narrowing our expected at risk patient counts to a range of 61 and a half to 63000 patients as a reminder, our standalone and our outlook for 2020 does not include Walmart pilot locations, which would represent an incremental three centers.
In summary, this was a strong quarter financially operationally and we anticipate a strong fourth quarter as well while at the same time continuing to make the necessary investments required to maximize long term shareholder value.
And with that we'll now take any questions you may have operator.
At this time, we'd like to take any questions. You may have to ask a question. Please press star one on your telephone keypad. As a reminder, we ask that you limit yourself to one question and one follow up. Your first question is from Robert Jones with Goldman Sachs. Your line is open.
Great. Good morning. Thanks, Thanks for the questions I guess, just a couple on direct contracting I appreciate the incremental thoughts here on the program and clearly based off the slides there is still some important elements to that seem to need need to be hammered out, but I'm. Just curious if you could talk a little bit about how you're thinking about prioritizing.
Eligible patients.
As you consider taking somebody from fee for service to either M&A or trying to introduce the direct contracting just even just some of the qualitative considerations that would go into that type of decision would be helpful.
Yeah, well this is Mike for us just to re oriented people.
So for us, it's not really around directing people, it's around making sure that we're educating our patients on the choice of doing whats right for them.
And it's not really either war so today when any of our patients who were on traditional Medicare shown for a visit we're having and thought the paperwork for the for voluntary Wyman some of those people.
That's all the paperwork may ultimately decide.
Okay enrollment that Medicare advantage at the right program for them.
Importantly, we have seen the majority of our traditional Medicare patients at year end up shooting Medicare advantage, because not a it's not a perfect switch right now it's not like you're comparing benefit to one side or the other if you join Medicare advantage plans.
You to have a lot more supplemental benefits often three part D program et cetera. Now obviously you have the trade off of oftentimes the apartment network and some of those different different aspects of being on a managed care plans. So it's not it's not a it's not a perfect switch for for our patients. So our job in the process is really educate people.
Let them make the best choice for them.
So I don't anticipate big.
Kind of direct contract with any any difference in the amount of patients who are choosing Medicare advantage, because they're choosing it because it's right for them and frankly, our our economics on them is it something you don't know and it is relevant to their decision, making as it should be.
From a.
Practical perspective, what it means though is in the past when patients either come to us not just for Medicare part of reason don't want to change the Medicare advantage, we'll keep doing great apparent for those patients that have lost money on all of them because we're not compensated for the investment we're making in their care going.
Going forward with this program now for the patients who decide that Tricia Medicare it's the best program for them.
Patients will be able to receive at risk economic which makes a big difference for us, but I guess I don't I don't look at this as a choice for next year at all I look at is our goal is to make sure all of our programs are one or two that's out on all of our patients are one of the three programs.
Got it no that's helpful. Mike I appreciate it I guess, just maybe on the specific financial.
Options I know in the slides you had the risk sharing option and then you have the capitation mechanism.
Obviously, that's a big decision I would imagine around the economics back to Oak Street could you, maybe just talk a bit about those two options and then on the capitation mechanism specifically the TBD I guess, what exactly are the factors that.
Would determine that that economic model versus the risk sharing option.
Yes, so two things about that one.
On the on the the former how much risk we are taking that was easy decision right.
We invest a lot of money upfront or patient care, we have a huge amount of confidence that we are keeping our patients healthy lowering hospitalizations and ultimately save a lot of money by keeping patients healthy.
You know that that those interventions are expensive. So we want to we want to make sure we're sharing and all these savings were generating so being a 100% up and down with was it was an easy decision for us on.
On the second one.
Capitation, but that's all about cash flow.
Thats more technical about kind of how we fit into.
The system and so one of the options of gives you kind of a monthly small payment and you got a settlement in January and July 2000 next year right.
As a way to get your savings will get all of it but as a cash went away.
The other option has more upfront payments, but you also to kind of.
As an aside agreements with all your specialist other pain other providers, it's kind of paid claims for that.
Now why that went TV I think we're leaning towards the former I talk through haven't made a final decision yet nor do we need to but again, that's not good economics for patient. It's just a question of.
When do you get the settlements and how that how the money flows as opposed to actually changing economics.
We also know that Thats really helpful. I guess, maybe just if I could sneak in one more I know you know the co bid.
Obviously situation has has impacted the ramp of enrollment in certain centers. It sounds like things in some areas. We're back on track I know some of Oak Street geographies might be being impacted by current spikes in Cobiz just curious how you're thinking about you know the general ramp in in patients in the centers as we look.
For Q and then even just qualitatively as we look out to next year.
Yes, I mean, if you would have if we would have been sitting here a year ago talking I'll be talking about you know how many community events, we are doing and how we're leveraging our community Senator degree way introduce people to extreme form relationships.
That was the core part of our model.
And a lot of material face to face handshakes former relationship in the community.
Italy in kind of mid March we had to shut all that down.
So what we what we did make a decision you know again if you go back to mid March in you remember, where where we add the country's part understanding the virus and all but a projection. We obviously want to err on the side of caution can we really shutdown all of our.
Outreach activities, north central marketing and community marketing.
In order to kind of get a better sense operationally how to operate within kobin understand more about the virus, how transmitted et cetera, et cetera, et cetera, I know many many things in society did at that time period.
Overlap.
Hey month, we've started learnt a huge amount about how to effectively navigate the pandemic and how to operate successfully so.
So we just we've got.
Ramped up our care model on and May.
Transition most of his back in person, we really made a lot of changes on our average model onto one us be successful, bringing in new patients.
You know in a world, where some of our core channels, we can't do right now.
So it's more more digital marketing.
A lot more kind of relationship based selling with Aggregators and when I say if events with aggregate rushing to asking them for referral thing in that area.
People, who need our care.
I need out there I think hoping my patient story I shared kind of illustrate how important is to engage people in there helping to get them to care they need not accurately literally save lives.
But.
So I think we feel really good about the channels, we wrapped up and we're seeing we're seeing results from them. We're seeing it at a favorable LTV to CAC ratio, we feel really good about where we're at overall, it's been it's been it's been a.
A lot of work to get to where we're at now and its been a lot of trial and error over the last.
Three four months as we start ramping back up again to kind of keep going and so the good news is we generally improve every week and we havent read every week for the last couple of months on on our outperformance and I think we continue to do that going forward.
We are incredibly excited and I know, it's not going to come you know until till sometime probably in the next year, but we are incredibly excited for the day that we start to see that again degrading and all the things we wanted to do during hope it will keep being things built keeping channel will be the levers. We can we can do when we add back the community based I'd take it to the next level.
So so again.
There are some businesses out there that I think.
Hopefully became an accelerant for those businesses that we are not one of its Ben Thank you challenge and everyone here and just cannot wait.
Phil and so we're back no operation, but I think the team has done an amazing job, putting a transition where regardless of the relative spread in the community.
Yeah, we can really effectively and safely operate our model and we're seeing that in places like Illinois, right now in Indiana, which are obviously.
Struggling with.
We've got the pandemic, but we're still operating at a high level and I'm proud of our teams for that.
Great. Thanks, Mike I appreciate it.
Your next question is from Gary Taylor with JP Morgan Your line is open.
Hi, Good morning, guys, just a couple of questions on direct contracting the first is on the.
Claims line patient you talked about the problem profitability being below.
Traditional and then it may patient and above current fee for service.
To be fair that gap, you could drive a truck through that gap. So slide so have you come to the termination or thought that those patients would be would be profitable.
There are still people look you know Gary when you're talking about individual patients and innovative service coordinators on medical costs.
Site in kind of my prepared remarks.
We won't know exactly what the metal costs are until we know in the revenues will be no minimum from one node. So hindsight revenue we won't know, it's actually know who the individual people are which we don't know yet.
That said I fully expect.
That the economics on claims ambitions we.
Much superior to what were being paid interest from Medicare.
And then just.
35% of the benchmark is still stuff by regional benchmark, 65% is based on historical expenditures.
And it's also been ultimately is risk adjusted historically and while there is a cap on with Justin going forward again. This is where I think folks are just pretty unique. We have you know we have not this is not a situation works only thing Oh, great were going to be this program, where we can benefit from savings will change our care model and take better care of people right. We've been we've been running our care model for years, which both means that we have done a nice job of control.
During their medical costs, and keeping our bases healthier regardless of how they're getting their Medicare, but you've also run all of our diagnostic processes. When you do that because it's a way to understand our patients conditions and make sure. We are applying them a great program Karen right way.
Product guys accurately documented risk score and so I guess I don't I don't I don't think we're not worried about the cap on our.
Claims line patients because nation because by definition. They typically we've had them for a while we've seen them for a while we still like the resource is going to be like it should be a relatively close to that so I don't think they'll have the same revenue as our voluntary my patients I do feel like we should have strong economics on them.
And my follow would be what's the pitch to a senior for voluntary enrollment so like what would be the example of the senior where.
In may with the supplemental benefit offering is into a better option or is voluntarily enrollment primarily going to be for seniors who for whatever reason just aren't willing to go into a private plan don't want to do in May and then this is something that you're offering to them, but but even as you do what's what's the pitch to get them to sign up for it.
Yes, one thing and one thing to be clear about I don't look at these as a trade off and operationally how we put these products into place. It's not it's not that we're saying if I'm. Okay. Here is Medicare advantage you can do that how this worked here.
Voluntary Lyman for direct contracts you can do that with like that is a 100 and not the way the comps that she goes well.
We were talking about your contracting regardless of where he the FDP when the time you're in patients or so Medicare walk through the door. He would not find the paperwork weren't talking about right. We're talking about it kind of went to checking in say, hey, Here's a new government program Ricardo.
Where you're where you're PCP, we'd like you to sign the form and so yes, you help my primary care provider right. That's what the forms that.
You know.
So your primary care Doctor and.
There's no downside for the patient right anything change their primary conducted next day, they consult people through their primary care Doctor and go through different Doctor if they want to they don't you. Prior authorizations are no network zero downside for patient signed up for and so what our goal is and we're talking to patients out to make sure. They understand that like that this will help us get more data on use I'll take better care of you but.
No Theres no limitation that you. Please scientists for the same patient me signed the former they walk in the door and they check in and then later in the visit they may hear about Medicare advantage and decide they want to explore that option and meet with the broker incentive for Medicare advantage right and Medicare advantage conversations all about you know a trade off between benefit you might have in terms of Medicare and Medicaid mentioned offer me what's what.
Right for me the direct contracting alignment, it's just something that you should do right and if the view wind for interviewing visit for direct contracting and then later in the day to kind of your management still has joined Medicare advantage and the line that will be what won't matter right. So I I wanted to show very clearly when we think about this is not it is not a trade off our economics complain to us at all it's really all about.
Everyone, who is on track for Medicare should time, you I'm informed because it no downside to them and obviously I mean, we can take better care of them and on the M&A front.
We got it we want to educate our patients they make the right decision for them.
I appreciate that thank you.
As a reminder, we ask that you limit yourself to one question and one follow up. Your next question is from Ricky Goldwasser with Morgan Stanley. Your line is open.
Yes. Thank you good.
Good morning, Phil.
[laughter] guided three centers despite the wall collaboration.
We think about topline and margin trajectory opportunity for Walmart side. The first is to build the Oak Street Center.
Hi, Ricky this is Tim thanks for the question.
With respect to Walmart because we've discussed we've made skus in that on the last in the last quarterly call but.
What we would expect generally speaking given the footprint of the Walmart Center, which is about a third of the size of our traditional standalone centers, we'd expect the ultimate economics at least from a revenue topline perspective, the smaller than what we expected what we currently generate on our Standalone centers.
Yes, the ultimate.
Contribution those centers is it is it different equation. So at this point, we have one of the purposes of the pilot is really a better assess what those numbers could be and therefore, how aggressively we want to expand that partnership or not candidly. So at this point is too early for us to know I'd say at three centers. It's.
It's relatively small it's a very small part of our business and we'll share more information as we have it but at this point still teasing out what I would say, though is the economics for the patient at Walmart Center for an at risk patient numbers that are going to be the same economics that we'd see the Standalone center. So from that perspective, if you were thinking about it.
Yes, you would just be if from a revenue perspective, I'd say look we'll have we'll be able to manage fewer patients because we shipped less space to do it but the economics, we expect to generate on those patients would be the same as we otherwise would.
Hi, My follow up question is around the vaccine clearly.
It's really good news yesterday from Pfizer.
Can you speak about the potential contribution to your email thanks team.
I think it is currently limited to yours.
[noise] service.
Patients.
And just kind of that supply the CMS reimbursement I think 20 to $44 depending of the dosing and then given that the government is paying for the cost of the vaccine how should we think about it.
So thank.
Thank you.
Yeah. So one.
We were all thrilled with the news of the vaccine being very effective on early results. We know it's all early but I think like everyone. We were really excited about that that Oak Street how.
When we think about it.
The economics of the vaccine I honestly, it's de Minimis for us.
Yes, we will get paid for management of vaccine to our patience in theory.
But as you rightly noted not for our at risk patients right.
And for our commercial Medicare patients depending on the timing of that they may be in the direct contracting entity by the end of April appetite for burst in which case it doesn't matter either for them right hopefully hopefully by the way as soon as that for our patients.
At risk demographics, and hopefully I can get it earlier.
But again I don't I don't think the relative economics of administering the vaccine will.
As can be rounding error in our in our overall penile for further into 2020 and 2021.
Where I think it makes much much much more of a difference for Oak Street.
Is allowing us to open up some of the channels, whether it's from a growth perspective or patient engagement perspective, our patient while the community banks. So I think I mean, if and when those things come back I think that will help our average model I think all of our care model increased engagement for our patients.
And probably won't in his although as I think I will know difficult to operate safely.
Safely in a coping environment, so that cost inefficiencies, whether it's our teams and the centers are call centers as I think our team has done an amazing job managing through it.
Flip side everything easier path so.
So again, we are very excited for that day, but I think the the impact of itself will not be from the economics of the vaccine I think that is de Minimis and frankly.
That's the last thing on our minds I think what will the impact will be is really allowing us to kind.
Kind of add additional channels of patient acquisition and add additional leverage to engage patients, which should drive drive even more.
The results from Oxford.
Thank you.
Your next question is from Ryan Daniels with William Blair. Your line is open.
Yes. Good morning, guys. Thanks for the question another one on direct contracting Mike you mentioned the need to build out claims processing capabilities in the network for some of those individuals can you speak to what investments that might required if you use a PPA or one of your existing plan partners for.
James Administration and network management. Thanks.
Yeah, Ryan that would only be relevant if we choose the.
I think it I'm blanking on the term now, but if we choose the option, where we get kind of the majority of premium upfront and then have to go pay the claims and something that will help ourselves.
Total cares and they make it tough.
Yes, I think that if we go that option there there's some cash flow benefits to it it's often doing a change over time.
Hi, Phil.
Fission right now and like I said, we don't make decision yet nor have we have but my suspicion is we will not go that direction actually for exactly the reasons you talked about which is just.
Great more administrative.
Challenges and more complexity I, just don't know if that tradeoff worth it so.
My suspicion today, he said I and she is right now, which again I I don't I was there a change. This is I think we will all go in the former 'cause then afterward I enough though.
Okay. That's helpful. And then different topic can you speak to kind of center expansions I'm curious what your philosophy is and.
In regards to building out existing markets, where you're kind of already have a brand and your customer acquisition costs may be a bit cheaper versus entering new markets like New York and Mississippi, How do you internally kind of balance those two from a growth standpoint investment standpoint. Thanks.
Yes, I think balances the right word.
And I think you have I think he said if you open up new centers in existing market, obviously had what operational complexity you do benefit from the brand you benefit from relationships et cetera et cetera.
Flip side, you, obviously need to be growing to new markets to create those beachheads. Many more places where do these are the growth.
So when we think about whether it's how we grew 2020 year how were planning to grow in 2021 et cetera.
It will be a combination of both for sure.
When we first go to market one thing we want to do the first call it year or do you have in the market it and get good coverage.
Over the neighbors, who wants or primary parameters local and so if you're more than 15 minute drive time, you're probably not going get someone to join your centers. So when we look at.
Our algorithms that predict where it will be successful and we looked at where they need and the community. We try to essentially draw a 15 minute drive time circles around the portfolio center. Its again, its great coverage and that kind of stuff in one when you go to market and getting that coverage and what we've seen in our more mature market, whether it be Chicago, Indianapolis, Detroit et cetera, do you see that that.
Demand in any any any 15 minute drive time catchment is larger than any senator concern myself and so over time. When you have finished at a point quickly then you've made you put more centered around there to make sure you have enough capacity to meet that demand.
Thats and what we've done in Chicago, we added a couple more Detroit.
Lastly, we gotta morning to apples over time et cetera. So that's how we think about the growth is go to new markets get that Chad and Craig good coverage over the markets. We serve all the older adults need our help in the market and then over time as with any start going up people looking for more and more infill.
Your next question is from Stephen to know SPP Leerink. Your line is open.
Hey, good morning, guys. Thanks for taking the question I'm going to ask couple on direct contracting as well a lot of really helpful. Color today. So I appreciate that I guess in the deck. We noticed that there was a 5000 patient minimum to participate in performance here one.
Then I wasn't aware of that and I guess you'd written there that you expect slightly more voluntary line patients and claims based the line. So I guess first question. This is it reasonable to assume that that comment is relative to say 2500 of each time to patient the start.
Then just doing some math on that.
With complicated PPP and revenue around 1200 today, and you mentioned voluntary alignment should be above that threshold I guess, it's probably safe to assume about a thousand kind of blended TBD on revenue on that program.
Which would imply potentially high 800 to $900 above current fee for service revenue ppm, which.
Its comes out to about 10000 patients per year that math suggests sort of the bare minimum to start with 5000 patients would produce over $50 million of incremental revenue annually. So is that reasonable to start and the way we're thinking about that.
Well on the 5000 number I mean, that's a floor from CMS on the program.
We're confident Steve its mark so I.
When looking at it I mean do you want to start it matter on a floor that is more but again I don't think that has.
Any direct relation to how many patients we do expect.
On the question.
Voluntary Burns claimed line patients.
The reason why we expect more voluntary night vision.
One because we do see the majority of our patients that.
Our Entresto Medicare eventually move to Medicare advantage.
You don't have as many tenured traditional Medicare patient that when he claimed line. If you remember claim alignment looked at multiple years of claims right and so we want to bring home country growth and how many markets and how many patients are relatively new to oaktree anything about the time period, which they're looking for claim climate.
Well get claims line patients but.
Our model on core product growth and people kind of practically shooting Oak Street, which is very different than mortgage traditional hospital system or doctor groups of patients for a longer period of time, and then going forward right every patient we sign up rate every patient sorry.
Wins, and new patient health, we will introduce the voluntary alignment we will have an anvil forms and so there will be voluntary line before they can be claimed one right.
Asian whopping.
Today for their visit right. The first visit and we and we thought the voluntary alignment form will be voluntary why it may take two years for them to be claimed one right.
And so for.
That for that reason, we didnt expect a lot of voluntary line patients and obviously in two years from now and all the patients were signed today start becoming claimed line.
You know, we'll have grown a lot more right and they'll be a lot more voluntary line patients that that's why we expect voluntarily to be hired much more around kind of that flow of new patients coming in and voluntary line happens a lot faster than they claimed wyman.
And so I think what you'll see is a mix you know on April 1st their claims line of always are in line and then the mix up on every single quarter and more patients are enrolled will go more and more towards most weren't voluntary alignment over time.
Yeah as far as the.
Yes as far as the revenue you know again I would I would kind of it's kind.
Kind of pointing towards our our kind of PMPM revenue.
I think as I said in my remarks.
We expect just based on some more risk more probably higher for voluntary line revenue per patient.
For knowledge in line, probably lower than voluntary line for claims line patient. So again I think directionally you can probably look at the.
And again, we don't we don't know which patients what the risk, whereas so I can't give you any exact numbers, but I think probably Tim you tell me Directionally right I may if you got to look at that probably I get you pretty close yes. I know you were I think the logic of your math was is obviously accurate I think from a from a PMPM revenue perspective, My guess is that thousands probably conservative but either way.
Yes that would be the revenue upside on 5000 patients and to Mikes point. The 50 50 split is probably conservative as well just given the amount of new patients we have shortly if street platform.
Join the platform over the last year.
Year.
The only thing I'd add there.
There's this April 1st which is the first the first time patients can be in there, but that that's not you know that.
Thats not the case, that's not the fence the program right.
Because you can just every quarter you get more people aligned so I certainly expect more to me are aligned on July Onest April 1st and then one more on October Onest and more gain or first of next year.
You know again I I'm excited about the program, but I think I'm. Most excited about is a really a long term opportunity to get the vast majority of our patients to resumes economics.
I'm also trying to temper my expectations on base, it's a new program and so therefore, there's probably some pickups just with me we figure out working maybe CMS also figured out how to administer it so.
We're excited about it for the medium and long term health of the short term, but it's not just a one shot deal.
Yes, no idle all really helpful color and I guess, just one follow up I mean.
Stage there is nothing in the model nothing in my model I don't think there's anything consensus and.
We're five months away from this thing kicking off and so.
I think it probably makes sense to take a more conservative soft given there probably will be hiccups, but to follow up on sort of your comments like you also mentioned sort of a large majority in the Medicare patients lining on the voluntary side. Obviously you have over 30000 feet. Your service stations today, but the program minimum is 5000.
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I don't want to the budget in a corner and give us numbers, you're not comfortable with but you did mention 5000 is probably very conservative relative to that 35000 is worth 50 million like you could run away with this and paid the upside case, so maybe a little bit of context, just on or something.
Something or in the order of how many patients are actually are what percentage are actually aligning on that side and.
On whether you think that 30000 is possible in year, one at all or maybe half of that's possible any context, there would be pretty helpful to just to keep yourself.
It's just it's just hard to give I understand the question I understand why you're asking the question I'm.
Just me I'm asking the same questions what is really challenging.
It's not just like how many people were signing up but how many of those people actually will choose Medicare advantage right and how many other people may get.
Cross into different CMS program, an outflow through and so we've got we did and.
The rally, we just don't know Ryan if a patient on Medicare advantage for one month of the year.
Then they are not eligible to be on direct contracting rights, we may attrition Medicare patients to try in a tight for two months don't like it drop outs, which for Medicare So, they're entresto Medicare, but they're not going to be knowledgeable for the program and that's what's happened right. We will have a patient to get aligned to a next gen. A CEO for example, and.
You know when we took the total voluntary alignment will Trump.
Kind of path to Wyman through different program over time, but I went over time means and how exactly that works and then we don't know I think CMS frankly, so solta terming although details.
So again, it's it's both a question like what does the aggregate number of patients who are claims line would it be accurate number efficiency inside the voluntary enrollment form and then of that group how many choose I may and I have now moving I mean that was probably a great outcome for our associates.
Then how many of the ones that don't use that may end up high 400, our rosters and there's just the clearance there.
Without more experiences are we and there's no way to know it. So I don't want to I don't want to I don't want to give tighter ranges or imply everything I would say 5000 to 30000 is probably a fair range, but I know that.
Yeah, and Steve just just wondering on that 30000 at risk or excuse me fee for service patient base today, some portion of that fee for service patient base is.
They are on M&A just for whatever reason that it may play it is not at risk for US. There are there are some rare instances, where that's the case and also that 30000 is comprised of a fluid number of traditional Medicare patients many of whom are on their tuition Medicare patients for a month or two month and ultimately enroll in.
In EMEA. So is it the same patients period to period necessarily so I, just I think that denominator at least as we sit here today is probably not the most appropriate one now between now and April 1st we continue to grow our patient panel, maybe 30000 becomes moral that number I don't know of it but just to make sure we're kind of talking.
But we're seeing it I echo what was really in that number today.
That's helpful. All right. Thanks, a lot and thanks, Mike as I appreciate the color.
Your next question is from Shawn.
Paper Sandler your line is open.
Hi. Thank you. Good morning, I also was looking to get a realistic assumption on the percent of patients going into the direct contract program, but maybe you know in a quarter from now what we're guiding on what you're guiding on 2021. Good what are the factors that you're going to include.
In your 21 guidance as it relates to the direct contracting program.
Thanks, Sean.
We are.
Well as we get closer to when we would issue a 2020 results will probably be bit better able to answer that I'd say.
Look we would love to be able to provide.
We feel better about the economics based upon the math has been outlined by CMS. The patient number is just is a challenge now come Q1 of next year, we'll have better alignment. So I'd say, if we had our druthers, we'd be able to provide better specificity around what membership will look like.
On our next call I say that with the caveat that I don't know what we'll learn from CMS between now and then and so what the moving pieces will be so we I think we spoke about seven or eight weeks ago. I know this is a bit of a topic, but obviously the market that as much information as we have today. So we'll continually provide more information as we learn it in or.
Accommodate in sharing committing to I think from our perspective, while we obviously love the opportunity and direct contracting want to just make sure that we're.
We are giving folks our best look and not.
Making changes to fly as we continue to learn more.
Okay do you see any risk of any channel conflict with your existing M- partners as you migrate some of your fee for service patients over to direct contracting.
I don't I don't see any risk at all channel conflict.
Like I said before this is this is not a you know us advising patients to join one of the other.
We're on the same processes, we've always run on educating people, how Medicare works and were to do that because having the right benefits and the right support and maximizing what you got for Medicare is critical to our patients actually increasing their well being thing healthy right and the reality for the patient demographic, we serve the bathroom, it's not afford them.
So.
That's the $100 a month and so for a lot of our Medicare advantage is the right program for them to join.
And were to keep educating people on how the program works.
And then then then if they want to learn more they have to do with the insurance invited we can't sell insurance, we don't talk to specific benefits et cetera. So I don't that's going to change.
And it appears you want to see interest from Medicare and that's right for them. Then obviously, we hope they like the direct contracting program and I do expect a lot of movement in and out of the program like alluded to earlier based on what patients want. So so again this is.
No from our perspective, I don't see the mix changing at all across locations, where it has been historically when we didn't have the program.
Okay. Thank you.
Your next question is from Matthew Gilmore with Baird. Your line is open.
Hey, Thanks, So let me try one follow up on direct contracting is it just just given kind of the natural flow of patients.
That get introduced to Oak Street, and then eventually shift over to Medicare advantage, because it tends to be a better deal for them is it fair to think about direct contracting is improving the patient economics for patients that you may see in the first one to two years and then they naturally shift over to to Medicare advantage and then.
Capture that economics or do you have a portion of fee for service patients that are longer term in nature. Just wanted to if you could sort of help us think through that.
Yes, it's both.
So I think you're absolutely right on kind of that flow of patients.
That's very real but.
But I think on the flip side. There are there are a set of patients think about someone who's got the retired a union member and the union. The retiree about pacing about cell program. So that person may be you know really in our core.
Target demographic.
This case actually they can afford their about topline is paid for them right and so if that patient if they have a free metal plants that probably would be the right option for them.
And were any very supportive that right and so this program and for that person allows us to also get an adverse economic to benefit from the investment, making keeping the healthy work prior to direct contracting.
Just one funny on that patient in perpetuity, we're obviously not going to differentiate our model or offer high quality care and so that's been the programming also really powerful is that that profile patient.
And I guess in the end it all and also obviously rare instances, where young children are paying for the backstop operation our hiring calm right now like all that can't afford it. So again, there's a there's a tail of people for a variety of reasons, we actually.
Don't want to move to Medicare advantage and you know sometimes for good reason.
In that case this program will allow them to accept them I do think there will be a fair number have you described your kind of migrate through the program.
Got it that's helpful and then.
Mike you talked about some of the alternative engagement channels digital and then with brokers I was hoping you could unpack that a little in terms of what you're doing different today versus a year ago and as you're thinking about that week over week improvement are either one of those approach is yielding more benefit than the other.
Yes, so one thing to always keep mine at Oxford Health as you know, we're not we're not a static organization our care model not static our average not static.
You know, while I assume that cant remember light before Oak Street.
We've only been around for open and willing to operate better for seven years, and obviously have grown a lot improved along the way and let me not reason I'd say that something like digital marketing.
Years ago, we did zero.
Why do we do it.
I don't that capability, we had invested against it and.
And so.
Definitely channels come on right do you can you can argue we should be doing to their marketing four or five years ago, you're right. We should have been only so much you can do and how much of that over time and so much investment you can make as you grow.
One of the great things about having the level of scale, we haven't frankly, having level scale, we're going to have over next couple of years continue to grow and get us more more resources to build out additional channel fill out additional keremela programs et cetera.
So.
Some of the channels were doing when it to you talked about your digital are working more the churns bike and try more programs there is.
It's not a question of why not something has changed how this works I mean I've seen more people argue are engaged digitally and that's maybe.
Stabilization that helping but generally the answer it and like Theres, just a lot of opportunity out there right and we'll keep we'll keep experimenting we'll keep innovating, we'll keep trying new things and keep investing to improve it and all of those improvements will pay off in any digital an example of that where we're really happy with the results so far.
And I think we can get better and we as we try and Walmart.
Okay. Thanks, a lot.
Your final question is from Gary Taylor with JP Morgan.
Ben.
Hi, guys. Thanks for just a quick follow up I was just going to ask on just back to the topic of the day direct contracting.
On on the voluntary enrollment do you expect that to have the the above average or above national average skewed towards dual eligibles like you have in your.
It may patients just because of your physical locations is that does that also part of how youve kind of given us the revenue guidance for.
Voluntary versus your your average in may per member per month.
Yes, I don't I don't.
With what I know today I don't know if will be higher or lower dual penetration in direct contract universe I may but I think it will be similar from what from what I know today.
And just not to hear you ask a question for you I think you know you guys want to go direct contact radicals I'm you know, we're we're happy to happy to talk about it because it's an exciting program.
If you remember for a dual eligible patient, they're a little different than what I described around the economics because for dual eligible patient Medicaid the Medicaid wrap that generally covers their co pays and their their out of pocket costs right.
It covers their part D. so in their case was actually.
So any reason to join Medicare advantage on supplemental benefits, but for them actually economically in some cases. They can they can stay in entres Medicare. So there's also that that aspect of it as well for people, who really are dual eligible into don't want any part of managed care plan here you can.
I think I mean did you benefit from managed care plans for the supplemental but out of the drug contract will be valuable for those patients as well.
Okay insulated from the fee for service cost.
Oh sure already exactly yep, Okay. Thank you.
There are no further questions I turn the call back to presenters for closing remarks.
Well look I appreciate all the questions.
And hopefully.
Okay. Hopefully that was helpful. I know, there's a and I appreciate the desire to learn more into the teeth you understand the opportunity for all these programs.
Well, what I'll, probably end with a goal that where I started wishes.
Could not be prouder of our team for really executing incredibly high level and what that means is being there for our patient being there for our communities are making huge impact and regardless of.
What happens with vaccines along were obviously were members of society into the World, We're very excited about them.
I wasn't happy with programs like direct contracting we feel really great about our future and I think it shows the resiliency and.
In fact, this is a model that kind of.
Regardless of different trajectory to different government programs in different different different futures, we feel really great about our ability to continue to grow to your primary care I really make an impact in that.
Due to our team and so.
We appreciate all the interest in untreated and make it.
This concludes today's conference you may now disconnect.
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