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Oak Street Health files for IPO

Oak Street Health, a Chicago-based company that operates primary care centers for Medicare patients, filed initial IPO paperwork on Friday. The company has not yet priced the offering, but it plans to use the proceeds to repay a loan and grow its business.

Oak Street Health, which operates primary care centers for Medicare patients, is planning its public debut. The company filed preliminary IPO paperwork on Friday to be listed on the New York Stock Exchange as OSH.

Oak Street has not yet priced its offering. The Chicago-based company said it would seek up to $100 million, though this is a frequently used as a placeholder figure for calculating registration fees. Oak Street said it plans to use the funds to repay a loan and for general corporate purposes.

Founded in 2012, Oak Street was designed to improve care for patients with chronic conditions or who might not have access to primary care.  It currently operates 54 primary care centers across eight states.

These centers are specifically designed for Medicare patients, and include benefits such as transportation to appointments, community events and access to a 24/7 patient support line.

Though Oak Street takes all Medicare patients, its main source of revenue is through its capitation contracts with Medicare Advantage plans. The company receives a monthly per-patient-per-month payment from insurers, but also shares in the risk for patients’ healthcare costs. It claims this model has been able to drive a 51% reduction in hospital admissions and a 42% reduction in readmission rates.

More than 97% of Oak Street’s revenue come from this model, which is a good thing during a pandemic where most physician practices are seeing fewer patients in person. Because of its contracts, the company was able to shift to telehealth without worrying about changes to reimbursement.

However, Oak Street could still see increased costs down the line as a result of the Covid-19 pandemic. Since it is financially responsible for its patients’ care per these contracts, it could see increased costs if its patients incur big emergency bills.

Last year, medical claims accounted for more than half of Oak Street’s expenses, at $385.9 million.

“We expect Covid-19 to affect our medical claims expense,” the company noted in its prospectus.

Oak Street currently cares for roughly 85,000 Medicare patients, and had contracts with 23 insurers, including the top five for Medicare Advantage. It brought in a total of $556.6 million in revenue last year, up 75% from 2018.

Despite its fast-growing revenue base, Oak Street has continued to operate in the red. The company reported a net loss of $107.9 million last year, up from $79.5 million in 2018. The company plans to use part of the proceeds of its IPO to repay a $90 million loan.

“We expect our aggregate costs will increase substantially in the foreseeable future and our losses will continue as we expect to invest heavily in increasing our patient base, expanding our operations, hiring additional employees and operating as a public company,” the company noted in its prospectus.

Oak Street Health isn’t the only company looking to shake up the primary care space. Concierge primary care startup One Medical went public in January for $245 million. Despite the challenges posed by Covid-19, the company’s stock has performed well since, rising past $38 this month from its IPO price of $14 per share.

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