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Oak Street Health’s losses grew in 2022 to almost $510 million as the value-based primary care company, which is pending an acquisition by CVS Health, continued to aggressively pursue growth.
In comparison, Oak Street, which operates a network of clinics for seniors on Medicare, reported a loss of $415 million in 2021.
The company opened 40 new centers over 2022 and ended the year with 169 facilities in 21 states, serving some 224,000 patients.
Oak Street’s medical claims expense grew 48% year over year, mostly due to the addition of new patients. Cost of care was up 49%, as the number of Oak Street centers and employees grew, raising salaries and benefits. Meanwhile, sales and marketing was up 38%, driven by higher center-based outreach activity.
“We expect our aggregate costs will increase substantially in the foreseeable future, and our losses will continue as we expect to invest heavily in increasing our patient base, expanding our operations, hiring additional employees and operating as a public company,” Oak Street said in a 10-K filed with the SEC on Tuesday.
The Chicago-based provider brought in revenue of $2.2 billion in 2022, up 51% year over year.
Last month, CVS announced plans to acquire Oak Street for $39 a share, or $10.6 billion, as it looks to create a vertically integrated healthcare business including physicians, pharmacy, a health plan and more.
Oak Street, which was founded in 2012 and went public in 2020, has proven that its model is scalable, CVS said. The company plans to have over 300 centers by 2026, each of which can contribute $7 million in adjusted earnings at maturity, according to a release on the deal.
However, Oak Street still operates at a loss and the clinic operator isn’t expected to reach profitability until 2025 at the earliest.
In its 10-K, Oak Street outlined a number of risks related to the proposed transaction.
Along with regulatory oversight and concerns about physician attrition due to the transaction, the merger could disrupt Oak Street by hurting relationships with its business partners — including CVS rival health insurer Humana, which leases or licenses Oak Street the majority of its primary care centers, according to the 10-K.
A short list of payers, including Humana, also make up the majority of Oak Street’s revenue.
When aggregating revenue associated with health insurers through their local affiliates, Humana, Centene subsidiary WellCare and Cigna HealthSpring accounted for about 55% of Oak Street’s capitated revenue in 2022, the 10-K said. Humana alone made up 32% of capitated revenue that year.
If the merger is called off under certain circumstances before regulatory approval, CVS Health will pay Oak Street a termination fee of $500 million, according to the 10-K. If other circumstances are met — like if Oak Street accepts another acquisition proposal — Oak Street will be required to pay CVS $300 million.
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