Oak Street Health buys specialty telemed provider for $130M

Oak Street Health is generally viewed as a early entrant in the value-based clinic space, a sector that’s seen growing activity and competition in the past few years as employer and health plan clients look for ways to cut costs for their patient populations without sacrificing outcomes.

Value-based primary care operators like Oak Street have seen significant growth as more healthcare payment and delivery shifts to a value-based system, particularly in the lucrative Medicare Advantage population. That trend has translated to a major tailwind for companies equipped to manage financial risk while improving outcomes for their covered patient populations.

Oak Street enters into full-risk contracts with Medicare Advantage plans, and via CMS’ direct contracting program, in which it assumes full economic responsibility for patients’ medical expenses in exchange for a fixed per-member, per-month payment. Though the Chicago-based company focuses primarily on Medicare patients — an increasingly lucrative space as the population ages — it also provides services to patients with a variety of insurance options.

The company, which was founded in 2012, has one of the longest track records in the space, and one of the most diverse geographic footprints after years of rapid growth.

It will have 120 clinics in 19 states by the end of this year and has plans to enter two additional states, Arizona and Kansas, in 2022.

The primary care provider looks to expand into areas where there’s need — notably, a high percentage of dual-eligible patients and a low penetration of PCPs — and where it doesn’t currently have a presence, Executive Medical Director Marisa Rogers told Healthcare Dive at the HLTH conference on Tuesday, before the RubiconMD acquisition was announced.

However, that aggressive growth rollout has dragged on earnings. Oak Street, which went public in 2020 at a $9 billion valuation, has yet to make its operations profitable, a benchmark Jefferies analysts expect the provider to meet in 2025.

Oak Street’s clinic approach offers virtual and in-home care options focused on primary care, behavioral health and social worker support, while offering less ancillary and specialist services in-clinic than its peers, Jefferies says.

The RubiconMD buy is a signal the company is looking to increase its focus on specialty care as other senior-focused clinic operators scramble to increase their offerings to capture a bigger chunk of the senior population.

On Monday, primary care network One Medical — which also went public last year — launched a new chronic condition management program. The major expansion of One Medical’s services in the care management space follows the provider’s acquisition of value-based medical chain Iora Health for $2.1 billion earlier this year.

Iora’s business (like Oak Street’s) stems from steering Medicare patients into full-risk models, allowing it to capture revenue by creating savings with contracting arrangements like Medicare Advantage and the Medicare direct contracting program.

And offerings combining a virtual and physical element have become increasingly commonplace as the industry moves toward more hybrid models of care after over a year and a half of COVID-19. The U.S. primary care system is historically underfunded, and digital proponents point to how technology can be used to increase access to preventative care, hopefully reducing downstream health complications and costs.

On Tuesday, diversified healthcare behemoth UnitedHealth said it planned to roll out a virtual-first primary care product by 2021’s end combining its Optum physician network with payer arm UnitedHealthcare’s network offerings. On the same day, Amazon said it planned to expand its virtual-first Amazon Care offering to at least five more U.S. cities this year.

And earlier this month, Teladoc made its virtual primary care pilot broadly available to commercial health plans, employers and other benefit sponsors nationwide.

Dive Brief:

• Oak Street Health, a value-based primary care network for seniors, has acquired virtual specialty provider RubiconMD for $130 million, integrating specialty care into its existing care model.
• New-York based RubiconMD offers a platform providing access to medical specialists across 230 specialties, including cardiology, nephrology and pulmonology.
• The deal, announced Thursday, comes as major U.S. clinical networks increasingly build out their suite of services to jockey for employer and payer clients in the increasingly competitive space.

Healthcare Dive