Oak Street Health's stock plunged as low as 22% on Tuesday after the company posted third-quarter losses deeper than expected and revealed they face an investigation by the Department of Justice (DOJ).
The tech-enabled value-based primary care provider reported a loss of 49 cents per share in the third quarter of 2021, falling below Wall Street’s projections of approximately 45 cents a share.
The company also revealed in a filing yesterday that they received a civil investigative demand from the DOJ on Nov. 1, which stated the department was investigating whether Oak Street Health had violated the False Claims Act.
Oak Street Health stated in the filing that the department had requested information about the startup’s “relationships with third-party marketing agents and related to the company’s provision of free transportation to federal healthcare beneficiaries.”
The company provides free transportation to appointments for its Medicare patients, among other services.
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The Chicago-based primary care provider maintained that it was in compliance with all governmental regulations related to fraud and abuse, and said it intends to cooperate with the DOJ’s inquiry.
In response to an analyst’s question about the inquiry during the company’s third-quarter earnings call, CEO Mike Pykosz said Oak Street Health was “trying to get our hands around what the inquiry is based on.”
“We haven’t had any meaningful dialogue with the DOJ, so we’re still learning as well, and sharing really what we know in the statement,” he said.
The company also reported adjusted EBITDA losses of $64.3 million, nearly triple the value from the third quarter of 2020.
However, the company beat Wall Street’s revenue projections for its third quarter, reporting $388.7 million in revenue, up from the average analyst projection of approximately $357.5 million and representing a 78% year-over-year increase.
The company raised its full-year revenue guidance in response, forecasting $1.4 to $1.425 billion in revenue, up from previous guidance given in August of $1.37 to $1.4 billion.
The company also broadened its at-risk membership, which rose to 100,500 at-risk patients, 76% of its total membership. Chief Financial Officer Tim Cook said higher-than-expected medical expenses were explained in part by these new members and said the company expects at-risk patient economics to improve the longer their patients stay on the platform.
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The provider’s new health centers added to increased costs as well, the company said. The company opened 15 new centers in seven new markets during the third quarter, finishing the quarter operating 110 health centers across the country, compared to 67 centers by the end of the previous year period.
Since the end of the third quarter, the company has expanded into 123 total health centers nationally.
Oak Street Health announced on Oct. 21 that it was acquiring RubiconMD, a virtual specialty care provider with over 230 specialists.
The acquisition is unlikely to dramatically impact the company’s revenue, Cook said, but the company expects it to decrease overall healthcare costs.
“The real value is what it can do to our medical costs, our quality of care and our patient experience,” he said.
The company’s impact on the senior care market deepens with its partnership with the AARP, which named Oak Street Health its exclusive primary care provider in September.
All Oak Street Health members will receive AARP memberships on Jan. 1.
Boosted by the partnership, Pykosz said the company hopes to normalize its higher-than-usual medical loss ratio, elevated by COVID-related costs, to 2019 levels in the next year.
“We are excited to see our results when this COVID wave subsides, and we have the power of the AARP brand behind us,” he said.