Startups, Health Services

Primary care startup Oak Street Health goes public for $328M

Oak Street Health, which operates primary care centers for Medicare patients, went public on Thursday for $328 million. Its capitation payment model has helped the company continue on where many clinics have struggled during the Covid-19 pandemic.

Oak Street Health provides transportation to its clinics for Medicare patients. Photo credit: Oak Street Health.

Eight years after it was founded, primary care startup Oak Street Health is now a publicly traded company. The Chicago-based business, which operates primary care clinics focused on Medicare patients, raised $328 million in its upsized IPO. It’s offering 15.6 million shares at $21 per share on the New York Stock Exchange, where it is trading under the ticker “OSH.”

The funds will be used to repay a loan and for general corporate purposes, according to the company’s prospectus. A portion of the funds will also likely be used to fuel new market entries by Oak Street — the company plans to expand to New York and Mississippi by the end of the year, and opened two new clinics in Dayton, Ohio just a few days ago.

“We really believe in our model. We wanted to take this opportunity to bring more capital into the company, continue to grow and expand our model where patients need it,” Oak Street CEO and Co-Founder Mike Pykosz said in a phone interview. “This is one day on a longer journey.”

Oak Street currently operates in nine states, striking value-based care agreements to care for Medicare and Medicare Advantage patients. That model has helped Oak Street where many primary care clinics have struggled as in-person visits have dropped during the Covid-19 pandemic. More than 97% of its revenue is tied to value-based contracts, according to its prospectus.

“We’ve done a lot more of that through telehealth and other means. We don’t have to worry about what’s the reimbursement rate, do we have to change our staffing ratios,” Pykosz said. “That’s the key to our model. We can be more flexible with things like how long our visits are, or how many visits we do per day. … You have a lot of things you can do to keep patients healthier and reduce a huge amount of downstream costs, but they’re not reimbursed or are under-reimbursed.”

For example, Oak Street Health used vans to help transport patients to appointments when needed. After the pandemic started, they repurposed those vehicles to deliver meals.

“Food insecurity was a big risk for patients,” he said.

Oak Street brought in $201.78 million in revenue in the first quarter of 2020, up 72% from last year. But it also reported a $15.35 million net loss, with the majority of its expenses attributed to medical claims, which it must pay due to its capitation agreements.

In 2019, it reported a $109 million net loss and $385.9 million in medical claims expenses.  Oak Street will use part of the proceeds of the IPO to repay a $90 million loan.

Still, the company’s stock has performed well in its first day of trading, jumping to $36 per share from its initial listing price of $21. The offering is expected to close on August 10. J.P. Morgan, Goldman Sachs, Morgan Stanley, William Blair and Piper Sandler served as joint book running managers for the IPO.