Oak Street Health Inc (OSH) 2021 Q4 法說會逐字稿

Hello, and welcome to the Oak Street Health Fourth Quarter 2021 Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. (Operator Instructions)

I will now hand over to your host, Sarah Cluck, Head of Investor Relations. Over to you, Sarah.

Good morning, and thank you for joining us today. With me today are Mike Pykosz, Chief Executive Officer; and Tim Cook, Chief Financial Officer. Please be advised that today's conference call is being recorded, and that the Oak Street Health press release, webcast link and other related materials are available on the Investor Relations section of Oak Street Health's website.

Today's statements are made as of March 1, 2022, and reflects management's view and expectations at this time and are subject to various risks, uncertainties and assumptions. This call contains forward-looking statements, that is statements related to future, not past events. In this context, forward-looking statements often address our expected future business performance and often contain words such as anticipate, believe, contemplate, continue, could, estimate, expect, intend, may, plan, potential, predict, project, should, target, will and would or similar expressions. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain.

For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include our ability to achieve or maintain profitability, our reliance on a limited number of customers for a substantial portion of our revenue, our expectation and management of future growth, our market opportunity, our ability to estimate the size of our target market, the effects of increased competition as well as innovations by new and existing competitors in our market and our ability to retain our existing customers and to increase our number of customers. Please refer to our annual report for the year ended December 31, 2021, filed on Form 10-K with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements.

This call includes non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures. For example, other companies may calculate similarly titled non-GAAP financial measures differently. Refer to the appendix of our earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.

With that, I'll turn the call over to our CEO, Mike Pykosz. Mike?

Thank you, Sarah, and thank you, everyone, for joining us this morning. Joining me on today's call in addition to Sarah is Tim Cook, our Chief Financial Officer. In this call, I'll start with a review of our 2021 performance, then turn it over to Tim to discuss more specifics around 2021 financial performance. We'll then turn to 2022, and I'll share more on our goals for the year, and Tim will provide guidance for Q1 and the full year 2022.

I want to first thank our team for their continued dedication and focus on our patients, our communities and our mission. Our team continue to navigate through a challenging operating environment, including the Omicron COVID surge and historically tight labor market, especially in health care.

Despite these headwinds, we achieved strong results across all the major drivers of performance for the fourth quarter. We had strong revenue growth driven by new patient adds in both new and existing centers. We finished the year with 129 centers, including 50 new centers opened in 2021. Third-party medical costs, which we'll cover in more detail, were in line with expectations going into the quarter despite significant headwinds from Omicron-driven hospitalizations, which were obviously not factored into the guidance we gave in early November.

Direct cost of care and corporate costs were all in line with expectations as well. The net result is a quarter in which we exceeded the top end of our guidance range against revenue, membership and adjusted EBITDA.

In the fourth quarter, we generated record revenue of $394.1 million in the quarter, exceeding the high end of our guidance range and representing a 58% growth compared to Q4 2020. For the year, we generated $1.43 billion in revenue, representing 62% growth compared to 2020. Our revenue growth continues to be driven by our organic B2C marketing approach. This includes both central channels, such as digital marketing and our core community-based outreach team.

Medical costs have trended in line with guidance we shared with you all in Q3. This, combined with cost of care, sales and marketing and corporate costs, all in line with expectations and higher-than-projected revenue growth resulted in an adjusted EBITDA loss of $228.9 million for the year, which is favorable to the top end of our Q4 guidance.

When we look back at 2021 as a whole, we exceeded our revenue, center growth and patient growth targets. Our third-party medical costs were higher than anticipated, driven directly and indirectly by the COVID pandemic, leading to lower adjusted EBITDA performance. Tim will cover in more detail how these trends progress across the year and their expected impact in 2022.

Beyond the financial metrics, we took a big step forward in 2021 and our mission to rebuild health care as it should be. We made significant accomplishments across the key components of our business. This will lead to a greater impact on our patients and communities, which will drive our future financial performance. We opened 50 new centers in both existing markets as well across 8 new states.

To put that into context, it took us 7 years to put up our first 50 centers. This expansion will allow us to serve additional communities and patients, invest in continuous improvement in our care model and patient experience and greatly increases the embedded profitability in the business.

To help mitigate 2021 headwinds in running our community-based marketing model from the Delta and Omicron surges, we markedly scaled our central marketing channel to help fill the gap and continue to see strong results from these channels. We are excited for the time when we can have both our community and central marketing channels working in concert.

We were selected by the AARP as their exclusive primary care partner, a relationship that we believe will lead to increased patient growth and retention while being a differentiator for years to come. Additionally, we continue to build on our core platform, adding new care model capabilities and services for patients, which we believe will continue to improve health outcomes and lower third-party medical costs.

For example, we published results around the impact of enhancements to our data and technology platform, such as implementing new machine learning algorithms to better risk stratify our patients. We expect the acquisition of RubiconMD will allow us to integrate their virtual specialty network into our care model, creating an innovative and differentiated approach to specialty care, resulting in improved care quality, lower unnecessary medical costs and improved patient experience.

We accomplished all of the above while navigating twists and turns of 2021. We operated vaccine clinics earlier in the year and delivered 200,000-plus vaccine doses. We navigated COVID surges in the second half of the year, while still executing against all aspects of our business. We hired thousands of team members, including hundreds of providers, despite historically tight labor markets. I couldn't be prouder of what our team accomplished in 2021, and I'm excited to see what they can accomplish in 2022.

Before I turn it over to Tim, I have 2 recent topics I'd like to address quickly. The Department of Justice inquiry that we disclosed in November and the recent announcements from CMS related to the Direct Contracting program. On the status of the DOJ inquiry, we have begun and will continue to provide documents in response to that inquiry. Our discussions with the DOJ have, to date, largely been about the scope of the request and the document collection process and not about the substance of the inquiry. As such, we are currently unable to make any meaningful predictions about the time line or outcome in this matter.

As we've said previously, we strive to operate in a compliant manner, and we will work with the DOJ in a collaborative and transparent manner as we address their inquiry. On Direct Contracting and the recently announced changes to the program. We are participants in the Direct Contracting program as it enables Oak Street to provide our care model to patients with traditional Medicare, with increased supporting services than are typically provided in primary care for traditional Medicare patients.

In fact, in 2021, 100% of Oak Street Health patients in the Direct Contracting program were located in areas designated by HHS as medically underserved mental health provider shortage areas for both. Last week, CMS and CMI announced important changes to the program aimed at advancing health equity to bringing the benefits of accountable care to underserved communities, promoting provider leadership and governance and protecting beneficiaries in the model with more persistent managing, monitoring and transparency.

Having been a Medicare Shared Savings Program ACO participant for several years prior to joining Direct Contracting, we are excited to participate in the ACO REACH program and appreciate the time and effort CMS and CMI invested to modify the program while also taking into account stakeholder concerns.

We believe these changes fit well with Oak Tree's model given the community we serve and our long-standing focus on health equity. The exact details from CMI are still pending. But as the ultimate changes are consistent with what was communicated last week, we do not expect a material impact to Oak Street.

With that, I'll turn it over to Tim to cover some more of the details regarding our financial performance in 2021.

Thank you, Mike, and good morning, everyone. We continue to generate strong growth for the Oak Street platform in 2021. To recap the year, we eclipsed $1 billion in revenue, generating $1.433 billion in revenue in 2021, representing growth of 62% from 2020.

We exceeded the high end of our initial 2021 revenue guidance issued in March 2021 by 8% and better than the high end of the revenue guidance provided during our third quarter 2021 call.

As of December 31, 2021, we cared for approximately 114,500 patients on an at-risk basis, 4% ahead of the high end of our initial 2021 guidance and above the high end of our guidance range on our Q3 call. We opened 50 new centers in 2021, increasing our total center count to 129 as of December 31. This represents 8 more centers than the high end of our initial guidance range.

Capitated revenue for the year of $1.397 billion, representing growth of 64% year-over-year, driven by increases in our at-risk patient base and our capitated rates. Total prior period development related to capitated revenue from prior years, primarily 2020, was favorable by $20.8 million, driven by the result of our 2020 full year risk adjustment payments compared to our accruals and patient retroactivity.

Other revenue for the year was $36 million, representing growth of 13% year-over-year. Approximately $6.5 million of the $36 million was related to favorable prior period developments from our performance in 2020 under our shared savings arrangements, the majority of which was related to the results of our Acorn ACO. Our medical claims expense in 2021 was $1.109 billion, representing growth of 80% compared to 2020, driven by the increase in patients under capitated arrangements and an increase in medical cost per patient. Total prior period development from prior years primarily 2020 related to medical cost was unfavorable by approximately $6.7 million, driven primarily by patient retroactivity.

The majority of these costs were directly offset by the capitated revenue prior period development. As a reminder, patient retroactivity is typical and occurs when health plans pay Oak Street retroactively for patients managed in prior periods but not previously included in our rosters and, therefore, not previously recognized in revenue for medical claims expense.

During our last 2 earnings calls, we highlighted 3 drivers of our elevated medical costs. These areas represented an estimated $110 million headwind in 2021, but we continue to believe they are direct results of the pandemic and largely temporary in nature. The first, cost from COVID admissions.

In our Q3 earnings call, we shared that in the first 3 quarters of the year, Oak Street experienced approximately $25 million of costs directly related to COVID admissions. We estimate full year COVID costs were approximately $38 million in 2021, including an estimate for the surge in COVID cases related to the Omicron variant in December. We expect January and February 2022 to have elevated costs from COVID admissions as well.

We remain focused on ensuring our patients are vaccinated and have received their booster shots. We also have programs in place to ensure our patients have access to new oral antivirals. We hope as these therapies become more available, they will be effective in reducing hospitalizations and other poor outcomes in future COVID waves for our patients.

The second element was nonacute utilization. In our Q2 earnings call, we discussed that nonacute utilization, including specialist visits, diagnostics and outpatient procedures, increased in March and April, following the vaccine rollout for older adults compared to our historical experience. We believe the increase in costs during the spring was partially driven by patients' increased comfort accessing medical care once they were vaccinated, relaxed payer standards through the public health emergency and specialist and hospital system behavior.

In our Q3 earnings call, we shared that these costs began to decrease in late spring into the summer. As the year progressed, this trend continued. Comparing to our historical experience, we estimate nonacute utilization was a $35 million headwind in 2021,, driven in large part by the elevated costs in the spring. However, we do not expect it to be a significant headwind in 2022 given the lower run rate exiting the year. This is also the cost category where we feel the acquisition of RubiconMD will have the greatest impact.

The final driver was new patient economics. In our Q3 earnings call, we discussed our new patient medical costs were elevated compared to historical levels, while per patient revenue for new patients declined to a level less to what we received for new patients in 2019, both on an absolute basis and significantly less than what we would have expected when considering premium trend. The net result is a decline of new patient economics driven by a combination of higher costs and lower revenue than what we have experienced historically.

We estimate patient contribution from new patients was $38 million lower in 2021 compared to our 2019 new patient economics. We have looked at new patient contribution by geography, center vintage, provider tenure and marketing channel, and we saw a similar decrease across all cuts of the data. For this reason, we do not believe the new patient economics in 2021 were negatively impacted by new centers or markets, but instead continue to believe the primary driver of lower new patient economics is lower engagement of adult, older adults, especially those in lower income communities by the health care system in 2020.

Lower engagement results in both higher medical costs because of unaddressed medical conditions and lower revenue because these conditions go undocumented. As a reminder, risk scores lagged by a year and depend on diagnoses captured during provider visits. Thus, the lack of engagement before joining Oak Street likely had a double effect of reducing the incoming risk score while also increasing disease burden.

As discussed on prior calls, we expect the increase in per patient revenue in 2022 for these patients who joined in 2021 to be larger than our historical experience, which we believe will largely offset the higher medical costs from these patients.

At this point in 2022, it is too early, and we have too few new patients to have a firm view on what revenue, medical costs and, therefore, patient contribution will look like for our new patients in 2022. While these 3 drivers led to higher-than-anticipated medical claims expense and, therefore, lower profitability than we expected coming into the year, we are seeing these higher costs begin to subside and continue to believe that the remainder will subside over time as COVID evolves from pandemic to endemic.

Moving on to cost of care. Cost of care, excluding depreciation and amortization in 2021, was $294 million, a 57% year-over-year increase driven by higher salaries and benefits expense from increased headcount as well as greater occupancy costs, medical supplies and patient transportation costs. The growth in these costs were related to the significant growth in our patient base at our existing centers as well as the growth in the number of centers we operate.

Sales and marketing expense was $119 million during the year, representing an increase of 86% year-over-year and was driven by a $36 million increase in advertising spend to drive new patients to our clinics as well as an increase in salaries and benefits of $17 million related to headcount growth. As a reminder, growth in year-over-year sales and marketing expense was artificially inflated as our costs were partially depressed during Q2 and Q3 of 2020 due to the pandemic, which included the temporary suspension of community outreach activities and other marketing initiatives. Corporate, general and administrative expense was $307 million in 2021, an increase of 65% or $121 million year-over-year, primarily driven by headcount costs necessary to support the continued growth of the business.

Stock-based compensation represented $156 million of total corporate, general and administrative costs in 2021 and $79 million of the year-over-year growth. Excluding stock-based compensation, corporate, general and administrative expense grew 39% compared to our total revenue growth of 62%. As a reminder, the vast majority of our stock-based compensation expense is related to the accounting treatment of equity awards issued prior to our IPO in 2020.

I will now highlight 3 non-GAAP financial metrics that we find useful in evaluating our financial performance. Patient contribution, which we define as capitated revenue less medical claims expense, grew 23% year-over-year to $288 million. We expect at-risk per patient economics to improve the longer that our patients are part of the Oak Street platform.

Platform contribution, which we define as total revenue less to some medical claims expense and cost of care, excluding depreciation and amortization, was $31.5 million, a 59% decrease year-over-year from $77.5 million. This year-over-year decrease was driven by the previously discussed increase in medical claims expense as well as the significant recent growth in our center base and, therefore, the portion of our centers which are immature.

The data we provided during our JPMorgan presentation reflected the losses we expect for new centers as their performance ramps over time. We expect new centers to generate an operating loss for the first 2 years of operation and approximately breakeven in year 3. As of December 31, approximately 60% of our centers have been open for less than 2 years and approximately 70% have been open for less than 3 years.

Adjusted EBITDA, which we calculate by adding depreciation and amortization, transaction offering-related costs, income taxes and stock or unit-based compensation, but excluding other income to net loss, was a loss of $228.9 million in 2021 compared to a loss of $92.6 million in 2020.

We finished the year with a strong balance sheet and liquidity position. As of December 31, we held approximately $790 million in cash, restricted cash and marketable debt securities. In Q4, we closed our acquisition of RubiconMD. The base purchase price was $130 million and was paid in cash. Our liquidity position will support our continued growth initiatives, primarily our de novo center-based expansion. For the year ended December 31, 2021, cash used by operating activities was $197.2 million, while our capital expenditures were $81.3 million.

I'll turn it back to Mike now to discuss our focus areas for 2022.

Thanks, Tim. Turning to 2022. We are excited to continue on our journey to transform care for older adults. Our focus for 2022 will be on our 4 core objectives at Oak Street: provide the best care anywhere, deliver an unmatched patient experience, grow the number of patients and communities we serve and be the best place to work in health care.

For the last 2 years, we have required a huge amount of nimbleness and flexibility from our teams in order to meet the needs of our patients and community. In Q2 2020, we essentially worked into a telehealth company for a time, going from near 0 to 90% of our business being virtual.

In Q1 2021, we ramped up vaccine clinics across dozens of our locations to ensure equitable access to vaccines for older adults in the neighbors we serve. I'm incredibly proud of these and many more efforts from our teams to be there for our patients and communities. In 2022, we are excited to have our teams, both at our corporate offices and at our centers, focusing on the core of what we do and advancing our performance across all of our objectives. We believe this focus will result in continual improvement to and scalability of our model.

As we shared in January during our JPMorgan health care conference presentation, we expect the Oak Street platform to drive strong center economic performance in 2022. Our expectation is that our centers that are over 6 years old will continue to be highly profitable, with a subset of these centers that have 2,300 or more average patients driving center contribution of approximately $8 million each.

Additionally, as we shared at the conference, our intermediate centers are ramping better financially than our mature centers did at this point in their maturation, and our newest vintages are starting off similar to or stronger than our mature centers from key KPIs that drive center results. It is for these reasons that we are confident in the unit economics of our centers and the return they will generate for investors while improving the well-being of thousands of patients.

As Tim will share in more detail in a couple of minutes, our new 2022 center level performance that we shared at the conference remains unchanged and is a basis for our guidance. Because of our confidence in our unit economics, the differentiation of our model and the massive market opportunity that will enable sustained growth over the next decade, we believe we can pursue a strategy that delivers meaningful near-term and longer-term value creation for all stakeholders while mitigating risk on current market volatility.

We are updating our new center target of 40 new centers in 2022. Our plan is to open 30 to 40 new centers per year through 2024. By titrating growth of 40 new centers per year over the next 3 years, Oak Street will achieve substantial growth with an expected revenue compounded average growth rate of over 40%, while reaching profitability in or before 2025.

Additionally, Oak Street will continue to grow our already substantial embedded EBITDA with embedded EBITDA of over $1 billion for centers opened by year-end 2022 and more than $1.5 billion for centers opened by year-end 2024, assuming the unit economics we shared in January.

As we have previously indicated, we have considerable control over our capital consumption through the cadence of new center growth. If we are able to further improve our unit economics, lowering capital needed over the next couple of years, we will reinvest that capital into an accelerated basis in our openings. By titrating our new center growth in this way, we believe that we will have sufficient capital to fund center growth until the business is cash flow positive without the need to raise equity capital now or in the future.

Given the recent market volatility, we think this is the most prudent path to control our own destiny, mitigate any risk for market volatility and build value for our shareholders. As noted above, we remain confident in our unit economics and the team's ability to continue to execute across the range of new center openings we've considered. We believe this approach allows us to build a fast-growing, value-creating and transformative organization with sustained compounded annual revenue growth of greater than 40% and significantly embedded profitability.

We remain excited to continue to execute our mission to rebuild health care as it should be. I'll turn it over to Tim to discuss in more detail our guidance for 2022.

Thanks, Mike. As Mike just discussed, we are setting our initial guidance for our center growth at 40 centers, resulting in year-end center count of 169 centers. We expect to care for total at-risk patients in a range of 152,500 to 157,500 and generate revenue for the year in the range of $2.1 billion to $2.135 billion, provisioning growth of approximately 45% over 2021. We expected our adjusted EBITDA loss to be $325 million to $290 million, implicit in our adjusted EBITDA loss guidance range as platform contribution performance within the range that we outlined at the JPMorgan conference for each vintage.

Recall that our JPMorgan range took into account unknowns around future direct costs from COVID hospitalizations as well as new patient economics. Our guidance incorporates the realities that there will be COVID costs, particularly given the Omicron surge in Q1 and new patient economics are largely unknown at present, given a relatively few of them at this point in the year.

Note that due to the fewer centers in 2022, we will not generate the same level of operating leverage as we would have had we opened 70 centers. We will continue to invest in our platform to drive future performance.

We will manage our 2022 new centers to minimize potential costs from delayed openings, but we do expect to incur onetime debt costs included in our guidance related to centers originally scheduled to open in 2022 that will now open in 2023.

As we look forward to 2023 and 2024, we would expect to open 30 to 40 centers in each of these years. At this pace, we will continue to strategically grow the business while minimizing the potential for a future equity raise. With performance consistent with our 2022 guidance, this pace would result in 2022 being the trough of our adjusted EBITDA losses and cash burn and will position us to be adjusted EBITDA positive in 2025, while generating a revenue CAGR from 2021 through 2025 in excess of 40%.

For the first quarter of 2022, we expect the following: total centers in the range of 138 to 139, at-risk patients in the range of 122,500 to 123,500 as of March 31, total revenue in the range of $505 million to $510 million and an adjusted EBITDA loss of $45 million to $50 million.

And with that, we will now open the call to questions. Operator?

(Operator Instructions) Our first question for today comes from Lisa Gill of JPMorgan.

Just going back to our conference, where you talked about 70 centers opening. What's really ensued in the last 7 to 8 weeks? Is it just simply the current markets and not wanting to have to go back to the equity markets to gain additional capital? Or has something else changed in the way you're thinking about center growth for 2022?

Lisa, thanks for the question. From an operational or a market opportunity standpoint, in our view, nothing has changed. As Tim noted, the range of center ramps that we shared 7 weeks ago at the conference remains the basis for our guidance.

I think we still see a huge market opportunity out there for us. In some ways, I think the change in center growth is actually somewhat driven by that size of that market opportunity. We don't feel like this is a land grab. We feel like we'll be putting up centers over the next decade and beyond. And so when we look at the market volatility, we don't want to be in a position where we had to access the equity capital markets in the future. We want to make sure we really controlled our own destiny and felt that with this level of growth, we can achieve as we discussed, very strong growth, bring up the time line to profitability and really remove the need for an equity capital raise and kind of that combination felt like the right approach to us given the volatility in the markets.

That's very helpful. And then, Mike, just a quick follow-up. You kind of brushed across the new Direct Contracting that CMS came out with. There were 2 areas that I feel people are really focused on. One, governance. Maybe you can just address that. I don't think that's an issue for you since you employ your doctors. But then secondly, how we think about risk adjustments and the cohort of patients that they're looking at.

Yes. On the governance one, I think we have the same read as you on that one that we are a provider organization. So I think the governance rules will be more relevant for organizations that are more contractual or aggregators of doctors versus between Oak Street where that's what we are. So that one, that was pretty straightforward for us.

With all things risk adjustment, the devil is always in the detail. So we'll pay close attention as more and more details are released. But our initial read is this shouldn't be a big change or impact on Oak Street. I think one of the things that's unique about Oak Street and I think we're very proud of is, we've been taking care of traditional Medicare patients since the onset of the company. And over that time period, we haven't differentiated the quality of care and the investment we make in our patients based on insurance type.

And so the type of care that patients received in 2014, '15, '16, '17, '18, '19, all before Direct Contracting was a program, was very similar. And our baseline patient population was a patient population that's directly cared for by Oak Street at that time as well. And so because of that kind of changing the reference here or kind of how you're measuring that baseline of patients has, we believe, limited impact on Oak Street, therefore, should have limited impact going forward. So obviously, as more details come out, we'll pay both attention. But our initial read is that, that shouldn't really make a big difference for us in the program.

Our next question comes from Ryan Daniels of William Blair.

Tim or Mike, maybe one for you guys regarding the archetype model that you shared recently at JPMorgan with the various vintages. And I'm curious if you could compare or contrast that to kind of where we were maybe pre-IPO a few years ago and how that's evolved. Now I realize COVID probably has an impact here that's transitory in nature, but just any commentary there would be helpful.

Thanks, Ryan. This is Tim. I'll handle that. I know there were some unintended confusion after JPMorgan regarding how the cohort data shared at that time compared to our expectations at IPO. And I kind of think of this through 3 different lenses.

The first, to the point of your question is, what has changed? Our initial model, archetype model is created in the latter half of 2019 ahead of a potential 2019 IPO that we subsequently delayed until 2020. When we updated the model in the summer of 2020, at that time, we were hopeful, like I think many in the marketplace were, that COVID will be relatively short-lived and the financial impact would be limited and also time-bound.

As we sit here today, we continue to be impacted by COVID, both via direct costs as well as indirect costs impact -- or excuse me, indirect impacts, such as the growth of our centers as well as the slower growth we experienced in 2020, which has a cumulative effect on results today.

So as we step back and think about the net present value of the center, which is how we evaluate our center performance, we believe the impact from all these changes related to COVID was about 5%. So relatively immaterial overall, just given the fact that our centers are still achieving the same level of ultimate profitability that we thought they would at the time of IPO.

The second lens is just the number of proof points substantiating our performance. So at the time of the IPO, we had 4 centers that were -- that we categorize as most scaled, and they generated approximately $8 million each of annual contribution. Today, that number is 10 centers that we expect to generate $8 million each of contribution in 2022.

Additionally, we had 19 centers today that are 6 years or older versus only 7 at the time of the IPO, and we expect those 19 centers to generate, on average, about $6.5 million of contribution in 2022. And that kind of leads me to the third, which is our IPO archetype wasn't based upon our oldest center's performance, whereas what we provided in January is based more upon historical performance and our more recent centers that are outperforming that historical performance, which is why we have a lot of confidence as we think about our future results.

Okay. That's super helpful color, clarifies a lot. And then as my follow-up, just looking at growth in the expected at-risk lives, it looks a little bit lower on an absolute basis year-over-year versus 2021. So I'm curious if you can go into some thoughts around that. And maybe as part of that, you can address just how your marketing may change here as COVID appears to be winding down and we had in the spring with things warming up. Do you expect your community-based marketing to ramp up a little bit here past Paczki Day?

Ryan, I like the reference. It's a -- that's a Chicago reference right there as opposed to a -- what you say.

[Post view], I hope.

Yes, it's great. But on the kind of patient acquisition front, our assumptions that we're using for guidance predict a similar level of kind of growth per center as we saw in 2021.

And so I think, obviously, what we're projecting to is net growth. And so there's multiple factors that go into more centers, but obviously a larger installed patient base, et cetera. Last year was buoyed by Direct Contracting coming in, in Q2, where that's obviously in the baseline starting this year. But I don't -- our numbers today aren't assuming we reach what I talked about earlier, a goal of maintaining our central channels by getting our community marketing back to where we had it in 2019.

Obviously, that's our goal. And as COVID transitions from pandemic to endemic and people become more and more comfortable beyond the communities, our hope is we can get our community events ramping back up again and really get back to the types of activities from our center-based teams as we were doing a couple of years ago. We still have the same kind of staffing and approach there. So that's really our hope operationally, but that kind of both of those working in concert if not baked into our guidance. Because there's one thing I've learned over the last couple of years, Ryan, is to stop predicting what's going to happen in the twist and turns of this pandemic.

So we're -- so we'll keep assuming kind of performance to 2021. I hope we can improve from there.

Our next question comes from Justin Lake of Wolfe Research.

This is Harrison on for Justin. I think you just touched on this a little bit earlier, but I want to make sure I'm not missing anything. If I'm looking at this correctly, currently, your 1Q risk-based patient guidance implies 8,500 patient adds in the first quarter, which would appear to imply 11,000 patient adds in each of the following quarters to hit the full year guidance. I think historically, we've kind of seen the MA member growth more weighted towards the first quarter versus the other quarters. Is there anything unique this year that's driving the shift in cadence? Is it maybe the voluntary attribution of DC patients? Or anything else to call out?

Yes. I do think Direct Contracting has kind of slightly changed the shape of growth across quarters. Historically, we had a fair amount of crucial Medicare patients coming into the AEP period, and a set of those would change from crucial Medicare to Medicare Advantage. And so they would go from nonrisk to at-risk.

Obviously, with Direct Contracting in place, a large portion of our crucial Medicare patients are in that program. And so they're already at risk. And so if those patients who are on Direct Contracting choose to move over to Medicare Advantage, right, they move -- they remain at risk, and you don't really see that movement in our numbers. So I think that what used to be a time in AEP of getting a bump at the beginning of the year from crucial Medicare patient moving to risk, the good news is those patients are already at risk. So it's an improvement overall, but I think you'll see more kind of, I would say where kind of similar growth quarter-over-quarter where you won't have as much seasonality, which, again, I think that's a nice positive for us that we can be a very consistent growth across the year versus being reliant on one period of the year.

Got it. Super helpful. And maybe one last one. Just on operating leverage. Would you mind expanding upon maybe your updated thoughts on pacing of the leveraging of the cost ratios given that you're slowing center growth and presumably still have a certain amount of overhead spread across your centers? And maybe just relative to how you're thinking about it prior to the change in centers for cadence or growth.

Sure, Harrison. This is Tim. Thanks for the question. As you know, what you're referencing is we provided a framework about G&A growth during the JPMorgan conference, that was sort of just a simple heuristic.

If you think about it on a more nuanced level, our G&A costs have -- there's a fixed component, there's a component that's more driven by patient volumes and there's a component that's more driven by center volumes. The fixed cost component obviously is what it is, so there won't be any change to that based upon the changes in the number of centers we're going to open. I'd say the patient-driven costs will not be that significantly reduced this year given the relatively few patients, the 30 centers that were pushed would have had because those are likely centers that we opened later in the year anyhow. If the center was ready to open in April, obviously, we weren't going to push into 2023 and incur the debt cost of almost an entire year for those centers.

And then on the center-based costs, there are going to be some savings here, but much of these costs are regional in nature. And while we may be opening fewer centers, that isn't necessarily fewer regions in this instance. So we were going to have 6 centers in the region before, it might be 4 today. We'll get the benefit of that in future years as we ultimately do open those incremental 2 centers in that example.

So we are still going to see nice year-over-year improvement in operating leverage, just not to the same degree that we'd expected at JPMorgan and fundamentally just given the fact that we were doing the math based on center months and there's going to be obviously fewer center months in 2022 than we had contemplated at that time.

Our next question comes from Kevin Fischbeck of Bank of America.

Maybe just to follow up a little bit on that question there. When you think about opening up 40 new sites a year versus maybe the 70 plus that you might have been thinking about previously, is there a change at all about where those sites are being opened? You mentioned you entered 8 new states this past year. Would you expect the new sites to be concentrated in states that you're already in? Or would you still expect to be entering new geographies, entering new states?

Thanks. I appreciate the question. No, I think the approach is the same. We'll open centers both in existing markets, like some of our centers we plan to open will be in Chicago as we continue to see opportunity to take care of more patients and see demand that exceeds the number of centers we currently have.

We'll also be opening up in new markets. In Q1, we opened up our first centers in Phoenix, Arizona. We'll continue to build off those. So it will be a combination of both as it was prior. Probably the way I think about it a bit more is in the 70 centers we were planning to open this year, we'll still open all of those catchments. We'll just push some of those into 2023. But I don't think the approach is different.

Okay. And then maybe just to better understand the economics of opening up new centers. Does opening up a center adjacent to an existing center, is that a better long-term investment, albeit maybe at the risk of short-term dilution from the existing or surrounding centers? Or is entering a new market kind of a better investment?

I don't think there's a huge divergence between new center in an existing market or a new center in a new market. We have -- if you look at our kind of mature centers, the first 19 we put up, the ones Tim referenced earlier, there's a huge amount of variability in the types of markets those centers are in. So obviously, a number are in Chicago, our first market. But even in Chicago, some of them are in kind of more blue collar, middle class, kind of think retired teacher-type neighborhood. Some of them are in kind of dense city neighborhoods that are -- have a much higher rate of poverty. Some of them are in predominantly Hispanic communities.

But also in Chicago, those first 19 centers are in places like Rockford, Illinois and Fort Wayne, Indiana. We have 1 center each. And those centers are actually doing quite well and are certainly in line or better than the average in those vintages. We're also in Hammond and Gary, Indiana; Indianapolis, Detroit, and all those places are part of those first 19.

And so the reason I say that is, I think our approach remains similar to go to that breadth in that type of market, both from a size and market perspective and from a kind of demographic and income perspective. And when we look at kind of the ramps of the centers, it's very, very similar because it speaks to the scalability and replicability of what we do.

And I think that a lot of way to think about it, Kevin, is almost more retail in nature. What drives your market is the -- or the center is the catchment around the center. And so whether you're going to Rockford or the South Side Chicago, it's really about who are the 20,000-or-so older adults you're trying to serve and are you able to engage in that community to bring people in? And our teams have been historically very good at that across the wide type of -- wide range of markets.

Our next question comes from Jessica Tassan of Piper Sandler.

So (inaudible) and if that's the case, can you just remind us of the impact that payer diversification has on patient recruitment, revenue and operating expenses?

To clarify, you broke up there in the middle of your question. Do you mind asking again?

Yes, sure. Does that...

(technical difficulty)

Sorry, my apologies, Jessica, your line isn't the most strongest. Is that okay if I can just disconnect your line?

Is this better?

(Operator Instructions) Our next question comes from Jamie Perse of Goldman Sachs.

I wanted to go through some of those areas of increased medical costs this year and what you're assuming for 2022. It sounds like on nonacute utilization, you're expecting that to be in line with prior trends on a PMPM basis and adjusted for vintage and all that. Just if you can confirm that. And then in the ranges, the low and high end of your guidance range, what are you assuming for COVID costs and for the new patient economics relative to prior trends?

Sure. This is Tim. Thanks for the question. I think you categorized the nonacute utilization well. I'm -- my guess is there's probably going to be some carryforward effect, particularly given Omicron and how it impacted not just patients, but more of the system's ability to manage patients.

I know even at our centers, we had a number of employees who were out because they were sick. So we'll see if there is any potential carryforward in 2022 just from the end of the year. But I would expect it to be relatively limited.

From a COVID and new patient experience, I think that it's hard to be overly specific with COVID just given the number of unknowns at this point in the year. And sitting here with the Omicron surge, knock on wood, behind us and if we look -- think back to 2021, I think when we got to May, we all felt pretty comfortable that with the level of vaccinations increasing, the vaccination rate increasing that we were doing with COVID and then we had Delta and Omicron. So we had about $35 million -- or excuse me, $35 PMPM or about $38 million of COVID costs in 2021. And I'd say that PMPM rate would be implicit at the bottom end of our range. And then new patient economics are, again, very much an unknown.

But I'd say at the low end of the range, we're assuming a similar level of experience than what we had in 2021.

Okay. There's been a lot of discussion on just the MA environment in the last couple of months. I'm just curious what you're seeing in terms of MCO pricing for MA patients and how that impacts you on a longer-term basis for your PMPM assumptions when you get to that $1 billion and $1.4 billion in contribution for your '22 and '24 centers? Just any thoughts around what's going on in the MA market and impact on Oak Street.

Yes. Obviously, the MA market, and this is a continuation of a trend that's been going on for probably a decade now. The MA market continues to get more competitive with more new plan entrants and the large existing players continue to expand into new markets and invest to grow share. And so we're obviously seeing, as I've said, well, higher benefits across markets and across plans. And so that creates kind of 2 kind of implications for Oak Street.

On the one hand, obviously, being at risk, we're also at risk for the benefits. And so if there's richer supplemental benefits or richer cost sharing, that obviously creates an expense for Oak Street. Although oftentimes, that expense is also offset by higher benchmarks and higher rates, the plans or higher Stars performance, et cetera.

The other side of it, as Medicare Advantage penetration increases, a higher percentage of the people that we mean the community are already on Medicare Advantage, which obviously helps us get a higher percentage of our patients at risk faster. And so there's also some benefits from that increasing penetration as Medicare Advantage becomes more and more compelling for people. So there's some countervailing factors there as we think about not just 2022 but into the future. Obviously, a higher percentage of our patients at risk helps. Obviously, as plans are investing, it's something we'll watch closely. But again, I think it's -- I think there are positive trends overall because what also it means is that patients, especially the patients we serve, are getting more benefits to help them to help increase their overall being. And so that's the most important thing, and that also does help us take care of them.

Our next question comes from Elizabeth Anderson of Evercore.

Tim mentioned that part of the difference in terms of how you're thinking about the model for this year versus maybe some of the expectations you laid out earlier in the year was sort of a result of the deferral of center openings originally planned from 2022 to 2023. Is it possible to sort of quantify the impact on that so we can just see kind of the run rate difference in those sort of core versus some of that, which is presumably sort of like a more onetime cost shifting to the center openings in 2023?

Elizabeth, it's Tim. Thanks for the question. I'd say for those 30 centers, as you can imagine, as Mike walked through before, our thought process on reducing the number from 70 to 40. We did not -- we were focused -- we've had great success across all the centers we opened over time, never closed the center. And therefore, as we thought about one versus another, we are fairly indifferent with rare exception. And therefore, we had a mind towards what can we move most effectively, both from a team bandwidth perspective as well as a cost perspective into 2022.

As you can imagine, the centers that were slated to open earlier in the year, by and large, are going to open earlier in the year. And the centers that were moved to 2023 were centers that we're going to probably open later. So on average, those centers were going to have less of an impact in 2022 from a loss perspective than what an average new center might have in 2022.

From a debt cost perspective, I'd say it's going to be probably approximately about $5 million of costs that we'll incur in 2022 that we otherwise wouldn't had we opened 70 centers. Obviously, the benefit is we would have lost far more than that on the 30 centers that we are no longer going to open.

Got it. That's helpful. And I know you've been helpful in providing us updates previously. Do you have anything to say in terms of the hiring market in terms of both doctors and then for sort of the other clinical staff at each of the centers in terms of just sort of wages and hiring pace?

Yes. It's certainly a more challenging hiring market than we've seen in the past. But from a provider standpoint, provider hiring has obviously never been easy. There's been a shortage in provider since the day we started Oak Street, and we've had a lot of success over the past months and year, continuing to expand, continuing to hire more providers, both for new centers and also more providers to give us capacity to existing centers. And I think that speaks to our team and our provider service team that does that work, right?

And for us, we really feel like we have a differentiated value proposition for our providers because we thought we have a great value prop for our patients, where they can really practice medicine the way that they want you to help care for patients. They have all resource to help them care for patients. Their incentives are all against quality of care versus volume, et cetera. And we see that in our scores, right, where 95% of our providers say they recommend Oak Street as a place to work to friends and family and 99% of them say Oak Street allow them to do their best work, and we're very proud of that.

And so I think that despite, I think, a tough labor market to hire in, I think that value proposition allows us to keep hiring and be successful in this environment. And so our recruiting -- I mean, the trouble if I said it was easy, our recruiting team would be outside this door waiting for me. But they're doing a great job in a tough environment and kind of allowing us to continue to execute. And so, so far, the labor shortages haven't had an impact on our ability to hit our goals.

And that's true on the other clinical staff and sort of as well as the provider sort of level?

Yes. I think that -- I obviously highlighted providers, but I think that same concept is here across the board.

(Operator Instructions) Our next question comes from Jessica Tassan of Piper Sandler.

So curious to know if 2022 is the first year where Oak Street has 0 exclusive centers. And if so, just what's the impact of that payer diversification on patient recruitment revenue per patient and OpEx at the impacted cohort in 2022?

Thanks for the question, Jess. We haven't opened exclusive centers up for a number of years now. That was really something that was -- we did a large number of them in 2015, 2016 and in 2017 at a very different period of time for Oak Street. And it was a learning experience, and I think we learned as I think you kind of alluded to that. It's harder to grow centers that are exclusive, and so that impacts the economics.

And so we also didn't have any last year, the year before that or I think the year before that either. So I think that the kind of ramps we shared 7 weeks ago, that's kind of our expected ramp going forward and that kind of takes into account these are all multiplayer centers. And we actually highlighted in that presentation kind of what centers look like, what the cohorts look like without the exclusivity. So I kind of would guide you to the nonexclusive boxes in that presentation.

Got it. I thought there were a couple still rolling off this year. That's my mistake. And then just as a follow-up, can you clarify the $190,000 sales and marketing plus G&A per month per center? Is it still kind of the correct way to think about OpEx in 2022 given the much lower center growth?

Jess, it's Tim. Thanks. I'd say that $190,000 number that we provided a few weeks ago is more -- was contemplated more center months in the year, obviously, going from 70 to 40. We are still going to need to make many of the G&A investments we're otherwise going to make. So based on my earlier comments, that number will be higher.

I believe, I'm doing this from memory, that, that number in 2021 was about $215,000. So it won't be that high. We'll still see some year-over-year leverage, but it won't be as low as $190,000 just given many of those costs we will still incur.

Our next question comes from Gary Taylor of Cowen.

I think that last answer sort of hit on what I was wanting to get after just from a little bit other angle. But when we think about your archetype with the lower center openings, it looks like platform contribution would kind of be targeting around $80 million this year? And then I'm presuming the $35 million EBITDA range in your guidance is probably more around the platform contribution than the G&A spend?

Yes. Yes, that is correct, Gary. I'd say the range is really driven by the 2 variables that I mentioned around COVID costs and new patient economics. There is -- we have a high degree of control over our G&A expenses as well as our sales and marketing. And so those -- there's relatively little range for that included in the guide.

Got it. And then just a follow-up. AR days were up a lot sequential and year-over-year, but also days claims payable or just your third-party medical expense payable was up a lot year-over-year and sequentially. I know usually that medical claims is more tied to health plan final settlement timing less so than you're reserving, but can you comment on either one of those, the AR days or the medical claims days?

Gary, I apologize if you hear some sirens in the background. We had a car accident outside our office. But the way our contracts work, and I'll be brief and happy to follow up with folks if there's questions. For some of our contracts, we are paid, I'll call it sort of on an ongoing basis, where we're making an estimate of what our surplus is, our surplus being the premiums that the plans would pay to Oak Street less the medical costs that are being paid to third-party providers.

And so for some of our contracts, we're paid sort of an estimate of what that net amount will be because obviously, you don't ultimately know what that net amount is until all the medical claims are settled for a period. That's about half our contracts. The other half are paid more in a manner where we're giving a payment upfront by the health plan that covers some fixed costs. It's an arbitrary number, call it $150 PMPM. And then what we're doing is we're settling up that $150 relative to our actual surplus performance in arrears.

Because of the way the accounting works, until that -- until we settle with the health plan for that period of time, we're carrying that full balance of both the receivable related to the revenue and the payables related to medical claims. And so you're going to see that build up over time. It's actually not IBNR. It's just a function of how those contracts settle. So there's nothing unusual in there or different in Q4 than there would have been in periods past other than the fact that we're continuing to grow the business, and that's obviously going to grow those amounts.

And Direct Contracting is also going to factor that a bit at year-end because it's a bit of a different flavor, but more akin to that last -- excuse me, the second structure I mentioned where we're not getting paid an estimate from CMS as to our performance.

Our next question comes from Ricky Goldwasser of Morgan Stanley.

So when we think about slower center growth '22, '23, '24, this is a compounding effect, right? It adds up to hundreds of centers ultimately. So how does that impact your long-term top line targets beyond 2022 is my first question.

And then second question, just going back to the question about labor and you being successful in hiring physicians, which clearly is great. But it would cost i.e., what are you seeing in terms of wage inflation? And how does that impact sort of your '22 guidance in SG&A trajectory?

Yes. Thanks, Ricky. On the first part of the question around the growth, maybe just [a normal question], but I wouldn't say it's hundreds of centers impact. If we're thinking 70 centers and now we're updating that to 40 centers, over the 3 years, it would be 30 centers here or 90 centers. So it is a decrease, but we'll still have, by the end of 2024, we'll still have 250 centers, and that should give us an embedded EBITDA of over $1.5 billion. So still building a large profitability.

And then from a revenue growth rate, we think that the compound average growth rate over the next 3 years will be 40% plus. So again, we still think it will be a robust revenue growth rate. To your second question around at what cost, I think our physician compensation packages have remained similar to what they have been in the past. We haven't changed them in a meaningful way. Obviously, we always have cost of living increases every year and have small adjustments. But as Tim shared in the guidance, right, it's still based on the same range we did for the JPMorgan presentation.

And one other note I would say about inflation, this is more of a longer-term view. But Oak Street is actually very insulated from inflationary pressures in health care in the longer term because our revenue is derived from the benchmark costs, right, for Medicare. And to the extent that there is higher cost for labor in health care, right, whether that be doctors or nurses or medical systems, et cetera, right, that will directly impact the cost to traditional Medicare, which obviously directly impacts the benchmarks, right, which directly impacts our revenue.

And so obviously, in any given year, the benchmark doesn't automatically increase real time. So it may have some headwinds and tailwinds at any given year. But if you think about in the 2-, 3-, 4-, 5-, 6-, 7-year period of time, any inflationary pressure that the whole health care market is feeling may be felt by Oak Street, but it will be offset by an increase in our revenue.

And actually, think about it very simply, the cost of hospital admission will go up to the extent that health care labor costs go up, and that means the value of the compensation we save will also go up.

Our next question comes from Brian Tanquilut of Jefferies.

It's Jack Slevin on for Brian. Not to belabor it on SG&A, but -- and maybe I'll ask the question in a slightly different way. We're shaking out at about a $30 million gap. That is SG&A is $30 million higher at the high end of your guidance range versus the low end, assuming that the cohort data you provided is consistent for the low and higher end of the range you had provided previously. So I guess I just want to understand what's sort of driving that delta?

And I know, Mike, you alluded to it a little bit in terms of the variable costs that are in those buckets. But is it more sales and marketing to hit a higher patient number? Is it systems cost that comes in on a per member basis? I guess any color to help us bridge that gap would be helpful.

Jack, it's Tim. Maybe best to compare notes on -- I'm not exactly certain what numbers you're using to get to that. As I mentioned to -- I think it was to Gary, we have a relatively narrow range for assumption around G&A and sales and marketing between the high and low end of the range. So I'm not certain if it is something -- my guess is it's something, whatever is driving that is more on platform contribution. Maybe we'll just refine assumptions around what's going into that number because I wouldn't expect to see that wide range on the -- for G&A and sales and marketing.

Okay. Got it. Yes, no worries on that. And then maybe just a quick follow-up. I think an interesting point on conversions from Direct Contracting to MA. I guess along that line, have you seen conversion from either MSSP lives under Acorn into MA consistently? Or anything from Direct Contracting in '21 over into '22? Is that something that's actually happening and worth noting? And if so, how should we be thinking about impacts on PMPMs?

Yes. Historically, we've always seen some patients who will be on traditional Medicare and choose Medicare Advantage. And obviously, there are some patients who are Medicare Advantage that move back to traditional Medicare. It works both ways. Although, in general, we see a net kind of increase in the number of patients who issue MA compared to those that move back out of it. And that obviously might grow for Oak Street. But that's a macro trend across health care over the last decade as MA penetration continues to increase. So we certainly see that.

And Direct Contracting or the Medicare Shared Savings Program ACO was obviously a claims-based alignment. So the patient, frankly, you generally didn't know that existed or that were part of the program in the shared savings program. And so that program has zero impact on the patient's choice of health plan coverage, right? So definitely, whether we had shared savings or not is relatively irrelevant to how the patient thinks about their health plan coverage. And Direct Contracting, it's a little more known to the patient because they have to sign a form of voluntary line. A lot of them do, some of them are so claims aligned.

But from a patient standpoint, Direct Contracting and now the ACO REACH next year, it doesn't have an impact on what the patient gets from. There's no -- it's not an insurance coverage. It's not benefit. It's about how we get paid. And so a patient still have the same choice, is Medicare Advantage a better way to get my Medicare coverage than traditional Medicare, right? So that choice hasn't changed just because Oak Street gets paid differently for the patient's care. And so that's why I think you still see the same movement you've seen in past years.

Our next question comes from Whit Mayo of SVB Leerink.

Can you guys just spend a minute on just the competitive landscape? I mean we're obviously seeing more providers put a strategy around primary care, and it just feels like perhaps we're seeing a little bit more capacity in some of your legacy or new markets and just obviously, a lot of new look-alike Oak Street models, which is flattering and probably frustrating at the same time. I guess I'm just trying to get a handle on how this is maybe coloring your views internally about some of the economics in your existing legacy markets in future markets. Just how do you guys think about what feels like more and more people sort of encroaching on your turf?

Yes. I appreciate the question. Look, I think overall, I think we think it's a positive, that more and more people are entering value-based care and investing in value-based care because it is the right answer for health care. And we need higher quality at a lower cost in this country.

And so I think one of the things that we're proud of at Oak Street is that there are, and to use your term, look-alike, out there because that means we're helping catalyze change, and so we think that's great. There's a lot of, obviously, investment in the space and different groups in the space. But there's a huge variety of how people are addressing the problem, how they're going to market and their relative performance. And so value-based care was around long before Oak Street started, and it's hard to do what we do.

And I think we've really proven out a level of success and scalability. And so from our perspective, the market is still massive. As many -- as much as you hear kind of noise around different groups doing things, et cetera, a lot of them aren't center-based models, are more partner with existing provider groups, which we don't really feel like is actually competition per se because from a patient perspective, their experience is still the same, right, even if their doctor gets paid differently.

So from our perspective, it's all about creating a really compelling patient experience, which is what really drives our growth. And so I think a lot of the groups that are attacking the problem, I hope they're very successful. But they're really not doing it the same way we are, and we don't think it's really directly competitive. And even the small number of groups that are more similar to Oak Street and kind of more center-based model, we're all just a drop in the bucket compared to the number of providers out there.

I think we shared in JPMorgan, there's something in the magnitude of 450,000 kind of primary care doctors and primary care nurse practitioners at this time. So even [with folks] we had 1,000 full centers, right, with fixed care teams each, we would still be like 1%, 1.5% of the total providers out there. So -- and again, we're a long way from 1,000 full centers at this time.

So again, I think that just highlights the massive size of the market. And so I think it's great more people are doing it. And I think over the next decade, our hope is us and others can really transform the way care is delivered and along the way, really lower cost and improve quality for this country.

Our next question comes from Sarah James of Barclays.

Can you guys talk about what you're doing to drive earlier new patient engagement? And when you think about profitability in '25, does that assume any change to first year cost of care for new members or earlier patient engagement?

Yes. So on the patient engagement front, I mean, one positive aspect of the way we grow, right, in the B2C model is kind of by definition, patients are coming to Oak Street and they're engaged when they start, right? They're coming in with what we call a welcome visit and they come back a couple of weeks later with what we call appropriately a welcome back visit, and then we get into kind of regular cadence of care. And the reason why we see them so often in the beginning, we're really trying to understand what their conditions are, what the risk factors are and make sure they're in the right programs and risk stratify the right way. We really invested a lot over the last couple of years in our data and risk stratification process.

And so we actually published a paper in New England Journal of Medicine's Catalyst publication, I think about a year ago or so now, that talks about how we're using machine learning, a lot more data points to kind of better risk stratify patients. And that makes a big difference in kind of understanding [who of that list] go to the hospital and how do you make sure they have the appropriate resources available to them. So that has been a focus and, obviously, will continue to be a focus to really make sure we're taking great care of people when they first come in and making an impact quickly on their care.

But I think different than like say a health plan or kind of a partnership model, we're not coming in and then starting from scratch kind of with a population of patients. It's one by one as we add patients and make an impact on them. And so thinking through to the projections through -- there's no, what I would say, kind of assumptions of performance improvement kind of embedded in that plan to get to profitability by 2025.

I think our -- kind of how we built our assumptions, how we are performing today is how we'll continue to perform. And that's how we kind of created the plan, whether it's the growth rate or profitability by 2025 or before, or kind of all the different components of that.

And so obviously, we'll keep focusing -- our team will keep focusing on improving across all dimensions, right? That's the right thing to do for our patients. And obviously, we'll also drive better performance. But there's no kind of assumptions around that performance improvement built into what Tim shared.

Great. And a follow-up is you've mentioned a couple of times new center cohorts are progressing a little faster towards profitability than old cohorts. Could you give us any color on why that's happening and if you expect that trend to continue?

Yes. Look, we are a much more effective organization today than we were in 2013, 2014, 2015, 2016, when -- so if you look back and you say the 19 centers we opened up in those years, obviously, they're making, as Tim said, kind of $6.5 million this year in contribution and the ones that are closer to full are making $8-or-more million.

Those centers were started in that period of time, right? And so we are better across the board, whether it's our care model has more programs, is more robust. We use data better, we have better technology, we have better training. Kind of across the board, I think we are better at operating than we were in those days. And so we are seeing improvements in our 2018 and 2019 vintages despite being much bigger vintages than the ones -- than the earlier ones ramp much faster. I mean we shared that data in our presentation 7 weeks ago.

You can see kind of the ramps is at light-years for those centers. And then when we look at the 2021 and 2020 centers that we just relatively recently opened, if you look at the KPIs, whether it's kind of care model metrics or kind of the growth metrics are kind of similar to or better than those same centers. So I think that one of the things that gives us a lot of confidence going forward is that obviously, the return from those early centers, right, they're very profitable, they're working very well. And we feel like the model is better than it was then, and we have a lot of data to support that. That's what gives us confidence that all the [tenants who open now] will in 3-year, 5 or 6 years, depending on what -- when they opened, will be at that kind of $6.5 million, we mentioned that $8 million contribution range.

Our final question for today comes from David Larsen of BTIG.

Congratulations on publishing your EBITDA breakeven timeline. Just one quick question. For fiscal '23, the Medicare Advantage advance rate notice look pretty good in terms of expected change in revenue for MA plans coming in well above 2022. Just any thoughts around that. And I guess, what are you modeling in your longer-term plan for growth in revenue per capitated patient? Like if it's anywhere near 8% in '23, would that be above, in line with? Or how would that compare to your model?

Thanks. Appreciate the congrats. On the 2023 rate notice in revenue, I think one thing to always keep in mind is that we are one step removed from kind of the benchmarking rate changes because the health plan is in the middle. And the health plan actually provides a buffering mechanism when you think about Oak Street economics.

And so to the extent that rates go up, generally, plans will take some of that increase and they'll invest it in better benefits for patients, which obviously, to the conversation we had earlier in the call, is a net benefit, right, because it will drive more MA penetration and more patients on risk for Oak Street.

But from an economic Oak Street perspective, even if our revenue goes up, so are our medical cost will end up largely offset. And so same thing happens if there's a worse rate increase notice, it wouldn't have naturally a negative impact on our per patient economics because the same offering mechanism exists. And so again, I think we are less sensitive to those types of things than say a health plan.

And so from a patient revenue growth rate, I think we had a higher step-up in 2022 from 2021 than we would see in an average year. And that is in part because we have a full year Direct Contracting. And obviously, without the plan in place, Direct Contracting is a higher PMPM revenue than a health plan would kind of in the same risk score.

And then number two, as we talked about pretty extensively, as you know, we felt that our patient base, especially new patients, were very under-documented in 2021 driven by lack of engagement with the health care system in 2020.

And so obviously, now that we've had a chance to understand the patient's conditions and then document accurately in 2021, we're kind of reversing out that under-documentation. So I don't think that's going to be an ongoing phenomena. I think it's more of a onetime catch-up in that case. So hopefully that gives you a little bit more color on how we think about the increases.

We have no further questions for today. That concludes today's conference call. Thank you for joining. You may now disconnect.