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Summary

• Because new patients and new centers are loss-making, Oak Street Health economics are not readily visible via GAAP accounting.
• The pandemic has led to direct COVID costs, delayed preventative care, and decreased community outreach, all worsening unit economics.
• Unit economics for centers should be positive, once COVID abates, risk scores are adjusted, and the preventative care model kicks in.
• Even if Oak Street is found liable for a Claims act violation, the settlement will likely be relatively inconsequential (~$10 million, based on similar prior cases).
• The high growth rate and incredibly long runway for growth make for a potential multibagger.

Oak Street Health (NYSE:OSH) operates a chain of 110 primary care clinics (as of Q3 2021), mostly located in the midwest, serving 131,500 patients, with a specific concentration on elderly (>65) patients on Medicare Advantage plans.

In this article, I will discuss the shift from Medicare fee for service (FFS) to Medicare Advantage, the economics of Medicare Advantage (MA) plans, and how this shift vastly improves the economics of a primary care provider (PCP) clinic. I will discuss Oak Street's care model, which should work to attract high quality providers and staff, and Oak Street's enrollment process. I will outline the financial model, including Oak Street's gross margins at scale, and how the company ought to be able to scale operating line items as well.

I will discuss the setbacks related to the...

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