Oak Street Health (NYSE: OSH) — a rapidly growing, multi-setting primary care company that specializes in caring for seniors, especially those in underserved communities — officially went public last Thursday with an initial offering of $328 million.
The Chicago-based company sold 15.6 million shares at $21, which was slightly above its anticipated offering of $15 to $17, according to Renaissance Capital. At that pricing, Oak Street’s value was set at $5 billion, or roughly 10 times its 2019 revenue of $556.6 million.
In part, Oak Street’s bullish IPO reflects the broader need for a better way of caring for America’s sickest, most vulnerable populations. It also underscores the opportunity and value in diversified care delivery models, particularly those wrapped around in-home care, co-founder and CEO Mike Pykosz told Home Health Care News.
“I think people realize the traditional model of primary care just isn’t delivering the results that we need,” Pykosz said.
Founded in 2012, Oak Street Health currently operates more than 50 health centers across eight states, with a heavy concentration in the Midwest. The newly public company opened its latest center in North Carolina just days before its IPO.
Despite the uncertainty of the COVID-19 pandemic, Oak Street plans to launch a handful of additional hubs in Mississippi, New York and Texas later this year, Pykosz noted. Its public offering — which likely would have taken place regardless of the COVID-19 virus — will help drive that growth moving forward.
“Our care model is really predicated by investing in our patients’ care, investing more upfront in primary care and behavioral health — the resources they need to stay healthy and out of the hospital,” Pykosz said. “Obviously, investing takes capital. By [going public] now, we bring more and more resources into the company to continue our mission of expansion.”
A meaningful experience
Generally, Oak Street Health has built its business model on the idea of “quality over quantity.” In fact, the “vast, vast, vast majority” of the company’s revenue comes from its value-based contracts with payer partners, Pykosz said.
About 45% of Oak Street’s patient population is dually eligible for Medicare and Medicaid.
To deliver on value, Oak Street doesn’t just care for patients in its centers. It also has interdisciplinary home teams to treat older adults who have mobility issues — or who just prefer in-home care.
“It’s mostly in-home primary care,” Pykosz said. “There are wraparound services more around social work support, helping patients with their medication.”
By going into patients’ homes, Oak Street’s home teams also help address fall hazards and other hospitalization risks while simultaneously evaluating any concerns related to social determinants of health, such as barriers to transportation or proper nutrition.
“The most impactful and meaningful experience I’ve had at Oak Street is doing ride-alongs with our home-visit teams,” said Pykosz, a Harvard Law School graduate and former principal at Boston Consulting Group. “When we go into our patients’ homes, we really see the kind of factors that are potentially influencing their care.”
During one home visit the CEO remembers, for example, he watched a patient demonstrate how she normally got in and out of her bathtub, using the bathroom sink to support her weight. While doing so, Pykosz said he could see the sink clearly coming detached from the wall.
“At some point in time, that was going to pull off from the wall,” he recalled. “It was going to be a fall — it was only a matter of time.”
Since its founding, Oak Streeet’s multi-pronged care delivery model has seen a 51% reduction in patient hospital visits compared with Medicare benchmarks, according to company statistics. Similarly, it has also seen a 51% reduction in emergency room visits.
Apart from growing geographically, going public allows Oak Street to continue refining that model, Pykosz added.
“One of the great parts about the IPO is it brings more resources for us to both grow but also to continue investing in caring for our patients better,” he said. “The more we invest to improve our care model and keep people healthier, the more savings we generate. We can then keep using that to reinvest and drive that flywheel.”
Expanding into telehealth
In the past, Oak Street Health has operated in two spaces: its centers and the home. Earlier this year, the coronavirus propelled Oak Street into virtual care.
“We’ve always done care in the home,” Pykosz said. “But we did very little telehealth prior to COVID.”
Early on in the public health emergency, Oak Street was doing about 90% of its visits virtually, a trend that happened across the continuum of care, partially enabled by a series of telehealth waivers from the U.S. Centers for Medicare & Medicaid Services (CMS) and other regulators.
Today, Oak Street is back to doing in-person visits, though around 70% or so of its visits are still happening virtually.
“Our patients appreciated that we were there for them at a time when they needed us and were dealing with a lot of uncertainty,” Pykosz said. “Our clinicians felt they could actually make a difference for our patients virtually, but they’re excited to see the patient back in person.”
While it will likely never be a virtual-first company, Oak Street sees telehealth visits as “a nice adjacency” to its core center-based model.
‘Variations to the same theme’
Oak Street Health reported over $200 million in revenues for Q1 2020 on its S-1 — a 72% increased compared to the same period a year ago. It estimates its annual total addressable market size as about $325 billion, suggesting there’s lots of room to grow for the Chicago company.
Its recent momentum reflects the wider interest in alternative primary care models, too.
At the end of July, Humana Inc. (NYSE: HUM) announced a strategic partnership with Heal, a Los Angeles-based in-home primary care startup with operations across seven states and Washington, D.C. The partnership included a $100 million investment from Humana, which is also one of Oak Street’s top shareholders.
Meanwhile, just a few weeks before that news, Walgreens Boots Alliance (Nasdaq: WBA) and VillageMD announced a five-year, $1 billion plan to expand full-service physician services at Walgreens stores.
“I think what you’re seeing is a lot of different variations to the same theme, right?” Pykosz said. “And that’s the need to find more convenient ways to deliver higher-quality care and engage with patients.”
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