OSH (2021 - Q1)

Good morning, and welcome to the Oak Street Health Fiscal First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. We note that today’s call will be approximately 60 minutes in length. Please be advised that today’s conference is being recorded. Hosting today’s call are Mike Pykosz, Chief Executive Officer; and Tim Cook, Chief Financial Officer. The Oak Street press release, webcast link and other related materials are available on the Investor Relations section of Oak Street’s website. These statements are made as of May 11, 2021, and reflect management’s views and expectations at this time and are subject to various risks, uncertainties and assumptions. This call contains forward-looking statements, that is statements related to future, not past events. In this context, forward-looking statements often address our expected future business and financial performance and financial conditions 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. Mike Pyk

Thank you, operator, and thank you to everyone that is joining us this morning. Joining me on today’s call is Tim Cook, 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 and communities. Like most of the country, it is the time of transition and an exciting time at Oak Street as vaccination numbers drives, COVID case counts drop and society continues on a path back to normalcy. Oak Street has fully vaccinated over 105,000 people and administered over 150,000 vaccine doses. This vaccination effort was an all-hands-on-deck effort. An additional -- in addition to vaccinating our patients during business, we opened up our community rooms to older adults in the neighborhoods we serve and in early spring when the demand was peaking, we kept our facilities open on nights and weekends to improve access and positively impact the communities we serve.

Thank you, Mike, and good morning, everyone. We were pleased with our first quarter as we delivered results above the high end of the guidance we had provided in March. In terms of membership, our at-risk patient base, which drives our financial performance, grew by 37% to 75,500 patients. At the end of the first quarter, we operated 86 centers, an increase of 7 centers compared to December 31, 2020, and representing 32 more centers than the 54 we operated at the end of the first quarter of 2020. Capitated revenue of $291.2 million grew 48% year-over-year, driven by growth in our at-risk patient base. Total revenue grew 47% year-over-year to $296.6 million. Our strong revenue growth was primarily driven by the increase in our at-risk patient base. I will note that $6.9 million of capitated revenue in the first quarter of 2021 was related to 2020 patient retroactivity where payers paid Oak Street a catch-up for patients managed in 2020, but not previously included on our rosters. Our medical claims expense for the first quarter of 2021 of $199.7 million represented growth of 51% compared to first quarter of 2020. $6.6 million of our first quarter medical claims expense was related to 2020, primarily related to the previously mentioned patient retroactivity. Our cost of care, excluding depreciation and amortization was $60.3 million for the first quarter, an increase of 38% versus the prior year, driven by growth in the number of centers we operate and our more team members to support our larger patient base. Sales and marketing expense was $24.1 million during the first quarter, representing increase of approximately 103% year-over-year as we continue to invest in this area to support patient growth and much larger footprint of centers. Corporate, general and administrative expense was $72.9 million in the first quarter, an increase of 200% year-over-year. The majority of this year-over-year increase is related to an increase in stock-based compensation expense, which represented $41.2 million of G&A expense in the first quarter of 2021 compared to $1.7 million in the first quarter of 2020. As a reminder, the increase in stock-based compensation is primarily related to 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.

Your first question here comes from Robert Jones from Goldman Sachs.

Great. Good morning. I wanted to ask on Direct Contracting. Tim made some comments in the prepared remarks around CMMI’s decision to close the program for new applicants. And I wanted to just get a better sense of how you think that affects the opportunity as you view it for Oak Street, specifically, obviously, as an entity that was already approved for the program. And then, you mentioned better economics potentially around the program. Just curious what specifically would drive or present those better economics for Oak Street.

Yes. On the first one, as far as CMI and then their decision to pause new applicants, we don’t think that will have any impact on us since we’re already in the program and our ability to continue to expand within the program. We’re certainly not government relations experts here at Oak Street. But, when you look at the program, take a step back, I think it is very much in line with kind of the kind of bipartisan and certainly even the kind of programs under the Obama administration of supporting providers and moving value-based care models deeper and deeper into traditional Medicare. So, my -- at least my understanding what people have related to me is it’s less of a around the support of the program. It’s much more around just a new administration that I think inherited program that was kind of just about to be implemented and really want to make sure they understood the program before they took another round of applicants. So, again, I think, at least from what we understand today, I think that we feel really good about our position within the program and the ongoing viability of the program going forward. To your second question around the economics, I think the -- it’s lots of anything that’s unexpected as far as the economics go. I think there’s just a question when there’s a new program. You can kind of do it on paper and in theory, but until you start seeing the real patients that are in the program and you start seeing more of the historical claims and the revenue flow through, you’re not totally sure, right? So, we talked about this a fair amount in prior calls around trying to triangulate around what this program will look like compared to Medicare Advantage. And I think what I would say is our belief today is that it will look very similar to Medicare Advantage, which is obviously a program we’re very successful in. But, because the government is keeping a smaller portion of the premium, our revenue per patient will be higher, although we do expect a similar increase in costs because you won’t have UM and networking some of the levers that health plans -- traditional managed care levers that Medicare Advantage plans pull to try to lower cost. And so, you kind of think about it from a net perspective, the patient contribution, I think will -- very similar to what we see across our Medicare Advantage population, but higher revenue and higher patient costs along with it. But for us, that’s a big win because we do very well on our Medicare Advantage patients. And until this program started, we obviously spent the same amount of care for our traditional Medicare patients, which I think is a really important point why we’re in such a strong position coming into the program as we’ve always provided our care model to these patients. But now, we’re kind of able to kind of get the economic rewards and the investments we make in their care.

Got it. And if I could just ask a follow-up around the centers and the plan for openings. I don’t want to get too far down the road. But you made a comment that as long as you’re able to continue as an organization to maintain and improve clinical results, patient experience, the unit economics that you consider new center openings each year -- to increase new center openings each year. Just curious if you have any initial thoughts just given how important that metric is to the forecast and the model. How you’re thinking about new center opens in 2022 and beyond?

Yes. I think, we think about increasing new centers, is almost a titration. And so, if we go through a year, and we do continue to own the same trajectory or improving our unit level on economics, and s we shared, I think, in prior calls and in our annual call a couple of months ago, we’ve actually seen our unit level economics improve year-over-year with vintages. And we really want to keep that trajectory going. If we get out of the year and that happens, then we’ll want to open up more the next year. But, we’re not going to open up 4 or 5 times as many centers, right? So, we’re giving you guys a range of 38% to 42% this year. So, really don’t expect to open up 150 or 200 next year. Could we? Probably, but I think then you risk something unexpected becoming a bottleneck. So, I think we’ll think about it more like we saw over the last couple of years, where we’ve gone from 12 to 28, now to something around 40-plus. So, I think similar levels of titration up every year where you’re increasing the number, but you’re not really tripling or quadrupling the number. So, something similar if you kind of just take out that trajectory in the next year and the year after and how we think about it.

Your next question comes from the line of Ricky Goldwasser from Morgan Stanley.

Hey. Good morning, and congrats on the quarter and the higher guide. I have one follow-up question on Direct Contracting, specifically as we think about that move of voluntary aligned patients to claim align patients after a year. What -- how do you see the impact on patient economics going forward for this population that you now manage? And then, I have a follow-up on that.

Sure. Hey Ricky, it’s Tim. Good morning. Thanks for the question. As you mentioned and folks are aware, as part of some updates in the program from CMMI over the last several weeks, they mentioned that patients that are voluntary aligned in one year will become claims aligned the next year. And there is a difference in methodology for how you calculate the revenue for each of those patients. And so, as it pertains to that change, Ricky, we actually feel as though that change will not have a significant effect on the economics for our patient population. And I won’t go into the technical details here. But, essentially because of the way that the risk score is calculated for those patients based upon looking back to a reference here, so long as the patients that you were managing in that reference year, you were managing with the same level of intensity by managing and engaging, right, seeing in the center, the same level of intensity that you do today. You shouldn’t expect a significant impact on the overall risk or for the portfolio of patients you’re serving. So, from our perspective, since as Mike mentioned earlier, our care model has been consistent across our patient population over time. We feel as though as our patients move from voluntary to claims aligned, and when they do so, this risk or cap comes into effect. As you know, less of an impact on us, given the fact that that cap is compared to historical baseline that was on a well-managed population.

And then, my follow-up question is on the activity in relationship with Walmart. I’d say, in the last few weeks, Walmart has really kind of like upped its activity in health care, launching the -- buying a telehealth asset and making some comments around sort of how they view the role in the overall health care system. Now that you have sort of the centers up and running, any sort of updates or observations you can share with us? And overall, how does the -- how do you see the opportunity with Walmart playing out?

Yes. Thanks, Rick. This is Mike. I think, the same approach and kind of criteria that we talked about from Walmart since we announced it, I think, last fall, remains, which is -- I think the hypothesis of why putting Oak Street centers at Walmart, I think, remains strong. But I think we have to test the hypothesis. And I think we’re still doing that. And for us, it’s not just about are these kind of equal to an Oak Street Health Center as far as the ramp goes, they got to be better. And they can’t just be better for the first couple of months because there’s no hype, and it’s new, it’s got to be sustainably better than an Oak Street centers. Otherwise we’ll just do centers ourselves, right? And so, we’re encouraged by the results so far. And we’ve liked the partnership with Walmart. I think our teams work really well together. So, so far, so good. But again, it’s not supposed to be -- I guess, maybe said differently, there’s such a huge opportunity to put up our de novo centers, and we feel like it’s such a massive market, and we’re really -- as we just talked about as far as the scaling goes, we really feel like we have the ability to both, continue to improve the results of every individual vintage as well as put up more and more centers every year. And so, the nice thing is we can just keep doing that and have a very, very strong growth trajectory for a very, very long period of time. And while Walmart loves to go to some more rural markets and potentially grow a little faster, we don’t need that to really, I think, be incredibly successful. So, the bar is pretty high, right? We’re not really chasing a business opportunity. I think we’re being opportunistic that can take it to another level. So, we want to make sure we have a lot of conviction around that. So, that’s how we’re looking at the opportunity today. And Walmart’s done -- Walmart, as you know, is massive, right? Just the number of employees they is to help find itself. And so, I think that they’re going to keep investing in a number of different opportunities. And obviously, on the telehealth front, they have made an investment. But that obviously is also very different than what we do here at Oak Street. So, I think, there’s plenty of opportunities to still work with them, and we are optimistic about those centers, but having obviously made a decision of what we’re going to do going forward.

Your next question comes from the line of Ryan Daniels from William Blair.

Mike, I wanted to go back to your prepared comments, you talked a little bit about a resumption to normal with some of the community marketing events. And I’m curious as we go through the back half of the year, assuming things continue to stabilize with the pandemic, will you reallocate dollars more towards community marketing, or will you continue with some of the digital initiatives you did last year, and along with the community maybe hope that, that amps up member acquisition into 2022?

Yes. Thanks, Ryan. Definitely the latter. The channel is working. It’s bringing in patients below kind of our cost of acquisition threshold. Now, we’re going to keep doing that channel because we have obviously a large amount of capacity within our centers that we can fill up. And again, as long as the cost of acquisition has a strong ratio. And when we look at kind of comps in other industries, our CAC to LTV ratio is really strong still. So, we want to keep doing those channels, right? We want to sell centers faster. And if you sell centers faster, you obviously kind of bring forward the positive economics that you see when centers get closer to full. So, I don’t -- if something is working and digital is certainly working and below our cap thresholds, we have no plans to lower the spend against it. I think, if we can -- we can find ways to put more sales and marketing dollars to work at positive CAC, we will absolutely do that. And I’m hopeful we’ll keep finding opportunities to do that. That said, we are incurring today the cost of our community marketing approach. We have our -- we call them outreach executives kind of our on-the-ground field team. They’re in every center right now. They’re out there working today. They’re not as effective as they were in 2019 pre-pandemic, but they’re getting better every month. But, I think, as society continues to reopen, and they have more and more opportunity to meet people, I think they’ll continue to get more and more effective. So, I think both, as we see opportunities to invest more in sales and marketing, we will certainly do so. But, I guess we can get the best of both world, having our central and digital -- other central channels up and running and have our field base up and running without having actually a significant increase to our sales and marketing because we’re already incurring a lot of that cost.

Okay. That’s helpful color. And then, as my follow-up question just wanted to get an update on some of the new clinical programs and initiatives that you’re planning for this year. I know you spent some time talking about those investments last quarter. So, I’d love to get an update on progress there, if any have rolled out, any early results? Just any color you can offer? Thanks, guys.

They’re in the process and some of them around additional care in the home and some more updates to our behavior health program and the kind of ESA focused program. They’re all in various stages of piloting being rolled out. And just to give you a little bit more context on what that means, when we think about a new program at Oak Street, we are constantly evaluating really dozens of great opportunities. But, what we are really, really disciplined about Oak Street is not throwing a bunch of stuff at the wall and seeing what sticks, but making sure when we do a program, we’re very methodical about it. And so, we’ll kind of think through, hey, what are the -- of the dozens of things we can do, what are the kind of three to five that we feel the most confident about? How do we then develop the program, pilot it? If the pilot works well, do a beta test. If that works out well, roll out more broadly. When we roll out more broadly, we need to make sure it’s integrated into Canopy. We need to make sure we have to report them data. We need to make sure we have incentives aligned across teams. And we’re going to change management work in the center. et cetera, et cetera. So, it’s a pretty thorough and comprehensive process. Again, I think that’s one of the really important parts about Oak Street is not just we say we have all these different programs, but we run them every center every day and tell the patients who need them. And it’s really a very consistent application of the model, which drives the consistency of results across vintages and across markets. And so, we are in that process right now, depending on which of those programs I said, different stages. But, none of them are in the stage where we’re fully rolled them out now where we really have the results to get in. So, I think we remain optimistic and the ones that are in pilot mode, the initial pilot results are good. But, it’s still too early for us to declare victory, and they’re certainly not kind of fully operational yet.

Your next question comes from the line of Sean Wieland from Piper Sandler.

My question is on the comments you made on Canopy, specifically its ability to improve accuracy of admission and mortality predictions. Just maybe if we can go into a little bit more detail on exactly what are the inputs there and what makes these algorithms unique in your ability to do that? And secondly, do these algorithms offer you the ability to predict economics of either new centers, new markets, or even down to the risk forecasting of those patients?

Yes. Thanks, Sean. So, I think I’m quite biased. But I think one of the things that makes Oak Street so impactful and so effective is the whole is much greater than sum of the parts. And so, it’s not just about doing machine learning on a big data set. I mean that’s something that many organizations can do, but it’s about the ability to really create a really differentiated data set and then do the machine learning with data set and then apply what comes out of the algorithm to actually drive action and change trajectories for patients. And so, if you think about the data elements, some are kind of your basic health care data was around claims and admissions and types of claims and things of that nature, some are basics like demographics. But a lot of the data points are things that we are understanding about the patients because we spend a lot of time with them on an intake process. So, we have a very thorough and systematic intake process that all of our patients go through. We spend 6 times as much time with new patients, like in the first 1.5 months than we do kind of an ongoing patient on average. And that allows us to really get to know the patient well and gather a huge amount of information on that. We have huge efforts to gather med records across the system, and we use kind of national processing and things like that to read the med records and we, in some cases, have coders, nurse coders who will read through them and determine kind of here’s the risk factors for the patients. Here’s why that patient has different chronic illnesses or different activity, living challenges, et cetera, et cetera, et cetera. So, really sponges for all the information we can gather. And sometimes that’s a health information exchange, at some stage, those work pretty well; some stage, they don’t. So it’s the -- I mean, health care is the only industry I know that plays the fact. We’ll get factors in, and we’ll offload those and digitize them and go from there. So, what we’re doing is really from all the third party information we can gather on our patients, plus all the information we are gathering, spending a lot of time with those patients in their first time at Oak Street. And then, ongoing, we’re spending obviously significantly more time with our patients and the average doctor. We’re creating a really differentiated data set. And part of that data set is the subjective judgment of our doctors. We want that, right? We want our doctors to use their judgment because they’ve seen a lot of patients, and there’s things that sometimes data can’t pick up that a doctor seeing the patient, spending time with them can. So, we’ll put all that together, which creates a pretty unique data set. And that’s the data set that we will do these -- use this machine learning algorithms on. And then, yes, we use it certainly more than just the two data points that I share. Those are just the two that got published in the New England Journal Medicine Catalyst article. But we -- there’s other things we can predict and other things we can analyze about our patient population. It is much more focused on the patient level than kind of the center or market level today because that’s really where care is delivered, right? And so, if we can better understand our patients and the risk going to the hospital and obviously other risk factors we also look at, we have a readmissions risk model, for example, that’s been highly predictive. If we can better identify who’s at risk, then we can spend a lot more resources to get it in front of those challenges before they happen. And the more you can pinpoint the patient at risk, the more you can intervene, and it’s a positive cycle, right? Because then you intervene and you figure out, hey, some of them are false positive. That’s okay because the ones that are real, then you can understand even more and more and more and keep investing in the right places. So, that’s kind of how we think about those models working. And again, I think it’s something that the kind of machine learning and data science is an important component, but it’s necessary but not sufficient to get this type of results. You also need the ability to pull in kind of more and different data types in the beginning, and then you need the ability to act upon that data. But if you have all three of those, you can really make a big difference.

Thanks for that. So, is it -- am I reading too much into this, your commentary around the predictive elements of the algorithms and then, you saying economics will be better than you thought in the Direct Contracting? Are those two statements related or no?

They’re related in the fact that one of the reasons we can generate really strong patient surpluses is because we’re able to identify our at-risk patients, and we’re able to act upon to keep them healthier, right, which obviously is the only reason we are able to drive on medical costs. One of the reasons we have improved kind of over time, right, and our care model effectiveness is we are much more effective at using data and identifying who’s at risk, and Canopy allows us to act upon that in a more systematic manner. So, the Oak Street care model today is better than it was 4 or 5 years and it wasn’t bad 4 or 5 years ago. It’s actually really good, but it’s even better today. And so, I think to that extent, yes, we are not saying, hey, we have these great predictive algorithms and they are predicting the med cost for our traditional Medicare patients and act, therefore, there’s our Direct Contracting. Like the improvement -- the actual real improvement in patient outcomes that drives the surplus is in part driven by -- it didn’t driven by a lot of things, but in part of my Canopy and the data algorithms. But, that’s not -- it’s not -- those things aren’t used for finance, right? So, Tim’s not the one -- the customer of those data algorithms really more about doctors.

Your next question comes from the line of Kevin Fischbeck from Bank of America.

Hey. Good morning. This is Adam on for Kevin. A quick question about the quarter, and then I have a follow-up question. With the guidance raise, how much of it was due to sequestration related to revenue and EBITDA?

So, as folks know, sequestration -- the sequestration holiday was extended from just Q1 of 2021 for -- through the remainder of the year. That is a bit of a pickup from a revenue perspective. Typically speaking, our -- the revenue we received from plans is reduced by that 2%. So, there is a bit of a pickup for the last three quarters of the year relative to what we had before. So, it’s included in there to a degree. And it also increased our medical costs for the year. So, I think from a net impact and EBITDA impact, the benefit of sequestration is relatively small. It’s essentially our MLR applied against the incremental revenue for the year. So, sequestration is in there to the degree that it impacts our business.

So, ex that, it was -- things were kind of tracking in line?

Yes. We are -- look, at this point, it’s only May, right? So, early May at that. So, we continue to be very optimistic about the prospects for the remainder of the year, as you can tell by the increase in pretty much all the metrics for -- from a guidance perspective. But, I think we’ll continue to see how things develop for the remainder of the year and update you all as we learn more.

Okay. And then my actual question is, there was a $1 million acquisition cash flow statement. It’s obviously really small, but with all the new cash on the balance sheet, just kind of wondering what the latest thinking was around M&A, and if we’re going to see more of these kind of -- I mean that’s a really small deal, but that kind of a signal of more to come.

This is Mike. I think, we’ll continue to be opportunistic on the M&A front. And I think that can take a lot of different shapes. So, in that case, it’s a very small practice that we just closed on, and we’re beginning to integrate. And when we think about M&A on a practice front, the key is we’re not going to buy things and kind of be an overlay business, right? There are people doing that. That’s not what Oak Street does. We believe the effectiveness of our care model is having it focused only on Medicare patients and having it kind of run in its full, right? And as I truly believe what I said in the last question where the whole is much, much greater than sum of the parts. And we have a lot of parts. We need to run all those parts. And so, that means we can’t just have a normal physician group that sees all different age of patients and kind of with normal staffing and just kind of put our model on top. That doesn’t work. And so, in the case where we do acquisitions, we will -- for lack -- break the practice apart and in some cases, keep running a practice that the commercial patients and younger patients, but then take the Medicare patients and see them separately. Sometimes we will wind down the practice and see the Medicare patients out of our centers. So, there’s a couple of different ways we can execute upon this. But, the key is really the doctors in the practice. And they believe in the way Oak Street practices medicine. They want to see patients with it as part of Oak Street. We can try to make -- find a way to compensate that for what they’ve built as independent practitioners, but then bring them on to our model. They’re just looking for a check for what they built. That’s not going to be a great fit with us because we practice medicine differently, and it works very effectively, but we want to -- we need to keep that from a culture and a patient-focused perspective. And so, in the case of the one that you’re referring, which is obviously was a very small practice. There was a couple of doctors who were relatively far along in their careers. Their panel was mostly Medicare patients already just naturally. And they love what we’re doing. They actually found us and said, can we -- way to work together. And so, we were able to make it work out, and it won’t -- there number of patients won’t look different than the rest of the patients we care for. So, that will be something we do. But again, we’re talking about $1 million in the big scheme of things for expenditure on that one. And so, I think there’ll be some small ones like that that are much more opportunistic. We’ll we do bigger M&A. I mean that’s not a core part of our strategy. So, it’s obviously something presents itself that we feel very strongly about we can always -- we’ll look at it. But right now, this remains the biggest approach. And I think the -- I always think about these small tuck-in acquisitions as almost an extension of our sales and marketing activity.

Your next question comes from the line of Lisa Gill from JP Morgan.

Mike, I just wanted to start with your initial comments around vaccinations. You said 105,000 people have been vaccinated. Can you talk about how many of those are your existing patients? And if there’s a potential recruitment tool? So, we bring people in, see the opportunities of an Oak Street site. So, that would be my first question. And then, secondly, I just really want to understand your telehealth strategy and how that fits into Canopy. I know we’ve talked in the past about longitudinal care, but how do you see your telehealth offering over time?

Yes. On the first question around the vaccinations, I mean, first and foremost and most importantly, we’re really proud of our vaccination effort because it really helped positive impact to the communities we serve, many of them, some of the hardest communities hit by COVID. And so, we were really glad to step up, and we were -- very early on, we were doing 1a health care workers in the City of Chicago and Cook County, other places asked us to help them vaccinate health care providers who weren’t employed with big hospital systems they were having trouble finding place them to get in. So, we’re glad they put that stuff on and did a nice weekend. So, it was a broad effort. The vast majority obviously of those 105,000 people were older adults, given who we serve. And I do think, historically, the more people spend time with Oak Street, and Oak Street, the more excited they are about it and the higher percentage of them that become patients. And so, one of the reasons why our community marketing efforts in 2019 and prior were so effective is because you really are taking something that sounds too good to be true, you’re making it real. You are taking something that people aren’t really shopping for as a consumer, and you’re helping them understand why there’s something better out there, right? And so many times, our patients are just going to the ER for their care prior to becoming a part of Oak Street. Waiting for their -- or they haven’t stocked this office, but it’s generally a qualified health center kind of a standard doctor’s office as part of the hospital system. They can’t -- it’s hard to get appointments, right? 4 weeks wait to get appointments, the employments are short and they can’t get follow-up. And that -- while they may have a doctor, right, that’s not the type of care that they need, right? And the challenge for us is that people don’t realize is on better, right? The just expectations are so low that they kind of accept them. And so, the more we can meet people, the more we can educate them about what Oak Street does and really educate them most importantly about what they need and what they should expect from care and how that will kind of improve their overall well-being. Patients are -- people are pretty likely to join patients. So, I’m hopeful we’ll see the same thing and optimistic. We’re starting to see people that met us from the vaccination standpoint. I grew up in the Chicago area and so not too far from one of our centers and the suburbs. And when people who were people I knew or old neighbors, things like that, some of them got vaccinated at Oak Street. And they were really impressed, right? And they questioned why they weren’t patients already at Oak Street. But they came back said, wow, your center is really nice, and I didn’t realize how great it was. And I was saying, guys, what am I saying you guys, what’s my mom telling you for the last seven years. She’s not bragging about your son, right? This is real. But, I think that was -- it kind of opens your eyes about how much of opportunity we have to continue to reinforce our message, our brand, what we do, because even people that really should know about Oak Street, why it is special, still really surprised when they visited the centers for the first time. And so, I think a long-winded way to say, yes, I would hope that this will become a tailwind for growth. But, I think it’s just the tip of the iceberg around what we can get back to as far as working in the community and educating people about Oak Street, now that COVID is hopefully continuing to subside. That’s about your first question. On telehealth, I think we look at telehealth -- it’s really for two purposes, right? Purpose number one is to have an option for our patients, that is more convenient for them, when they want it. And that telehealth is not just kind of a longitudinal wellness check. It’s also kind of on-demand telehealth it’s their -- if they have urgent needs. And so, it does allow us to kind of add more kind of tools in our toolkit, so to speak, to meet our patients where they are, to improve their experience and improve their quality of care. The second thing I think it lets us do is kind of more efficiently open up kind of more touch points, right? So, maybe not a full visit, right? But it’s just a quick telehealth interaction, right? I think one of the things that we are breaking at Oak Street because we’re not encumbered by fee-for-service economics, is kind of this idea about the visits with a doctor, right? And there’s kind of a very well-defined interaction as a provider visit. And a lot of that is driven by what you need to do to build that business, right? And even on the telehealth front, there’s some of that still that are billable. We really don’t care about that, right? We care about interacting with our patients and intervening when it’s necessary or kind of want to manage them and getting ahead of things. And so, when you think about that way, you can blur the lines a bit between what’s a visit and what’s not. And I think telehealth is great there because it allows you for a more personal interaction between a phone call and actually bringing someone in person. So right now, tell is a very small fraction of our business, not because we don’t want to do more telehealth, but because that’s what our patients want, right? Our patients so far have strongly preferred coming to see us in person. Part of that’s due to the demographic we serve, I think part of that is due to the relative clinical complexity of our patients. But I do think as telehealth becomes more prevalent and as people age in who are now using telehealth for the first time younger, I think it will continue to be a larger portion of what we do. But, I think it gives us a really nice complement to our model. And we really aim to have -- and I feel very strongly about this, if you have kind of a telehealth option that’s separate from the primary care option, you are creating issues with coordination; you’re creating more fragmented care. And we need to do the opposite. We need more coordination and less fragmentation in patients care. And so, that’s why we aim to have kind of a longitudinal telehealth option, which is by the same provider that provides them care in person, right? On top of that, we’re going to have the kind of more urgent telehealth option that will likely be a different central nurse practitioner, but we’ll have the same records, same care plans, team access to Canopy, et cetera. And so by doing that, we can really create a seamless experience, but more importantly, a coordinated and non-fragmented care environment for our patients across all these channels.

Your next question comes from the line of Justin Lake with Wolfe Research.

Hey. Good morning. A lot’s been covered here, but I have a few follow-ups. One, I just want to make sure I heard correctly, Mike, you said that all things being equal. I think it was response to Bob’s question around center growth, we could think about a similar increase in centers over the next couple of years relative to what you increased from ‘20 to ‘21, as long as things are kind of going similarly in terms of improving economics?

Yes. That is what I said. And if you can get right back to me, I agree with it still. So, I think yes.

Good, good. And then, I wanted to follow up on the Direct Contracting. Specifically, I think what you had said previously was that you expected the claims aligned members to be -- to have economics that were materially lower than an uncertain relative to Medicare Advantage. And now, it sounds like you expect the entirety of Direct Contracting to be kind of in line with Medicare Advantage economics. So, is that what you’re kind of seeing out there? So, the revenues that much better that we expect it all to be kind of similar to MA?

I mean, with a bunch of asterisks on it, we’re a month into the program, and we’re getting early data, et cetera, et cetera. I mean, yes, from both the more detailed methodology that we’ve now -- understand as we got more into the program as well as what we’re seeing from the initial revenue and kind of historical cost data, we feel like kind of across the book, it’ll look a lot similar to MA.

Okay. And especially on those claims aligned members, when do you expect there to be much of a ramp to the extent you’ve been seeing them per year, so you know their kind of medial issues, all that? Is this something where in the next couple of quarters, you should be able to tell us kind of what’s going on with those members, and we should be seeing them kind of running a real meaningful margin?

Yes. Justin, I think it’s a good question. I think, we are undecided at this point, and we’ll -- I hear the request, but as far as how much we’re going to break out kind of our different patient components and different patient groups. And so, I hear the question. Again, my expectation is, the contribution will look very similar from a -- to kind of our MA book overall on our contracting book. But again, I think we’re still -- we’re still figuring exactly how we’re going to report what. We don’t want to break out too granular things because 6,500 patients, like three months of 6,500 patients is not actuarially sound either, right? So, we know revenue, we know historical costs, and that will give us a good sense. But, that’s not all the book. There will be some movement that’s just driven by small numbers.

Yes. Maybe, Justin, if I could just add to that. It’s Tim. Mike mentioned this earlier, we have a lot of data on our patients, but until we see what specific patients flow through on the actual direct content rosters, it’s hard to know exactly what all the data will look like and therefore, way to get paid. And I think as we’ve gotten more data, and it’s confirmed what we had hoped to see, we’ve been more positive on what the economic opportunity could be, to Mike’s point. And then, one of the benefits, as folks know, when we take on -- take Medicare Advantage -- the new Medicare Advantage patients onto our platform, takes some time for us to document, understand their health conditions. And that flows through in the form of higher reimbursement in future years, but those are annual cycles, I could say. And direct contracts as we’ve been seeing these patients -- some of these patients for a number of years, that -- we’ve already gone through that period of time. And therefore, as patients -- as we convert into Direct Contracting, We’ll be able to have more tenure type economics in some patients that we’ve been seeing for a while. And I think that dynamic was entirely well understood when we first started talking about this program a few months ago.

Your next question comes from the line of Elizabeth Anderson from Evercore.

My first question is in terms of the cost of care as we sort of move through the year, I think you talked about, I would say some of the reopening and that kind of thing. But, is there anything else you to in terms of the pacing of that cost of care as we move through the year?

No, I’d say, -- Elizabeth, this is Tim. Good morning. It’s going to follow the timing of new center openings. So, as we open new centers, obviously, we’re going to incur the cost associated within those centers. And so, we would expect that the cost of care dollars to increase commensurately with the acceleration of new center openings in the latter half of the year.

Okay. That’s very helpful. And then, as we move through this pandemic, have you -- are there any changes in your thoughts about providing specialty care and any kind of specific areas, whether mental health or cardiology or any other kind of areas or any kind of mix shift on that front?

Yes. So, we actually already provide a large amount of care for our patients on the mental health front. We have an integrated behavior health program, including licensed clinical social workers with our specialists on the ground, and we have a team of psychiatrists to kind of support them, and we’ll provide kind of in-person psychiatry for patients in there. So, that is something we are really already doing. And it’s a pretty core pillar of our care model. The things like cardiology and things, I think these are things we’re assessing. I talked earlier about how we have dozens of things we can do every year. And certainly, one of those is cardiology. And I think if we -- the next specialist we have, I guess would be cardiology because I think it is pretty close into primary care. We’re able to get some of the benefits we’re having our own cardiology group by working with eConsult specialist. There’s a great company called Rubicon who we work who does a very nice job of kind of providing our doctors the ability to kind of have a consult with a specialist cardiology being one of them. And so cardiology is a good example of something where oftentimes, it’s not that the person needs to be seen by the cardiologists, but you really want to have the person’s test results and kind of condition run by someone who’s got a bit more expertise, especially for kind of newer primary care doctors who are less -- have less with these conditions. And so, that’s a great way to leverage kind of the eConsult business. I think over time, non-interventional cardiology could be a good candidate, something to bring on for Oak Street. But if we do it, it’s not -- certainly not to generate volume or revenue, it’s really to lower our cost by providing better coordinated and focused care for those conditions.

Got it. That makes a lot of sense. And do you use Rubicon for anything besides cardiology, or is it sort of more focused in that area?

No. It’s across specialties. And again, if you think about the type of specialists, it’s the ones that are much more like a specialized primary care visit are great candidates for eConsult. So, we see across specialists -- some specialists, you actually need to get certain testing or procedures that only a specialist can do, but when it’s more just the consultations, it’s a great tool.

Your next question comes from the line of John Ransom from Raymond James.

How should we think about -- if an MA plan, for example, has a good loss ratio quarter in March, what is the lag in terms of how you recognize, either higher or lower cost with your population, just kind of based on your true-ups and some of the natural lag in your P&L?

Hey John, it’s Tim. What I would say on that is that obviously, we were receiving plans -- data from plans on a bit of a delayed basis, right? So, a plan is going to receive the claims, process those claims and file. And so, there’s just some natural latency in that process. So, it can be roughly a month to two months depending upon the plan and the quality of the data flow. That being said, with respect to your question, as it pertains to accruing for medical costs, there’s also a factor of just how do we accrue for our patients versus what work or how do the plans accrue. Methodologies might be slightly different. At the end of the day, we’re looking at the same type of data, but the approach that might be different. And I’d say, one of the challenges that we have with the population size of 75,000 at-risk patients is very different than taking a large potential MA plan that has millions of patients. That are going to see far smaller amounts of variability in their data because they’re looking at basically national level trends, whereas we’re going to see greater volatility, given the fact that we’re looking at a smaller data set across more specific markets. So, it’s -- I would say it’s -- all of this work is more art and science, of course. But, when it comes to Oak Street compared to a national health plan, It’s going to be even more so that. The last thing I’d say is, just remember, our patients are Medicare Advantage patients on the at-risk side, and therefore, what we’re going to experience is going to be far more related to that specific population versus a more diversified payer that might have a large commercial book that might be seeing other trends in the market that might be different than what we experienced for seniors.

Okay. Thank you. And just a follow-up question. Given your pace of openings, you’re in a war for talent with respect to some scarce assets like primary care physicians and psych, people and behavioral health. Just what’s your kind of state of world in terms of being able to staff this opportunity relative to any point in the past?

Yes. I think actually, in a lot of ways, it’s very similar to how we think about patient acquisition. We need a really strong value prop for our team, and I believe we have one. And we regularly survey our provider group. And 95% of them say they recommend Oak Street to a friend or family member is a place to work and 99% of them say, Oak Street allows them to do their best work. So, we believe we have a really strong value proposition for our clinicians because they -- most clinicians didn’t go into medicine to generate fee-for-service volume. They went into medicine because they want to help people, they want to keep people healthier, and those should help give them the time and the resources to do that, and we compensate them for keeping people healthier. So, I think a lot of our clinicians really, really appreciate that. And we certainly have had success in the past and hiring great clinicians to our platform, I would say, some of the best clinicians, because they want to practice medicine differently. They understand the Oak Street model, and they really want to be part of them. So, I think that’s one of the advantages we have. We’re not relying on trying to purchase or partner with an existing practice and kind of whatever kind of clinicians and their attitudes and their talents and their culture that exists in the independent vision world we’re kind of encumbered by. We really pick and choose who we want and we think we can attract the best because of our model. And just like from a patient standpoint, we’re out there every day, and our team is out there every day and really helping to get more awareness in the physician and the nurse practitioner community about Oak Street and why we’re a great place to work. And the more people learn about us, the more we’re able to hire. So, we feel really good. I don’t know if we necessarily -- I would call it a talent war, but we feel great about our ability to hire outstanding clinicians. I think, we have an amazing clinician team. And I think we’ll keep adding to that because the value prop for them is phenomenal.

And ladies and gentlemen, that is all the time that we have for questions. This concludes today’s conference call. Thank you so much for participating. And you may now disconnect.