JPM21: Oak Street Health, One Medical CEOs explain how healthcare models can actually scale

Green van that says "Oak Street Health"
Oak Street is a tech-enabled primary care chain that specifically targets Medicare-eligible patients, particularly those in underserved communities. "We're always going to be in a high-traffic retail location, maybe in a strip mall or on a retail street," CEO Mike Pykosz said. (Oak Street Health)

You won't catch Oak Street Health putting its centers in a medical office building anytime soon.

That's what CEO Mike Pykosz said as he described the growth model for the tech-enabled, value-based primary care group during the annual J.P. Morgan Healthcare Conference on Monday.

"We break through that rumor that all healthcare is local and not a scalable business. We've been able to overcome that because of our systematic approach to these centers' development," Pykosz said. "It's much more of a retail-like model of growth."

Oak Street is a tech-enabled primary care chain that specifically targets Medicare-eligible patients, particularly those in underserved communities. The Chicago-based company went public in August, raising $328 million, has 79 locations, and began partnering last year with Walmart Health to open clinics in certain Walmart locations in Texas. The group has been picking up the pace on its growth, opening 28 new locations in 2020, from a dozen new locations in 2019. 

"We're always going to be in a high-traffic retail location, maybe in a strip mall or on a retail street," Pykosz said. "We have an algorithm to help us pick where we want to be and create a portfolio of centers to really cover the market well. All of our centers look the same. They are all about 10,000 square feet. They all have a 1,000-square-foot community room. That creates a consistent, branded feel to our locations."

RELATED: Oak Street Health opens 13 health centers in Q3 as revenue jumps 57%

Oak Street takes a de novo approach which allows for consistency in the delivery of care, but it also requires recruitment of its patient base, Pykosz said. "That's where our B-to-C marketing approach comes in," he said.

Prior to the pandemic, teams were in communities meeting with future patients face-to-face, but over the last year, the group has had to ramp up online and telephone recruitment efforts and "really educating older adults on the importance of primary care," Pykosz said. "What we find in many neighborhoods we're in, they are so underserved where they are, people are not going to doctors when they're healthy. They're not getting wellness checks."

Traditionally in Medicare, 3% of dollars are spent on primary care while two-thirds of all Medicare dollars are spent on hospitalizations and acute episodes, he said. "So what we can do is invest upfront and increase the 3% a couple of multiples, and we're reducing hospitalizations by 50%. That savings can both cover our investment in primary care as well as provide our margin. That's how the economics at Oak Street work."

It adds up to a massive market opportunity, Pykosz said. 

"We talk about our addressable market being moderate- to low-income adults who live in suburban and urban areas," Pykosz said. "So if you just take that market I described, which is where we've proven to be effective today, there's 27 million Medicare patients today who fit that description. Medicare is growing 7% a year. That represents a $325 billion revenue opportunity for Oak Street Health."