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Oak Street has no interest in a takeover, bullish on Walmart partnership and more from CMO Ali Khan

Oak Street Health has been garnering a significant amount of industry attention over speculation it could be a ripe acquisition target in the ongoing frenzy over primary care and risk-based arrangements.

But Oak Street isn’t focused on competition or industry jockeying, and has no interest in a takeover, according to Chief Medical Officer Ali Khan. Instead, the value-based primary care provider for adults on Medicare is working to integrate lessons learned during the COVID-19 pandemic, including how to offer higher-intensity primary care consistently across a heterogeneous patient population at scale.

Healthcare Dive caught up with Khan on the sidelines of the HLTH conference in Las Vegas, where the executive shared Oak Street’s thoughts on the future of the business — including the Medicare direct contracting program, its ongoing relationship with Walmart and Oak Street’s positioning in an increasingly competitive market.

  • Oak Street has no interest in being acquired

    Primary care operators have been caught up in a surge of M&A from larger retail-focused companies like CVS and Amazon. Analyst reports have cited Oak Street as a potential acquisition target since the summer, when Amazon agreed to buy primary care provider One Medical for $3.9 billion. The frenzy hasn’t calmed since, amid reports CVS was pursuing a deal for Cano Health, a competitor of Oak Street’s.

    Earlier this month, VillageMD — a primary care company majority owned by pharmacy giant Walgreens — agreed to buy medical practice Summit Health for almost $9 billion.

    But Oak Street has no interest in a takeover, according to the CMO.

    “We’ve got a model that works, that replicates, that scales. We think we’ve got something really special on our hands. So we want to see that through,” Khan said.

    The Chicago-based company recently secured funding, with an announcement on Wednesday that Silicon Valley Bank and Hercules Capital provided a $300 million credit facility to Oak Street to provide operational and strategic capital for the next few years.

    “Obviously with the intensity of moves or almost moves that are happening right now, anything could certainly happen. But I feel really confident that the path that we’re on is one that where we’ll see a lot of great response in public markets,” Khan said.

    Oak Street’s 2020 IPO was well received, with shares up almost 91% after its first day of trading. Currently, Oak Street’s stock is down 66% from its all-time high in February 2021.

  • Oak Street is bullish on Medicare direct contracting, but needs to refine model

    Medicare’s direct contracting program, called ACO Reach, allows organizations to move into full risk in traditional fee-for-service Medicare. Khan said the program, which the CMS recently overhauled, was designed in a thoughtful way for companies trying to do meaningful social risk adjustment.

    For example, it includes policies like preferential weighting based off the area deprivation index, resulting in higher payments for companies taking care of more vulnerable patients based on where they live.

    “That has a real impact in terms of us being able to demonstrate, and hopefully incentivize others to come with us, in and around entering those communities where there just aren’t many options,” Khan said. “It’s thinking about not trying to select between 50 different measures, but focusing on two or three that are very outcome-focused.”

    Direct contracting also forces organizations to be more precise around engagement. Oak Street’s capitated revenue was hit in the third quarter by the CMS retroactively removing a small number of patients from Oak Street’s rolls after reviewing its patient panel.

    It was a small impact of $6 million, but Khan sees it as an chance to get more regimented around steps like constantly checking that rosters are updated and reconciled with the CMS. Next year, the CMS will once again look at Oak Street’s patient roster, and will drop patients from 2022 if the agency determines they shouldn’t have been in direct contracting. 

    “If we don’t get those processes right now, that can become a bit heavy and have implications over time. Better to learn early,” Khan said.

  • Walmart partnership an ‘enormous’ opportunity

    In 2020, Walmart and Oak Street announced they were opening three Oak Street clinics in Walmart supercenters in the Dallas-Fort Worth area, but little has emerged about the partnership since. Khan confirmed that Oak Street and Walmart haven’t expanded the co-located clinics beyond the original three.

    However, the two companies are in a number of discussions about a potential expansion and other ways they can work together to meet mutual goals, the CMO said.

    “We’re very excited about it in the sense that — we think the learnings from the first set of clinics, even during the pandemic, have been impressive in terms of understanding how this fits or activates within the context of a Walmart to enable programming further,” around things like nutritional counseling and pharmacy interactions, Khan said.

    Oak Street and Walmart have been in talks “for the better part of the year” on expanding the clinics, Khan said.

    “We see then the opportunity for taking that and expanding that across the country with Walmart as an enormous one. And we continue to have deep conversations about how that fits in with Walmart’s overall strategy,” Khan said.

  • Oak Street plans to go deeper in, and expand beyond, its 21 states

    Oak Street has grown rapidly since its founding in 2012, entering its 21st state this year in Colorado. Currently, the primary care chain operates 161 centers, but plans to add 30 to 40 new centers in 2023 and 2024.

    “We’re going deeper in markets that we’re already in and that we’ve recently entered,” Khan said, noting Oak Street’s geographic footprint varies widely across the U.S. “There’s a lot of places that can merit and potentially benefit from this remodeling of care.”

    There’s a lot of room, Khan said. Oak Street takes care of roughly 210,000 patients today. That membership would need to triple for Oak Street to approach just 1% of all Medicare beneficiaries.

    When thinking about new markets, the company is attracted to places with a large Medicare population and an imbalance in primary care supply, which typically appears in structurally marginalized communities, Khan said. Oak Street partners heavily within the community to seek out new patients, including through digital and analog methods like Facebook, call centers and hosting local organizations in its centers’ 1,500 square feet of community space to build trust.

    “It’s about getting that legitimacy of — it’s not just enough to put up a shingle. It’s like, how are you demonstrating that you’re here? And you’re here for the duration?” Khan said.

    The new locations drag on earnings — each center represents a more than $2 million investment — but they’re bets Oak Street expects to pay off. As individual centers mature, they bring in more platform contribution dollars and margins expand, CEO Mike Pykosz has said.

  • Too much space in primary care to be concerned about competition

    Oak Street doesn’t have a lot of geographic overlap with competitors like VillageMD, and tries to find ways to partner with other medical groups when it finds itself in the same market instead of worrying about competition, Khan said. That’s because Oak Street and value-based competitors have the same goals from a care management perspective, the CMO argued.

    “Foundationally, we’re not that worried. And I don’t say that to sound flippant. But there’s just so much to do, right?” Khan said. “Ultimately, if there are really high-quality specialists who practice high-value care in a region, why wouldn’t we all decide to work together in terms of identifying people and sending them to the right folks?”

    For example, Oak Street is in discussions with Miami-based primary care company ChenMed about potentially combining their patient volume for a joint hospital service in Chicago, where most of their clinical volume goes to the University of Chicago Medical Center.

    “We’re really excited about being able to provide that leadership of saying, ‘Hey, we’re all in our adolescence now. High school is a good time to make friends’,” Khan said.

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