Q2 2021 Oak Street Health Inc Earnings Call
Okay.
Good morning, and welcome to day Oak Street Health fiscal second quarter, 2021earnings call.
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After the speaker's presentation, there will be a question and answer session.
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Hosting today's call are Mike pick us.
<unk> Executive Officer, and Tim Cook, Chief Financial Officer.
The Oak Street health assets.
It's really webcast link and the other related materials are available on the Investor Relations section of Oak Street Health website.
These statements are made in cash if August 'twenty, 'twenty, 1 and reflect management's views and expectations at.
At this time and are subject to volume risk.
Uncertainties and assumptions.
This call contains forward looking statements and that is statements related to future non cash events. In this context forward looking statements often address our expected future business and financial performance and financial conditions, and often contain enbridge said shashank disappear.
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We believe contemplate continued good estimate expect.
Then my plan potential predict.
Jack should target will end would or similar expressions.
Forward looking statements by their nature average matters that are to different degrees and Trojan.
Sure Ross particular, uncertainties that could cause our actual results to be materially different than dose expressed in our forward looking statements.
Our ability to achieve or maintain appropriate I believe.
Our alliance on the limited number of customers for a substantial portion of our revenue.
Expectation and management of future growth.
Our market opportunity.
And our ability to estimate the size super target market.
The effects of increased competitions.
As well as innovations from by new and existing competitors.
Market.
And our ability to retain our existing customer and to increase share numbers of customers.
Please refer to our annual report for the year ended December 31.2020.
Filed a form of a turnkey 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 in addition to and not assets After street.
Our superior to measures of financial performance prepared in accordance with yet.
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 this non-GAAP financial measures.
The most directly comparable GAAP measure with that I will turn the call over to Mr. Mike <unk> CEO of Oak Street is heard Michaels.
Thank you operator, and thank you everyone that is joining us. This morning, joining me today's call Tim <unk>, our Chief Financial Officer.
I'd like to start my comments. This morning by once again thanking our team members, who continue to work tirelessly to support our patients on communities.
Turning to adapt to changing conditions around them and we've settled into operating all aspects of our model with Covid remaining part of our lives.
We are encouraged by strong results across a majority of the drivers of growth performance with strong revenue growth during the second quarter driven by patient growth in center and corporate costs were in line with expectations.
<unk> and increased operating leverage from the business.
We are ahead of pace on center opening and our growth outlook remains encouraging on both the patient is on a level.
This performance medical claim expenses higher than projected in the first half of the year, leading to a higher than expected adjusted EBITDA loss in Q2.
Looking forward due to the increase in cases, driven by the Delta variant as well as unknowns around the shape of the Covid recovery, we are projecting similar levels of metal costs for the remainder of the year.
However, based on the results year to date on patient growth and the disease burden of our patients. We are capturing we're confident our patient center level economics will return to historic levels from 2022, even at this level of milk price.
When metal cost share on returns in whole or in part to pre fund on a level, we expect to see a step up in those economics.
For that reason, we remain confident in our unit economics and are planning to increase the pace center expansion in 2021, raising our new center guidance of 46 to 48 new centers.
The second quarter of the time of transitioning back to focusing on our core model for Oak Street.
The quarter opened in the midst of an all hands on deck approach to vaccine or patient and commodity.
We've delivered over 108000 vaccine doses and when the vaccine was in short supply earlier in the year, we took a resource intensive approach to ensure doses, we're going to residents of the communities. We serve many of which were disproportionately impacted by Covid.
For the second quarter continue and we were able to vaccinate the vast majority of our patients on team.
On deck approach was wound down and we refocused our efforts on the core of what we do keeping patients happy healthy.
At this time at Oak Street, Covid is still a factor, but it's not the factor that consumes a primary focus of our team.
As the country's returned to normal we've begun rolling out the community marketing approach that was the foundation of our sales and marketing results pre pandemic.
We are in the midst of our meet me at Oak Street campaign in which we are hosting flagship event at all 100 of our center.
These events are generally held on the parking lots of our centers and have been chosen by our local teams such as the welcome back American Jazz channel 1 of our Philadelphia centers, a case of Avalon Park in 1 of our Chicago Center and a senior research Excellence Center in Dallas.
We've average over 150 senior attendee per event, so far and are on pace to host over 15000 seniors.
In addition to being a great way for us to meet older adults in our communities as we give them an opportunity to safely get on socialized. The event also give us an opportunity to introduce or reintroduce ourselves to chambers of commerce community groups local politicians and other community partners setting up the opportunity to schedule smaller events over the months and years to come.
We are excited to build back to the volume of that we had in 2019, when we conduct an average of 400 events per center.
While the EMEA to Oak Street events and ramp up our community marketing approach will not impact our financial performance until Q3 stomach and even more so on Q4, we did see the early returns of our average teams being able to return to the community as well as continued execution of central growth channels on our Q2 performance as evidenced by the higher than projected revenue and patient growth.
We generated record revenue of 353 million in the quarter exceeding the high end of the guidance and representing 65% growth compared to Q2.2020, bringing our growth from the first half of 2021 compared to the first half of 2020 up 56%.
We expect a 47% pace of growth from Q1.2020 to Q1.2021 to represent a low point for the next several years.
The first half of the year showed a large increase in third party metal cross compare with prior experience and was higher than our previous projection.
We believe this increase was driven by the direct and indirect impacts of Covid across 3 primary categories.
First cost per admission.
In the first half of the year Oak Street experienced $15 million of direct costs from Covid admission.
Covid emissions were highest in January began to drop in February and were reduced by 97% by June from the January peak.
Which we believe was driven by both the efforts of our team to get on patient back as well as lower community infection rates.
Second an increase in non acute utilization Nike.
<unk> utilization, including specialty diagnostics, an outpatient procedure significant increases in marsh volume vaccine rollout for older adults.
Non acute utilization of $8 PMT up higher in March than our average monthly non acute utilization in the second half of 2020, and a similar amount higher than our non acute utilization in 2019.
Our April result will not have completed March suggests a similar level of non acute utilization.
We booked Q2, assuming this increased utilization will continue leading to an increase of $24 million metal costs from March through June.
We believe this is driven in part by increased comfort with patients to access medical care following vaccination.
<unk> payer standard through the public health emergency and specialists in hospital system behavior.
Third significantly higher new patient milk cost compared to what we've seen from the past.
New patient metal costs were 50% higher than what we've seen historically for new patients. This increase in new patient costs drove $20 million and higher costs for the first half of the year. Despite.
Despite the increased amount of cost we only saw a small increase in the risk score for these new patients compared to the new patients in prior years, which we believe is driven by lower engagement on the health care system in 2020, which flow through to 2021 revenue.
As a reminder, risk scores lag a year and depend on diagnosis cash return provider business does the lack of engagement like we had a double effect of reducing the income.
Income and risk score, but also likely increasing disease per enough patients.
The total result of the above as an additional $59 million on third party medical costs for the first half of the year driven by the lingering impact of the Covid pandemic.
While we did project a portion of the above cost the magnitude was higher than our expectation.
The higher than projected COVID-19 related costs offset improvements in other medical cost components favorable prior period adjustments and strong performance in other business drivers.
The net result is an adjusted EBITDA loss of $53.5 million for Q2.
Our increase in metal cost was concentrated in our D SNP and MAA HMO patients our PPO patient metal crops were essentially flat, which given that our PPO patients before higher income than our AGM on decent patient leads us to believe the results we're experiencing on being exacerbated by social factors and their impact on lower income older adults during the pandemic.
Because of the payment lag we have the best data availability through April this year.
We book May and June with an equivalent PMT on metal costs, what we experienced in the first 4 months of the year looking forward. Our updated guidance reflects the net cost increase observed in the first half of the year continuing throughout the year given uncertainty around the impacts of the Delta variant on Covid hospitalizations for older adults.
Lack of precedent around elective utilization on the tail end of a pandemic and our expectation that new patients will continue to have higher disease burden compared to past experience.
Our care teams are laser focused on continuing to elevate the care provided to our patients and we aim to reverse the trend observed from at a cost in the second half of the year. Although we have not included the potential for this improvement into our guidance.
Based on the data collected year to date, we have seen that the disease burden of our patient population to substantially increase and compared to prior years.
This is true both for new patients as discussed as well as existing patient.
This leads us to believe that despite capturing similar overall disease burden on our patients in 2020 as we did in 2018 the challenge with caring for patients from the early days of Covid resulted in us not capturing the increase disease burden of our patients that we are observing this year.
The disease burden, we are capturing on a patient today will not translate into a corresponding increase in revenue until 2022.
From our results to date, we expect the increase in revenue per patient in 2022 to offset the increase in metal cost per patient we have witnessed this year.
Said another way, even if the alveda metal cross witnessed in the first half of the year continue going forward into 2022 and beyond with the increased revenue per patient associated with increased disease burden of our patient growth.
Actually have a similar patient contribution in 2022 compared to 2018.
If COVID-19 related metal costs, recede, causing that'll cost or virtual level more in line with what we have witnessed prior to the first half of this year and our care model is able to further impact the cost share we will see significant improvement in per patient contribution compared to 2018.
This combined with a strong result on patient growth and operating cost give us confidence in the continued strength of our center economics on center around <unk>.
Additionally, despite the metal cost headwinds, we're still seeing our immature centers performing ahead of our genome.
For these reasons, we are raising the guidance around the number of new center openings from 38 to 42 to 46 to 48 and we are confident in the durability of our core economic model and believe the additional centers will drive increased profitability in 2023 and beyond as they mature.
In summary, we are encouraged by the performance across the majority of our adult from the quarter, including strong patient revenue growth and increasing operating leverage the lingering impact of the pandemic led to increased metal costs into lower than expected adjusted EBITDA, but we believe the milk cost impact of temporary nature and our financial performance, we boosted by the expected increase in per patient revenue in 2020 to our call.
And the future strength of our unit economics gives us the confidence and to increase the payouts on expansion.
And we're enthusiastic to build transformative organization.
I will now turn it over to Tim Cook, who will walk you through our financial results in more detail Tim.
Thank you, Mike and good morning, everyone. We produced another strong quarter with $353 million of revenue up 65% from a year ago and exceeding the high end of our guidance range by over 10%.
Patient demand for Oak Street remains high as to providing care to a 122000 total patients during the second quarter and are at risk patient base, which now includes our direct contracting patients grew by 54% to 88500 at the end of the second quarter. We operated 95 centers and increase of 9 centers compared to March 31, 2021, and 41 more.
Centres, we operated at the end of the second quarter of 2020.
<unk> revenue for the second quarter on $346.7 million.
Representing growth of 67% year over year, driven by a 54% increase in our at risk patient base and an increase of approximately 9% on our capture rates attributable to increased premiums from higher acuity patients.
Total revenue grew 65% year over year to $353 million.
Primarily driven by the increase on our at risk patient base.
Additionally, $14.5 million of captain revenue in the second quarter of 2021 was related to prior periods.
$10.7 million of smell pertaining to our 2020 financial results primarily related to the full year payments for 2020 risk adjustments in patient retroactivity in the $3 million balance was really Q1.2021 patient retroactivity.
As a reminder, patient retroactivity is typical and occurs on health plans paid 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.
Our medical claims expense per second quarter of 2021 of $281.4 million.
Representing growth of 81% as compared to second quarter 2020, driven by the 54% increase in patients under GAAP hinder arrangements.
And an 18% increase in cost per patient Mike already what the key drivers of this increase but I would add that our second quarter results included $19 million of negative prior period development $24 million of which was related to Q1.2020 offset by $5 million of prior period favorability related to fiscal year 2020.
The negative prior period development related to Q1.2021 was due to us having relatively limited claims data we closed the first quarter and claims volumes ultimately being greater than we estimated at that time.
Upon receiving incremental data on the latter half of the second quarter, we better understood. The drivers Mike walked through a minute ago.
Our cost of care, excluding depreciation and amortization was $67 million from the second quarter, a 70% year over year increase driven by increases in salaries and benefits occupancy costs as well as higher medical supplies and patient transportation costs related to a 76% increase the number of centers, we operate and growth in our patient base.
Sales and marketing expense was $25.9 million during the second quarter, representing an increase of approximately 156% year over year and was driven by greater advertising spend to drive new patients to our clinics and net head count growth.
As a reminder, sales and marketing expenses artificially inflated on a year over year basis.
As it was partially depressed during Q2.2020 due to the Covid pandemic, which included the temporary suspension of community outreach activities.
Net <unk> of our local outreach teams and other marketing initiatives.
This increase also reflects investment to support our significant year over year growth in new centers and new markets.
Corporate general and administrative expense was $74.2 million per second quarter, an increase of 139% year over year start.
Stock based compensation expense was the largest driver of the increase representing $39.7 million on expense in the second quarter of 2021 compared to $4.2 million in the second quarter of 2020.
As a reminder, the increase in stock based compensation is primarily driven by an accounting change related to awards issued prior to our IPO in August 2020, and is not a function of stock awards issued since our IPO.
Excluding stock based compensation corporate general and administrative expense was $34.5 million on the second quarter of 2021.
An increase of 28% compared to the second quarter of 2020, driven by primarily head count costs necessary to support the continued growth of our business.
I will now discuss 3 non-GAAP financial metrics that we find useful in evaluating our financial performance patient contribution, which we define as calculated revenue medical claims expense grew 24% year over year to $65.3 million during the second quarter.
Platform contribution, which we define as total revenue led to some of the medical claims expense and cost of care, excluding depreciation and amortization was $4.7 million to.
To <unk> 76 per cent decrease year over year, driven by the previously discussed increase in medical claims expense as well as a significant growth in our center base and therefore, the portion of our centers which are immature.
Adjusted EBITDA, which we calculate by adding depreciation and amortization transaction offering related costs.
Stock and unit based compensation, but excluding other income to net loss.
On the loss of $53.5 million in the second quarter of 2021 compared to a loss of $17.5 million from the second quarter 2020.
We finished the second quarter with a strong balance sheet and liquidity position.
As of June 30, we held approximately $1 billion $80 million in unrestricted cash and marketable securities.
Our liquidity position will support our continued growth initiatives, primarily our de Novo Center base expansion.
For the second quarter 2021 cash used by operating activities was $53 million, while our capital expenditures were $10.7 million.
Now I'll provide an update to our 2021 financial outlook.
For fiscal 2021, we are increasing our guidance for total centers to a range of 125 to 127 from our prior outlook of 117 to 121 centers.
Total our total at risk patients to a range of 109 to 113000 from our prior outlook of 107000.212000.
<unk> net revenue guidance to a range of $1.37 billion to $1.4 billion from our prior outlook of 1.3 to $1.34 billion.
We are reducing our adjusted EBITDA guidance.
Loss to a loss of $240 million to $220 million as Mike mentioned, our EBITDA guidance assumes a continuation of the medical cost trends, we experienced in the first half of the year.
It also includes the losses from the incremental New center growth.
For the third quarter of 2021, we are forecasting revenue on a range of $355 million to $360 million net.
On adjusted EBITDA loss of $65 million to $70 million.
We anticipate having 109 to 110 centers and the net risk patient count of 90, 898500, 200000, including direct contracting patients at September 32021.
With that we'll now open the call to questions operator.
Thank you.
As a reminder to ask a question. Please press star 1 on your telephone keypad.
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Please limit yourself to 1 question and 1 follow up please standby, while we compile the Q&A roster.
Your first question comes from Ricky Goldwasser from Morgan Stanley. Your line is open.
Yeah, Hi, good morning.
On the Sandy higher acuity after new patients so.
How do you measure higher acuity or are there any.
Patterns or disease categories that you're seeing.
And then also when you think about these new members that are just on boarded.
What's the vaccination rate among the new members in this population debt.
He is now at a higher risk of contracting COVID-19 might impact.
Second half.
Yes. Thanks, Ricky this is this is Mike choice.
On the new patient question on I think if you look at the acuity and there's really 2 ways..1 is the utilization both acute and non acute debt those patients are doing and as I referenced that 50 per ton higher than than we've seen in the past. So they're obviously going to hospital a lot more they're using a lot more medical resources.
So that obviously impacts cost today on the other way to look at it another way we do look at it.
Once the disease burden on trying to view burn on the population and absolutely.
Driven by what are the chronic disease codes that we're capturing as we're doing are really intensive onboarding price for those patients.
On that dimension, we're capturing a lot more patients.
Diabetes, complications COPD et cetera et cetera. So.
Think that it's really both on our new patients are using the system on margin, resulting higher cost today with cash.
Much higher disease burden on them that we recaptured kind of an equivalent new patient period in years past, which is going to drive higher revenue next year, but I am on flow through until until 2022.
On the vaccination status.
Our average margin generally pulls patients from the communities, we serve and albeit usually patients who are slightly less engaged in health care than the average patient on the community keep in mind. Our fees you serve are generally moderate to low income. The majority of our patients are people of color and so the vaccination rates of our agents were pulling in and generally are.
Generally directionally, what the communities that.
We serve on maybe a little bit lower.
So Medicare on average is 80% of.
Medicare recipients are vaccinated.
The patients were point of view based on assuming lower than that that said, we're very effective at overcoming it hasnt seen getting they're getting pushed back and thats obviously.
A core part of every visit right if a patient from vacuum is having that conversation.
I do believe that we will get our patient our new patient up to kind of at that same level of Medicare and hopefully higher outdoor I think we see our existing patients as well.
With the understanding that the challenge I think we are facing at higher than that you'd basically on a different patient demographics.
Okay and then my follow up is on the on the marketing campaign, you can think about this.
Certainly.
Total varian.
What is the contingency marketing on.
If you have to scale back on the community events.
Yes, I mean, I think the contingency will.
We will be doing something but we did really prior to the vaccines right. When we did grow in <unk>.
Second half of 2020 and kind of first part of 2021.
Find pace. So on those same channels that we leverage that was booked on your leverage.
That said I think we've found ways to safely and effectively run our community based marketing approach.
Given.
The vaccines debt from our team members know lowers the risk would be in the communities finding alternative venues of outside events and things of that nature. So again I don't I don't think I don't expect us to go back to kind of where we were in the second half of 2020 or even early 2021.
Where are you really trying to avoid those types of events I just think that's not where size I think you find ways to run them safely and what basically means a different based on where the depth of various debt et cetera.
I think it is important that would be.
Mental health into different accounts. They are also really important so I think it is important overall debt that we're getting people out socialized.
Kind of enjoying life, but doing it on a very safe manner.
Thank you.
Your next question comes from Sean Weiland from Piper Sandler Your line is open.
Alright, thanks, so much and good morning.
Alright, I appreciate the breakout of the excess medical expenses, the free categories and I understand.
How you get out of the box with Covid and with the higher disease burden, but less certain Laura I don't understand really the path forward on excess utilization of non acute care.
You run in an open network. These new patients are used to going to the doctor or specialist anytime they want and how do you how do you get that back in the box.
Yes, Sean this is Tim good morning, Thanks for the question.
It's across a number of fronts.
Our teams as Mike mentioned have been working very hard to.
Execute the vaccination plan that we put in place and while we talk about vaccinations as if they're relatively easy a shot in arm, it's actually incredibly complex and it's very distracting for our teams. So part of it I think it's just refocusing our efforts and moving beyond vaccination efforts to I'd say more core care model execution.
Things are not always mutually exclusive but the reality is there's only so much bandwidth within our centers. So I do think we benefit from.
Moving more getting back to basics on our on our care model.
Not that the vaccination efforts will entirely cease because of course, we're going to continue to push our patients to be vaccinated and hopefully we will get to as close to on a percentage we can't hear on the coming months.
Morning, guys.
The additional thing I'd say is.
<unk> heard of data points around this but I think we're also seeing other market forces at play today with which is <unk>.
More volume flowing into fee per service medicine as the system rebounds from.
A tough <unk>.
2020, particularly in the middle part of the year and so I think we're seeing elevated levels of utilization beyond what we would typically see and part of that I think is to Mike's point of patients coming in sicker and being heavier users of the system. I think it's also more of the system play a little bit of catch up and by and large we've experienced in her from health plans is historical.
Processes. They may have in place that limit those are more active network management a lot of those activities.
You would have been put on hold or are there dialed back on and so we're seeing this day.
This stage of the market where.
Utilization is coming back online and there's less management managed care right now.
I think the combination of us getting back to where we had been from a care mile perspective, as well as the market returned to normal should over time.
Exactly how long is a question, but should over time.
Serve to drive down debt non acute utilization that you mentioned.
And how many patients in total are we talking about driving these excess costs.
So we have seen.
I think as Mike mentioned, we have seen an increase as these grid across all of our patients. It is most pronounced for their for our newer patients you can get a sense for how many patients we've added $12.31 to June 30.
And then on top of that.
Obviously, that's a net number we've obviously add a lot of patients depending upon what you assume for Oak Street attrition.
It's a reasonable number of patients for debt that our new patients to Oak Street that are driving those costs.
Heavy shopping on the thing I would add up to both of those questions quickly is.
On the on the non acute cost.
The factors you mentioned around kind of active specialties have been present for the history of Oak Street right, because we have a very good baseline.
What we observed in 2019 in 2018 other years and even in the second half of 2020 are all pretty consistent.
In March it really it really quick.
On.
Again that could be some kind of ongoing change in.
Health plan or provider or patient behavior that will be.
What we would on long term debt.
That is I guess possible and again, even if that persists, we're confident the economics will return in 2022.
I do believe that a lot of it was driven by the fact that I don't think it's coincidence that's exactly when all of our patients kind of became back from it right because I think there was a typo.
We're going back into the community going back into health care getting back into the health care system I think health care workers that were also vaccine and also I think ready to make up for lost income. So I think thats I think thats part of it so.
Certainly our hope is that we kind of.
Eventually over time revert back to what normal was prior if there is some.
Phase shift and how.
Patient and provider behavior, if you will try to impact that but we also feel like we can absorb that cost in 2022 and beyond.
So hopefully that helps give some more context.
Okay. Thanks, so much.
Your next question comes from Lisa Gill from Jpmorgan. Your line is open.
Hi, Thanks, very much on good morning.
Mike can you talk about the percentage of the assessments that are done at this point for 2022, you talked about revenue.
Being better in 2022, but that would be my first question and then just as a follow up is there any geographic area to call out when you think about some of these higher costs.
Yes on the first question.
Obviously, we aim to have our kind of annual walnut physically for 100% of our patients.
Usually we completed in kind of the mid <unk> mid to high 80 is actually get done on our patients.
Right now we are I think in kind of the mid to high <unk> is where we're at on a percentage of our patients who rather any unwanted those equate. So we feel we feel like we're trending kind of towards those operate even we will obviously work hard to push that into the 90% as percentage of complete so the data points, we have as far as the disease burden on recapturing and our annual wellness visits.
It's a large portion of our patients at this point, so we feel like free pretty direction pretty pretty accurate data at this point.
I'm sorry, what was your second question I apologize, yes. The second question just is there any geographic areas that you'd call out from from any of this utilization.
No thats actually 1 of the I would say.
Trends have given up that probably increased confidence that continue to grow we're really seeing that.
Across the board.
We're seeing this in new geographies in all geographies, we're seeing this in.
All of our centers older care teams newer centers and actually the reason why that gives us comfort that we don't think that there's some problem.
The quality is going down as we scale or we're not actually finding the same success in new markets et cetera.
Yes.
We really believe it's the external factors that we just need to need to manage through vs.
Different and Oak Street performance of the growth.
That's helpful. Thank you.
Yeah.
Your next question comes from Justin Lake from Wolfe Research. Your line is open.
Thanks, Good morning.
Wanted to talk about the second half guidance on specifically, maybe you can help us understand in terms of the actual dollars that's hard.
<unk> for the back day after the year, maybe you can go through the 3 buckets of let us know what you're assuming in terms of dollars volume typical trend and again like I said in MLR would be helpful. As well in terms of the target from the bucket share.
Net.
Yes so.
Hey, Justin Thanks for thanks for the question so with respect to.
Brands and what we're assuming in the second half of the year, what we experienced in the first half Q1 and Q2.
A different composition, so Q1, as Mike mentioned more COVID-19 related as Covid volumes relatively high in January and February and starting to add as our vaccination efforts took hold and the vaccination rate increase in there.
Therefore about somebody got the end of Q2 Covid expenses were relatively de Minimis, obviously, that's all pre delta but.
I think we are seeing a lot of the benefits of of that vaccination work what happened in Q2, I'd say it was more of this non acute utilization coming back online.
And I'm sure there were a number of drivers 1 of which is likely as our patients were vaccinated they felt.
More Golden Dor.
We're more likely to go seek care because they were.
More confident about their ability to do so in a safe manner.
As we look to the rest of the year and think about what we factor into guidance for low from a medical claims expense perspective.
We've we haven't taken the peak of Covid plus the peak of non income utilization and combine the 2 of them. Essentially said is look Q1 utilization over over the first half the year looked like this again with a bit of a different mix between Q on Q2 and that those levels in aggregate represent higher levels that we've experienced and we're going to be giving it back.
We don't have any day to today to suggest otherwise we will continue that high level of utilization through for the remainder of the year.
That works out to MLR is plus or -80% Justin.
Got it so right around 80% from the Doctor per year.
Yes.
Somewhere between I think it would be obviously.
From our business or some seasonality so Q MLR will increase each quarter as new patients come in at a lower on excuse me a higher MLR than in your patient so.
Q3 might be a little lower coupon yield higher video assets.
Got it and then Mike just wanted to follow up on the auto new patients and make sure I understand it correctly in terms of the risk score change from what you saw.
Saying that is we just say the average patient came in typically at 1 point out and now they're utilizing 50% more share.
You are saying that the risk score of this solution.
Right now even though you are on the day.
April on a risk score you absolutely are submitting claims we've seen above where you would get paid for a 1.5 you're revenue would also go up 50% and therefore, the profitability would return to normal even at this level of utilization.
That's the right way to think about it yes.
Those numbers are directional, but yes that is the debt.
Is the right way to think about it.
Okay, great. Thank you very much.
Your next question comes from Elizabeth Anderson from Evercore. Your line is open.
Hi, guys. Thanks, so much for the question maybe towards the New Center guidance includes can you about over the longer term.
Factors that in terms of.
Growth or profitability metrics that you used when you sort of deciding.
Pacing of center openings is.
Yes, I think it was really 2 things we look at when we're determining the pace of <unk> growth.
1 is.
How are all of the.
On internal components performing debt that make our centers are successful.
1 is our pipelines of talent or having trouble filling roles or are we still bringing in phenomenal people to fill all of our <unk>.
How are we doing from a leadership standpoint.
Kind of.
All of the different pieces that go into the pipeline of actually opening on the center Payor contracting credentialing and on all of the nuts and bolts and do we feel like we're seeing any strains on our system.
The 2 biggest ones that I look at our kind of on that.
Provider hiring the clinical leadership and kind of the P&L leadership do we feel really good across both dimensions.
Key drivers and must have to be successful.
So 1 part of it is how do we feel about all of those components.
Now, we're obviously, finishing up with 2021 expansion and starting to turn to 2022 expansion. So you kind of think about how do I build the infrastructure to perform exceptionally on all those dimensions kind of in advance on having a performance right and Thats why we always think about.
Titration off right, we're not going to open up 150 centers next year.
We may find some of those components werent able to succeed at that much higher level. So we always kind of.
It raised the number of centers as long as we feel like we're able to do so but doing it on more of a moderate way.
So it's kind of 1 half of it the second half of it is more on the financial performance and the leading indicators of the centers. So.
How are we doing on on center cost direct cost of care, how renewing on patient growth.
Are we doing on kind of the efficacy of our model.
Ali for new centers, especially you don't have a ton of.
Actual early found data on 30 part of back half weighted patients have an interest plans, yes. They have.
Very new so we do know from our past history that if we do the right things and the inputs that are caring for our patients who were engaging that we're filing our care models et.
Hey, et cetera that will drive great results and it's on the other thing we really look at it.
The new centers ramping from patient growth perspective, and how are the new centers ramping from a cost and how many centers ramping from a kind of.
Execution of the care model perspective.
And then as they get more mature right to get into year 2 year 3 year..4 then we start looking at some more and more of the economic indicators to make sure theyre kind of patient that center contribution so what needs to be.
So obviously this year.
Because of debt increased metal cost average that impact 2021 results to the centers, that's where I think looking looking at debt.
The revenue that we're going to receive in 2022.
That does lead indicators on what gets a lot of comfort that the economics with vendors, we'll remain where we've seen them in the past hopefully north of there.
Got it so as we think about 2022, you would expect that sort of number of centers.
Greece, perhaps from where we are in terms of this on our guidance for 2021 right.
Yes, correct.
Okay.
Thanks.
Your next question comes from Kevin Fischbeck from Bank of America. Your line is open.
Great. Thanks.
We don't want to go back to the cost issue.
I guess.
It's interesting youre seeing these cost dynamics happen across the country. It seems like a lot of the managed care companies are also.
On cost pressures across different books of business.
I guess, what you're saying makes some sense about vaccinations and higher utilization, but isn't this the type of thing that you would be seeing a trend was actually accelerating net cost would be slowly getting back from a faster or they'd be higher relation in certain pockets why why isn't.
Isn't this the.
First sign of a higher trends that might impact next year's profitability too.
Well I think there is if we look at the components of the net costs.
Obviously COVID-19 hospitalization.
We hope we don't have a significant headwind of Covid operations in 2022 for a huge number of reasons right.
So hopefully we were able to NAV.
Navigate through the Delta variant and increased activation rates and get to a place where we're not talking about huge number consultations from COVID-19 in 2022.
On the so that's kind of wondering if on the other component around the non acute care elective care.
I think that.
Okay.
And there is in my mind, there's no reason to believe that you're going to see some some fee change of how people NAV.
Navigate the health care system, and the amount of care they need in the health care system.
That goes on into perpetuity.
So again I think my belief and what I know today is that that number will start to normalize over time.
Be it a little bit of elevated I'm, assuming not like we're seeing today on what you.
What you're seeing today.
People feeling much more comfortable to be part of the health care system, and I think a lot of providers, who aren't ready to see to get to get back back to you.
What they missed in 2020.
So again I think that those are those are any factories now I think the second part we said if it will.
Why don't you will see in 2022, and I would look at it slightly differently what happens we do see it in 2022 right. So I have reason to believe that these things will start reverting if.
If they don't revert I think just because of the decrease in the disease burden on our patient population, which I don't think is necessarily the same.
Let me translate that through the rest of the mass chairman going on for our.
On a pretty pretty.
Narrow demographic of patients we serve.
Cause of the increase the view burden that we're seeing the revenue will offset that level net of perhaps if it does persist in 2022.
So our hope is it reversed and we actually have expansion on margins if it maintain.
It maintains.
We're confident we'll still generate.
Strong and comparable results to what we've what we've seen historically in 2022 and beyond even at this elevated level.
Okay. That's helpful. I guess youre talking a lot about.
Margin normalization next year and rates being better next year.
The coding I guess are you.
Have any conversations with the managed care companies themselves about how their pricing for next year or how they are treating.
On your payments for next year to potentially adjust to reflect to what.
What youre seeing.
On the on the second part of the question I mean, our contracts are multiyear contracts at a percentage of premium and so to the extent that revenue per patient goes up our revenue will go up Mark set price. There's no. There's no discussions around kind of adjusted from either side.
Nor do we plan to have those.
I think on the on the FID perspective, yes, we talked to our health plans around how theyre bidding how they're thinking about it obviously.
We have a large number of health plan partners across a large number of geography. So there are.
And in the triple digits.
Health plan bid combinations.
A lot of times of the dynamics become local in health plan, depending on venture, but we certainly we certainly talk to our health plan and make sure we understand what they are bidding and kind of on.
The benefits are changing and how that impacts our economics and so yes, we feel comfortable with where they are coming out.
Generally I'll be honest, we like wind plans are putting great value proposition for our patients because that will help get more of our patients on to managed care and help keep our based on managed care.
Frankly, it makes it easier for our patients due to navigate the system appropriately without undue cost burden. So we generally walk step and what the plans are doing.
Okay. Thanks.
Your next question comes from Lance.
Your line is open.
Yes, good morning.
2 related questions on on.
On the customers and the new patients that are coming in the first 1 is on the characteristics of those patients I'm just trying to understand.
Their prior providers prior plan experiences if thats.
Any different than it was maybe with prior year tranches of new patients. The other question is really related to retention strategies.
Outlook is for retention and what your normal churn is on those patients as well.
Yes.
First question.
As far as percentage of patients who are on a managed care plan percentage of patients who were months.
So Medicare engagement providers previously.
I think what we're bringing in is generally similar.
Model is generally similar.
As Medicare advantage penetration growth across the country and if we go to market with higher Medicare advantage penetration.
The mix of people, who are coming in on Medicare advantage does go up a little bit.
I would say all of the equal we are seeing less engagement in the health care system previously from our patients than we've seen in the past.
Our patients have been the doctor in years or they use the emergency room as their primary care provider.
A lot of them go to a federally qualified health centers, where that yes, David absolutely can go to but if not low.
On to tune our relationship our doctor the panels, it's almost kind of a.
It's a different different level of care.
And so and so.
Don't think there's a huge difference from where we are getting patients.
The 1 kind of hypothesis I have.
Which I cant prove is I think.
A lot of our patients previously 2019, even before came to us and a lot of really a fun energetic community events, which I think attract people who are interested in that.
Tuition to go to those type of things, we did lots of that in 2020 properties reasons.
We met patients on a lot of other ways, but I do wonder if part of the reason we're seeing kind.
Kind of a higher disease burden of incoming patients.
Youre moving west to the people who are coming to assume a class on your meeting more people who are meeting at.
Different places that are kind of.
Kind of referrals from from.
On the case managers those types of things. So again I don't have any quantification of that but I do wonder if that's part of it which if that's the case it opens or after we get through more of a community event.
Got you and on retention strategies just.
What do you normally running for churn with these kind of patients and do you have any particular insights into this population as far as NPS scores are customer satisfaction or things like that that might indicate that they are more or less likely to be.
On a normal sort of retention.
Yes.
Yes, we haven't seen any differences in regards to retention or <unk>.
It remains very strong on all those dimensions as we've already seen.
So again I think.
The thing I'll make sure I do plan on the new patients.
While it's certainly a headwind of metal costs this year, having that higher disease burden.
And the associated in all crops coming in.
We're confident we'll keep the patients into 2022 and beyond right and we're also confident that once we get into that year, and we were able to kind of get revenue to where it should be given their disease burden.
From an economic perspective.
They'll still be.
Profitable patients et cetera, and frankly, we'll work really hard.
To bend the metal cost burn.
Net they come in with because they've been careful on that's what our model on us.
So.
And I think you can say it was unexpected as diverse so much from what we've seen historically.
But it's not something we're worried about it can't handle.
Great. Thanks.
Again to ask a question. Please press star 1 on your telephone keypad.
Your next question comes from David Larsen from <unk> Your line.
Hi can you talk a bit about your direct contracting program. How many lives do you have in that.
And how is there sort of how would a patient economics, there with respect to both revenue collected per patient and also on medical costs. Thanks.
Hi, David It's Tim Thanks for the question.
Direct contracting.
The direct contracting you mentioned this is largely consistent with what we are entirely what we discussed on our prior call which is we had.
And guidance 660, 500 patients enrolled in Q1 are expected to add about 2% to 3000 patients per quarter or right on top of that for our performance right. Now. So we're in that range from an economic perspective, those patients are performing as we expected. So the issues that we talked about here with respect to new patients is largely related to Medicare advantage patients non tracked <unk> patients.
We have not broken out the financial specifics of our direct contract and patients relative to where I may patients.
Okay, Great and then just 1 more quick follow up with regards to your legacy patients did you see a significant like 50% increase in utilization or was it more limited to simply the new patients and what I'm getting at is are we just seeing sort of a catch up in deferred and delayed care, which we've kind of.
Expected and this should sort of disappear over the next quarter or 2.
Or is there something else. So so different from your legacy patients from the new patients are you being conservative really in your guide us on.
Another way of asking this thanks.
So I think.
When I think about the new patients.
So safety Amit we don't we don't know what who the new patient is it is going to join us in a month.
And so our expectation our projection and our guide is that the.
Kind of incoming disease burden, we're seeing and the associated economics that these burden will be will be similar.
For the remainder of the year on new patients.
Then obviously when we get into 2022, we'll get the benefit of the appropriate risk score for those patients.
On an existing patients.
Again, I think the 2 trends, we're seeing as I think Tim discussed are 1 kind of in the very early part of the year higher than expected Covid admissions in the latter part of the year kind of a bounce back of elective and non acute care.
And then obviously.
That kind of the mix of that kind of happened to different different parts of the first half of the year the mix of that credit elevated medical costs.
And again, we're assuming that level of elevated metal costs will continue through the through the second half of the year.
But we think that it's appropriate just given.
Some of the unknowns around how the pandemic will progress payer provider behavior.
And I'm really just.
Some pretty unprecedented circumstances to navigate.
Certainly our hope is that some of the non elective care I'm sorry the.
Non non acute care of the elective care start to go down because people have kind of gone back to the doctor they've got on the test they're going to get.
That kind of winds itself down.
We hope that happens, we're certainly not banking on from a guidance perspective.
Thank you.
Your next question comes from Richard close from Canaccord. Your line is open.
Yes, thanks for the question.
I think you guys sort of answered this with respect to increasing the number of new centers and you talked about you don't feel uncomfortable hiring I'm just curious.
As you think about going forward.
Our second half of 'twenty, 1 and 'twenty 2.
Given COVID-19 has really.
Strained.
Health systems, and whatnot are you guys, finding a easier to attract people to the primary care side of.
Health care in terms of nurses and doctors and whatnot, just maybe being burnt out.
From health systems and whatnot.
I won't say easier.
I think that frankly article who are burnt out from health system that we have seen it.
First on healthcare.
Yes, we can try to COVID-19 some of the difference between outpatient primary care inpatient health systems, but.
I have not heard from our team on huge inflow of people that don't want to be for nurses that hospital, while we're going on.
So.
I hear the theory I don't have any data to prove it but I haven't heard anecdotally that happening.
When we do on hiring on Oak Street Health I think the Big thing, we really focus on is why we're on acute an amazing place to work.
And obviously I'm biased, but I think Oak Street is an amazing place to work in the surveys of our team members who are on the support that and so we talk about the job environment being really tough right now and it is very tough and I remember 2014, when you put on a job opening out there you have 100 applicants within an hour.
That's certainly not the case anymore. So we've really focused on is hey, we have an amazing team our team really believes in our mission believes that Oak Street, how do we leverage that team to be the team that drives referrals and drive drive new hires right.
And that is really.
Then a huge part of why we've been successful in hiring so far in the year as referrals from our team.
Especially on the provider side right, if you're very satisfied doctors to lump emission, while the support and feel great about kind of average actually had the resource to keep their patients healthy to do what they want to do like they'll tell friends from residency in trends in medical school and former colleagues are on it and Thats a great way to to grow in that kind of goes all the way down to our associates and receptionists. So.
Yes, we have central recruiting they do a great job, but.
Why that might have been enough to meet all of our hiring needs 345 years ago, now and Thats not the case.
So again I think that's an opportunity for us to really really be even more successful and further differentiate ourselves because we have invested logged on all the time and the culture and making on student phenomenal back to work and I think Youre right places that haven't don't have that foundation will drive a harder time, retaining their employees and attracting new ones, but we feel really good about our position there because we don't oak.
The right way.
Okay. Thank you.
Your next question comes from Josh Raskin from Nippon Research Your line.
Hi, Thanks, I appreciate you guys, taking the questions. So.
2 questions really firstly just process on third party medical expense notification and kind of when do you find out that your members are ya patients have sought care outside of your 4 walls and then the second is is it potentially just the new the new member issue is it potentially just a short term issue of adverse selection right I know, we see that on the insurance.
But I could imagine a scenario where.
These patients haven't had access to care as you mentioned they've used the EDI and community centers and then they see the Oak Street opportunity to get particularly.
Particularly high quality care in these great big clean sensors.
It just simply maybe in the short term you are attracting those members that have been out of the system. Most recently.
Yeah to your second question I think Thats exactly right right I think there is a.
There are more people, who are not getting the preventative and primary care they need it we weren't engaged in health care system in 2020, and so theres already access problems in a lot of neighborhoods. We serve on the go to vary very much exasperated during the pandemic I think I think you are seeing the issue there and I think we are out there on the community some of our new community. If you've never been income are betting from.
We are out there every day trying to meet people and trying to get them engaged in their health care and what we're telling them it's guidance.
<unk> you hope we take great care of your peers are.
Beautiful center, our doctors have some time with you will listen to you all the reasons why patients while it's being part of Oaktree, where we're trying to communicate that so yes, we are bringing those people in and so to the extent that more people have more issues on trade issues coming into Oak Street that yes that doesn't that doesn't impact us. So certainly I hope that that start to normalize now that they are back.
Beans, now that kind of the provider community outside of Oak Street back to kind of backup back up and running right.
The other thing I think I touched upon earlier question, but I do think I'm hopeful that if we get kind of more of the fun events and those types of things you kind of can attract some of the patients who.
Or are going to be attending again zumba classes in nutrition health EDI classes and things like that that I think just by definition kind of attract on where active healthier mix of patients.
Anil point on the new patients again, even at even if we don't even if even if this becomes the new normal.
We're very comfortable operating in this new normal these are not patients who will be I think from insurance kind of take from that you can kind of bad risk in quotes and that something that you don't want to we don't it's not a we don't want the patients. We really do want. These patients. These patients are exactly why we exist. If you take people that are not being cared for aneth.
Unnecessary operations and cost.
Take great care of them and Thats why our amount of work that's the great thing about risk adjustment. If you don't have to worry about.
Kind of.
Sure.
Population.
You can just take the patient to knee jerk, Karen and the risk growth model is set up for that reason I just flagged by year so low.
So long answer to your question, you're pacing question I'll turn it on it seems like what kind of the visibility of data et cetera.
Good morning, Josh on.
The data flow for new patients and what they are.
What their claims might look like.
In limited instances, we do get claims files from patients more typically speaking to claims that we get begins once that patient income sufficient oak Street. So we're not always privy to that patients.
Net historical medical expense. There are there are particularly if that patient came over to us already on a Medicare advantage plan a patient with came from traditional Medicare obviously theirs.
There is information available through.
Through Blue Butner Blue book, probably could probably going to turnaround there, where we can access to claims from CMS, but by and large that data. The data flow begins predominantly when that patient joins Oak Street. So for the new patients. We're talking about as Mike mentioned, there is relatively limited information that being said because of the way Medicare advantage are structured.
Those things work themselves out over time, albeit with a lag around how risk score works.
Yes, I was thinking more of just someone goes to the hospital for Covid and patient day, how long does it take for you guys define net out and what's the process alright.
Alright volume yes.
So when it comes to you.
Based upon setting of care, but typically speaking of a patient's going to the hospital usually.
1 of the first thing the hospital does contact the insurer to make sure that the patients covered and they understand the extent of the benefit hospitals, obviously want to have certainty of getting paid from the visit so as part of that process. We typically notified that that patient a patient to the hospital and that 1 alert us from a U S utilization management or prior authorization perspective, but you also activates our transition nurses team.
And other aspects of our care models that we're ensuring that we take care of those patients, but typically speaking when it ends of hospitalizations, we find that out.
Nearly in real time, when it comes to referrals to specialists.
That can vary obviously, we know when we made the referrals because that's all entered through our system.
Question is ultimately what the what's the flow through so for every referral you make how many actual visits are received and that number can move around over time, but.
We have better insight into the leading indicators to gauge from the ones actually driving that volume.
Thanks.
There is no further question at this time I would now like to turn the call labor back from Mr. Mike Baker.
Yes. Thank you operator, thank you everyone for all the questions and engagement we appreciate it.
I'd, probably leave you with.
Just the.
Certainly the core belief on our team that we've seen on at a huge difference in our patient care.
And that will translate to really strong results from Oak Street across all dimensions. It really in 2022 and beyond right and I think our goal to build a transport of organization.
Based on all the data we have we feel great about the continual evolution of the unit economics on the casino evolution of the business and so.
We remain really engaged and excited for the second half of the year and beyond thank you.
Yes.
There is no further question at this time.
Again, and this concludes today's conference call. Thank you all for joining you may now disconnect.
Yes.
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Moving on.
Yes.
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