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Oak Street Health CEO on IPO day spike

Oak Street Health shares are surging in its public debut. Oak Street Health CEO Mike Pykosz joins the On the Move panel to discuss.

Video Transcript

JULIE HYMAN: Another busy day for IPOs. One of them is Oak Street Health. This is a company that operates primary health care facilities for Medicare patients in the Midwest. The company raised more than $300 million in the IPO. And the shares are surging today by about 80%.

We are joined now by the CEO of Oak Street Health, Mike Pykosz. He's joining us from Chicago. So Mike, it's interesting having this conversation following on the conversation we were just having about the health care industry. What does your company offer to Medicare patients that, perhaps, is a little bit different from how the structure would have worked in the past?

MIKE PYKOSZ: Yeah, our whole model was predicated on really thinking about what do older adults-- and we really focus a moderate to lower-income older adults-- what do our target patients need to stay healthy? How do we improve their health outcomes? And I think similar to the conversation that was happening before, the cost in the US and the quality of care in the US is poor compared to other countries. And we think a lot of that's because we're not doing the things people need in primary care and preventive care.

And so we said, OK, let's not worry about how the existing infrastructure is built, what it offers to us. Let's really design a model and optimize it for our patients, and make sure we have long enough visits. We have frequent enough visits. We have a lot of services, like behavioral health, social work support outside of the traditional primary care.

And instead of worrying about what is paid for in the traditional fee-for-service world, the way we do our model, we enter in value-based contracts. So we can invest upfront, take care of our patients. And then we get paid by the money we save by keeping patients healthier.

So it's a very different approach to how we provide care, and really trying to provide the interventions and the support patients really need to stay healthy.

ADAM SHAPIRO: And do you hire the doctors at the primary care centers? Or are they contract? Do you have separate contracts with them?

MIKE PYKOSZ: Oh, we do. We hire them. So one of our focuses is really running the same model everywhere, so we have the same quality care, same patient experience everywhere. So all of our team-- doctors, nurses, community health workers, et cetera-- are all kind of under the same company.

JULIE HYMAN: And Mike, when it comes to the business model and profitability, I know the year ended the end of March, you booked revenue of around $640 million. How about the profitability of the company? Because I would think that this would be a somewhat high-cost business.

MIKE PYKOSZ: Yeah, the care model of Oak Street Health and the economic model of Oak Street Health are really based on investment, and investing up front to keep patients healthier. And the reality for Medicare as a whole-- we spend 3% of Medicare dollars on primary preventive care. We spend 2/3 of Medicare dollars on hospitalizations and other acute events.

And so our model is really predicated, let's spend lot more upfront, right, to keep people healthier, thus reduce hospitalizations. And we actually reduce hospitalizations by over half for our patients. And that's what drives our savings.

And so from a care model perspective, obviously, we can improve health outcomes, improve patient experience and quality of care for patients. And from an economics perspective, when we keep that savings, that's what can generate our margins. But, obviously, whenever you make an investment, there's a payback period later.

And so today we continue to open up more centers. We continue to bring our model to new geographies, new neighborhoods. But, obviously, that's making investments. That's why we aren't profitable today.

But we have a lot of confidence that the model is working great. We have proof points in our earlier centers, earlier vintages. But right now, and the reason we're here today doing an IPO is because we want to continue to invest to bring the quality of care we can to more people.

MELODY HAHM: Especially during this coronavirus pandemic, though, there have been campaigns-- I'm here in LA. The UCLA hospital system teamed up with a bunch of different providers here to convince patients that they still need to take care of their primary care needs. They shouldn't be afraid of the doctor anymore.

Have you had to do any of that sort of efforted marketing here, especially for older patients, who perhaps are being told to stay home at all costs?

MIKE PYKOSZ: Yeah, absolutely. We had to both do up on education to our patients. We also adjust just our model. In February, 99% plus of our visits were in person-- most in our centers, some in our patients' homes. And, obviously, we realized we couldn't stop caring for our patients, right? We need to make sure they're staying out of the hospital, make sure they're getting enough primary care.

But we really shifted a lot of the venue of care. So by April, we did 90% plus of our visits by telehealth. So still our doctor seeing their patients, but it was a different venue.

And now as we understand COVID better, we're monitoring infection of it by market, by neighborhood. Right now, we're more 70% of our patients seeing our doctors in person, the other 30 being remote. But you're kind of-- you're fluxing that mix.

But the key is if you're running our care model, our doctors are focused on their patients. And you absolutely need that level of care. We actually had more patient visits complete in April than we did in February.

So I think a lot of patients were having trouble accessing the system because they didn't want to go to the doctor. They didn't want to use public transportation. There were say-at-home orders. We knew it was extra important to keep our patients healthy and keep them out of the hospital.

JULIE HYMAN: Mike, thank you so much. Congratulations, again, on the IPO. Mike Pykosz is Oak Street Health CEO.