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Oak Street Health, Inc. (OSH)
Q1 2021 Earnings Call
May 11, 2021, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning and welcome to the Oak Street Health fiscal first-quarter 2021 earnings call. [Operator instructions] Hosting today's call are Mike Pykosz, chief executive officer; and Tim Cook, chief financial officer. The Oak Street press release, webcast link and other related materials are available on the investor relations section of Oak Street's website. These statements are made as of May 11, 2021, and reflect management's views and expectations at this time and are subject to various risks, uncertainties and assumptions.

This call contains forward-looking statements that are statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial conditions and often contain words such as anticipate, believe, contemplate, continue, could, estimate, expect, intend, may, plan, potential, predict, project, should, target, will or 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 expectations and management of future growth, our market opportunity and 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 the annual report for the year ended December 31, 2020, 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 as a substitute for 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 similar 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 Mike Pykosz, CEO of Oak Street. Please go ahead.

Mike Pykosz -- Chief Executive Officer

Thank you, operator and thank you to everyone joining us this morning. Joining me on today's call is Tim Cook, our chief financial officer. I'd like to start my comments this morning by once again thanking our team members who continue to work tirelessly to support our patients and communities. Like most of the country, it's a time of transition and an exciting time at Oak Street as vaccination numbers rise, COVID case counts drop and society continues on a path back to normalcy.

Oak Street has fully vaccinated over 105,000 people and administered over 150,000 vaccine doses. This vaccination effort was an all-hands-on-deck effort. An additional -- in addition to vaccinating our patients during visits, we opened up our community rooms to older adults in the neighborhoods we serve, and in early spring, when the demand was peaking, we kept our facilities open on nights and weekends to improve access and positively impact the communities we serve. Given the majority of our centers serve lower-income communities with large minority populations, our vaccination efforts, just like our primary care model, helped produce an equity in the communities most impacted by COVID.

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Looking forward, we are transitioning back to normalcy on the operations front. We have moved most of our team members that were remote back into our centers and are beginning that process for our call centers. While obviously an adjustment for some team members after over a year of working remotely, we are excited for the relationship building and development opportunities being in-person will enable for our teams. We believe being in-person will create a positive tailwind from an efficiency and quality perspective across our teams for the remainder of the year.

We're also beginning to cautiously resume community marketing events. While those are largely consisting of outdoor and socially distanced events at this time, we are hopeful that if we continue the current trends of vaccinations and declining cases, we will be able to execute a greater number and variety of events over the coming months. We are seeing progress on patient acquisition as our communities continue to reopen, and we are hopeful that as a trend that will continue as the year progresses. As many of you heard me say, we believe our care model, which we developed internally and are continuously refining, is best in class in the market today.

A key to the effectiveness and scalability of our model is Canopy, our proprietary data and technology system that powers our providers' workflows every day. Canopy enables us to aggregate a amounts of disparate data to develop customized care points. Since we only serve Medicare patients, we were able to execute the same care model across all of our patients. This in turn allows us to utilize Canopy across all of our teams and use the system to help us care for every single patient in every center every day.

We also hear from clinicians new to Oak Street, who work in other value-based care models, how refreshing it is to have the technology provide the necessary information real time versus having to periodically review gap reports after patients have been seen. Our usage statistics are a great indicator of Canopy's importance to our team. In Q1, our providers actively use Canopy on average four hours per day. I want to share two external data points from the past couple of months on the impact of Canopy.

First, the New England Journal of Medicine Catalyst published a study showing the accuracy of our proprietary patient risk algorithms compared to just physician judgment. Our algorithms, which incorporate over 1,000 data fields, many unique to Oak Street, were developed using machine learning technology. Compared to provider judgment alone, Canopy algorithms improved the accuracy of admissions and mortality prediction by 2x and 3.5x, respectively. Second, our Canopy application was recently awarded MedTech Breakthrough's EHR Innovation Award.

In addition to our continued investment in Canopy, we also continued expanding our center base in the first quarter, opening seven new centers in four new markets across Louisiana and South Carolina, and we remain on track to open 38 to 42 centers this year. We've announced future centers in Georgia, Kentucky and Alabama and will likely also expand to several additional states over the remainder of 2021. We continue to feel confident in our ability to, at a minimum, maintain the effectiveness of our care model as well as our ability to sustain the unit economics we've historically generated as we increase the pace of expansion. As long as we continue to maintain and improve our clinical results and patient experience and meet or exceed our historical unit economics, we will increase our new center opening pace each year as the white space in our market is vast.

As a reminder, our market is comprised of over 27 million Medicare beneficiaries and can support nearly 10,000 Oak Street centers. Given the significant capital we raised during the quarter as part of our $920 million convertible note offering, we have ample capital to support our growth strategy. On April 1, we officially again participated in the CMMI direct contracting model. As a reminder, direct contracting program will enable Oak Street Health to assume financial risk for the cost of care for patients covered by traditional Medicare.

Prior to direct contracting, we're only able to assume risk with patients covered by Medicare Advantage. We expect to serve approximately 6,500 patients in Q2 2021, and we would expect those patients to grow in Q3 and Q4 2021 and beyond as we grow our patient panels. CMS recently announced a moratorium on new applicants. That moratorium does not prevent us from adding new markets to our current direct contracting footprint.

Early data that we have received related to patient revenue and historical medical costs suggest that the per-patient economics will potentially be better than we initially estimated. This reinforces our confidence in our ability to benefit from the investment we make in our traditional Medicare patient care by taking risk through the direct contracting program, similar to our demonstrated success taking risk working with Medicare managed plans. Finally, turning to Q1 results. We generated record revenue of $297 million in the quarter, exceeding the high end of the guidance we communicated to investors and representing 47% growth compared to Q1 2020.

We cared for 75,500 at-risk patients as of March 31. We'd like to point out that the 47% revenue growth is off a pre-COVID comparison quarter in Q1 2020 compared to a COVID-affected quarter in Q1 2021 and the growth in Q1 2021 is in spite of low growth for the spring and summer of 2020. We are confident that we will exceed 50% quarter-over-quarter growth for the foreseeable future. In summary, we continue to be very excited and encouraged by our clinical results, our center expansion opportunities, our patient acquisition momentum and our patient economics for both MA patients and direct contracting patients.

It's a very, very exciting time at Oak Street. I will now turn it over to Tim Cook, who will walk you through our financial results in more detail. Tim?

Tim Cook -- Chief Financial Officer

Thank you, Mike, and good morning, everyone. We were pleased with our first quarter as we delivered results above the high end of the guidance we have provided in March. In terms of membership, our at-risk patient base, which drives our financial performance, improved by 37% to 75,500 patients. At the end of the first quarter, we operated 86 centers, an increase of seven centers compared to December 31, 2020, and representing 32 more centers than the 54 we operated at the end of the first quarter of 2020.

Capitated revenue of $291.2 million grew 48% year over year, driven by growth in our at-risk patient base. Total revenue grew 47% year over year to $296.6 million. Our strong revenue growth was primarily driven by the increase in our at-risk patient base. I will note that $6.9 million of capitated revenue in the first quarter of 2021 was related to 2020 patient retro activity where payers paid Oak Street a catch-up for patients managed in 2020 but not previously included in our rosters.

Our medical claims expense for the first quarter of 2021 of $199.7 million represented growth of 51% compared to first quarter of 2020. $6.6 million of our first-quarter medical claims expense was related to 2020, primarily related to the previously mentioned patient retro activity. Our cost of care excluding depreciation and amortization was $60.3 million for the first quarter, an increase of 38% versus the prior year, driven by growth in the number of centers we operate and more team members to support our larger patient base. Sales and marketing expense was $24.1 million during the first quarter, representing an increase of approximately 103% year over year as we continue to invest in this area to support patient growth and a much larger footprint of centers.

Corporate general and administrative expense was $72.9 million in the first quarter, an increase of 200% year over year. The majority of this year-over-year increase is related to an increase in stock-based compensation expense, which represented $41.2 million of G&A expense in the first quarter of 2021 compared to $1.7 million in the first quarter of 2020. As a reminder, the increase in stock-based compensation is primarily related to an accounting change related to awards issued prior to our IPO in August 2020 and is not a function of stock awards issued since our IPO. Excluding stock-based compensation, corporate general and administrative expense was $31.7 million in the first quarter of 2021, an increase of 40% compared to the first-quarter 2020 and driven by costs necessary to support the continued growth of our business.

I will now discuss three 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 42% year over year to $91.5 million during the first quarter. 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 the sum of medical claims expense and cost of care excluding depreciation and amortization, was $36.7 million, an increase of 43% year over year.

As an individual center matures, we expect both platform contribution dollars and margins to expand as we leverage the fixed costs associated with our centers as well as improving our per-patient economics over time. Adjusted EBITDA, which we calculate by adding depreciation and amortization, transaction offering-related costs and stock-based compensation but excluding other income to net loss, was a loss of $17.4 million in the first quarter of 2021 compared to a loss of $8.7 million in the first quarter of 2020. We finished the first quarter with strong balance sheet and liquidity position. During the quarter, we completed a successful convertible debt offering, issuing $920 million in aggregate principal notes due in 2026 at a 0% interest rate with an initial conversion price of $79.16 per share.

Our net proceeds after issuance costs were $898 million. We used a portion of these proceeds to purchase a capped call, which increased the effective conversion price to $138.88 per share. As of March 31, we held approximately $1.15 billion in unrestricted cash. Our liquidity position will support our continued growth initiatives, primarily our de novo center expansion.

Cash used by operating activities was $8.8 million in the first quarter of 2021 while our capital expenditures were $7.8 million for the quarter. Now, I'll provide an update to our 2021 financial outlook. For fiscal 2021, we're increasing our guidance for total at-risk patients to a range of 107,000 to 112,000 patients, including our direct contracting patients. We are increasing our full year revenue guidance to a range of $1.3 billion to $1.34 billion from our prior outlook of $1.275 billion to $1.325 billion while our adjusted EBITDA guidance has been tightened to a loss of $205 million to a loss of $165 million.

We continue to expect to have 117 to 121 centers opened by December 31, 2021. For the second quarter of 2021, we are forecasting revenue in the range of $315 million to $320 million and an adjusted EBITDA loss of $40 million to $35 million. We anticipate having 93 to 94 centers and an at-risk patient count of 86,000 to 87,500 patients, including direct contracting patients at June 30, 2021. I'd like to make one final comment regarding stock-based compensation expense as we've received a number of questions on this topic.

As I mentioned earlier, the vast majority of the increase in stock-based compensation was driven by the accounting treatment for pre-IPO awards dating as far back as 2016 that converted from an uncertain vesting time line to a defined vesting time line at IPO. These awards vest between August of 2022 and August 2023. Q4 2020 was our first quarter that reflected the full quarterly cost of this accounting treatment. We expect our stock-based compensation expense to remain at elevated levels until August of 2022 when the expense will begin to taper significantly as some of these awards are fully expensed.

By August 2023, we would expect stock-based compensation expense to reflect market equity compensation. And with that, I'll turn the call back over to the operator, and we'll now take questions. Operator?

Questions & Answers:


[Operator instructions] Your first question here comes from Robert Jones from Goldman Sachs. Please go ahead. Your line is now open.

Robert Jones -- Goldman Sachs -- Analyst

Great. Good morning. I wanted to ask on direct contracting. Tim made some comments in the prepared remarks around CMMI's decision to close the program for new applicants.

And I wanted to just get a better sense of how you think that affects the opportunity as you view it for Oak Street specifically, obviously, as an entity that was already approved for the program. And then you mentioned better economics potentially around the program. Just curious what specifically would drive or present those better economics for Oak Street.

Mike Pykosz -- Chief Executive Officer

Yeah. On the first one, as far as CMMI and then their decision to pause new applicants, we don't think that will have any impact on us since we're already in the program and our ability to continue to expand within the program. We're certainly not government relations experts here at Oak Street, but when you look at the program, take a step back, I think it is very much in line with kind of bipartisan and certainly even the kind of programs under the Obama administration of supporting providers and moving value-based care models deeper and deeper into traditional Medicare. So my -- at least my understanding of what people have relayed to me is it's less of a -- around the support of the program.

It's much more around just a new administration that inherited a program that was kind of just about to be implemented and really want to make sure they understood the program before they took another round of applicants. So again, I think at least from what we understand today, I think that we feel really good about our position within the program and the ongoing viability of the program looking forward. To your second question around the economics, I think the -- it's less of anything that's unexpected as far as the economics go. I think there's just a question when there's a new program.

You can kind of do it on paper and in theory, but until you start seeing the real patients that are in the program and you start seeing more of the historical claims and the revenue flow through you're not totally sure, right? So we talked about this a fair amount in prior calls around trying to triangulate around what this program will look like compared to Medicare Advantage. And I think what I would say is our belief today is it will look very similar to Medicare Advantage, which is obviously a program we're very successful in. But because the government is keeping a smaller portion of the premium, our revenue per patient will be higher, although we do expect a slight -- a similar increase in costs because you won't have UM and network in some of the levers that health plans -- the traditional Medicare -- traditional managed care levers that Medicare Advantage plans pull to try to lower cost. And so you kind of think about it from a net perspective.

The patient contribution I think will be very similar to what we see across our Medicare Advantage population but higher revenue and higher patient costs along with it. But for us, that's a big win because we do very well on our Medicare managed patients. And until this program started, we obviously spent the same amount of care for out traditional Medicare patients, which I think is a really important point why we're in such a strong position coming into the program is we've always provided our care models to these patients. But now we're kind of able to kind of get the economic rewards on the investments we make in their care.

Robert Jones -- Goldman Sachs -- Analyst

Got it. And if I could just ask a follow-up around the centers and the plan for openings. I don't want to get too far down the road. But you made a comment that as long as you're able to continue as an organization to maintain and improve clinical results, patient experience, the unit economics, that you'd consider new center openings each year -- to increase new center openings each year.

Just curious if you have any initial thoughts, just given how important that metric is to the forecast and the model, how you're thinking about new center opens in 2022 and beyond.

Mike Pykosz -- Chief Executive Officer

Yeah. I think we think about increasing new centers as almost a titration. And so if we go through a year and we do continue to -- along the same trajectory or improving our unit-level economics -- and as we shared I think in prior calls and in our annual call a couple of months ago, we've actually seen our unit-level economics improve year over year with vintages, and we really want to keep that trajectory going. If we get out of the year and that happens, then we'll want to open up more the next year.

But we're not going to open up four or five times as many centers, right? So we're giving you guys a range of 38 to 42 this year. So certainly don't expect to open up 150 or 200 next year. Could we? Probably. But I think then you risk something unexpected becoming a bottleneck.

So I think we'll think about it more like we saw in the last couple of years, where we've gone from 12 to 28 now to something around 40-plus. So I think similar levels of titration up every year where you're increasing the number but you're not really tripling or quadrupling the number, so I think something similar. You kind of just take out that trajectory into next year and the year after and the year after I think is how we think about it.

Robert Jones -- Goldman Sachs -- Analyst

That's super helpful. Thanks, Tim.


Your next question comes from the line of Ricky Goldwasser from Morgan Stanley. Please go ahead. Your line is now open.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Hey, good morning and congrats on the quarter and the higher guide. I have one follow-up question on direct contracting, specifically as we think about that move of voluntary-aligned patients to claim-aligned patients after a year. What -- how do you see the impact on patient economics going forward for this population that you now manage? And then I have a follow-up on that.

Tim Cook -- Chief Financial Officer

Sure. Hey, Ricky. It's Tim. Good morning.

Thanks for your question. As you mentioned and as folks are aware, as part of some updates in the program from CMMI over the last several weeks, they mentioned that patients that are voluntary aligned in one year will become claims aligned the next year, and there is a difference in methodology for how you calculate the revenue for each of those patients. And so as it pertains to that change, Ricky, we actually feel as though that change will not have a significant effect on the economics for our patient population. And I won't go into the technical details here.

But essentially, because of the way that the risk score is calculated for those patients based upon looking back to a reference year, so long as the patients that you were managing in that reference year, you were managing with the same level of intensity. And by managing I mean engaging, right, seeing in the center at the same level of intensity that you do today, you shouldn't expect a significant impact on the overall risk for the portfolio of patients you're serving. So from our perspective, since, as Mike mentioned earlier, our care model has been consistent across our patient population over time, we feel as though as our patients move from voluntary to claims aligned and when they do so, this risk or cap comes into effect as you know that's less of an impact on us given the fact that, that cap is compared to historical baseline that was on a well-managed population.

Ricky Goldwasser -- Morgan Stanley -- Analyst

And then my follow-up question is on the activity and relationship with Walmart. I'd say in the last few weeks, Walmart has really kind of like upped its activity in healthcare, launching the -- buying a telehealth asset and making some comments around sort of how they view their role in the overall healthcare system. Now that you have sort of the centers up and running, any sort of updates or observations you can share with us? And overall, how does the -- how do you see the opportunity with Walmart playing out?

Mike Pykosz -- Chief Executive Officer

Yeah, thanks, Ricky. This is Mike. I think the same approach and kind of criteria that we've talked about for Walmart since we announced it I think last fall remains. Which is -- I think the hypothesis of why -- putting Oak Street centers in Walmarts I think remains strong, but I think we have to test the hypothesis and I think we're still doing that.

And for us, it's not just about are these kind of equal to an Oak Street Health center as far as the ramp goes. They got to be better, and they can't just be better for the first couple of months because there's hype and it's new. It got to be sustainably better than Oak Street centers, otherwise we'll just do centers ourselves, right? And so we're encouraged by the results so far. And we like the partnership with Walmart.

I think our teams work really well together. So far, so good. But again, it's not supposed to be a -- I guess maybe said differently, there's such a huge opportunity to put up our de novo centers, and we feel like it's such a massive market. And we're really -- as we just talked about as far as the scaling goes, we really feel like we have the ability to both continue to improve the results of every individual vintage as well as put up more and more centers every year.

And so the nice thing is we can just keep doing that and have a very, very strong growth trajectory for a very, very long period of time. And while Walmart loves to go to some more rural markets and potentially grow a little faster, we don't need that to really I think be incredibly successful. So the bar is pretty high, right? We're not really chasing a business opportunity. I think we're being opportunistic in that case and can take it to another level.

So we want to make sure we have a lot of conviction around that. So that's how we're looking at the opportunity today. And Walmart's done -- Walmart as you know is massive, right? Just the number of employees they have is a help by and in itself. And so I think they're going to keep investing in a number of different opportunities.

And obviously, on the telehealth front, they just made an investment. But that obviously is also very different than what we do here at Oak Street. So I think there's plenty of opportunities to still work with them and we are optimistic about those centers but having obviously made a decision of what we're going to do going forward.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Thank you.


Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead. Your line is now open.

Ryan Daniels -- William Blair -- Analyst

Yeah, guys. Thanks for taking the question. Mike, I wanted to go back to your prepared comments. You talked a little bit about a resumption to normal with some of the community marketing events.

And I'm curious. As we go through the back half of the year, assuming things continue to stabilize with the pandemic, will you reallocate dollars more toward community marketing or will you continue with some of the digital initiatives you did last year and along with the community, maybe hope that, that amps up member acquisition into 2022?

Mike Pykosz -- Chief Executive Officer

Yeah. Thanks, Ryan. Definitely the latter. The channel is working.

It's bringing in patients below kind of our cost of acquisition threshold. Now we're going to keep doing that channel because we have, obviously, a large amount of capacity within our centers that we can fill up and again, as long as the cost of acquisition has a strong ratio. And when we look at kind of comps in other industries, our CAC LTV ratio is really strong still. We want to keep doing those channels, right? We want to fill up centers faster.

And if you fill centers faster, you obviously kind of bring forward the positive economics that you see when centers get closer to full. So I don't -- if something is working, and digital is certainly working and below our CAC thresholds, we have no plans to lower the spend against it. I think if we can -- we can find ways to put more sales and marketing dollars to work at positive CACs, we will absolutely do that. And I'm hopeful we'll keep finding opportunities to do that.

That said, we are incurring today the cost of our community marketing approach. We have our, what we call, outreach executives, kind of our on-the-ground field team. They're in every center right now. They're out there working today.

They're not as effective as they were in 2019 pre pandemic, but they're getting better every month. And I think as society begins to reopen and they have more and more opportunity to meet, I think they'll continue to get more and more effective. So I think both -- as we see opportunities to invest more in sales and marketing, we will certainly do so. But I guess we can get the best of both worlds having our central and -- digital and other central channels up and running and have our field base up and running without having actually a significant increase to our sales and marketing because we're already incurring a lot of that cost.

Ryan Daniels -- William Blair -- Analyst

OK. That's helpful color. And then as my follow-up question, just wanted to get an update on some of the new clinical programs and initiatives that you're planning for this year. I know you spent some time talking about those investments last quarter, so I'd love to get an update on progress there, if any have rolled out.

Any early results? Just any color you can offer?

Mike Pykosz -- Chief Executive Officer

They're in the process, and some of them are around additional care in the home and some more updates to our behavior health program and the kind of ESG focused program. They're all in various stages of piloting, being rolled out. And just to give you a little bit more context on what that means. When we think about a new program at Oak Street, we are constantly evaluating really dozens of great opportunities.

But what we are really, really disciplined about Oak Street is not throwing a bunch of stuff at the wall and seeing what sticks but making sure when we do a program, we're very methodical about it. And so we'll kind of think through, hey, what are the -- of the dozens of things we can do, what are the kind of three to five that we feel the most confident about? How do we then develop the program, pilot it? If the pilot works well, we do a beta test. If that works out well, roll out more broadly. And we rolled out more broadly, and we need to make sure it's integrated into Canopy.

We need to make sure we have the reports and data. We need to make sure we have the incentives aligned across teams and we're doing the change management work in the center, etc., etc. So it's a pretty thorough and comprehensive process. But again, I think that's one of the really important parts about Oak Street, is not just we say we have all these different programs but we run them every center, every day and to all the patients who need them.

And it's really a very consistent application of the model which drives then the consistency of results across vintages and across markets. And so we are in that process right now, depending on which of those programs I said, different stages, but none of them are in the stage where we're fully rolled them out, where we really have results to get them. So I think we remain optimistic. And the ones that are in pilot mode, the initial pilot results are good, but it is -- it's still too early for us to declare victory.

And they're certainly not kind of fully operational yet.


Your next question comes from the line of Sean Wieland from Piper Sandler. Please go ahead. Your line is now open.

Sean Wieland -- Piper Sandler -- Analyst

Thanks very much. Good morning. My question is on the comments you made on Canopy, specifically its ability to improve accuracy of admission and mortality predictions. Just maybe if we can go into a little bit more detail on exactly what are the inputs there and what makes these algorithms unique and your ability to do that.

And secondly, do these algorithms offer you the ability to predict economics of either new centers, new markets or even down to the risk forecasting on scores of patients? Thank you.

Mike Pykosz -- Chief Executive Officer

Yeah, thanks, Sean. So I think -- I'm quite biased, but I think one of the things that makes Oak Street so impactful and so effective is the whole is much greater than the sum of the parts. And so it's not just about doing machine learning on a big data set. I mean that's something that many organizations can do, but it's about the ability to really create a really differentiated data set and then do the machine learning on the data set and then apply what comes out of the algorithms to actually drive action and change trajectories for patients.

And so if you think about the data elements, some are kind of your basic healthcare data around claims and admissions and types of claims and things of that nature. Some are basics like demographics. But a lot of the data points are things that we are understanding about the patients because we spend a lot of time with them on intake process. So we have a very thorough and systematic intake process that all of our patients go through.

We spend six times as much time with new patients like in the first month and a half than we do kind of an ongoing patient on average, and that allows us to really get to know the patient well and gather a huge amount of information on them. We have huge efforts to gather med records across the system, and we use kind of natural language processing and things like that to read the med records. And we, in some cases, have coders, nurse coders who will read through them and determine kind of here's the risk factors for the patients. Here's why that patient has different chronic illnesses or different activity, living challenges, etc., etc., etc.

So really sponges for all the information we can gather. And sometimes that's a health information exchange. At some states, those work pretty well. Some states, they don't.

So it's the -- I mean healthcare is the only industry I know that still use faxes. That's great. We'll get faxes in, and we'll upload those and digitize them and go from there. And so what we're doing is really from all the third-party information we can gather on our patients, plus all the information we are gathering, spending a lot of time with those patients in their first part -- time at Oak Street.

And then ongoing, we're spending obviously significantly more time with our patients than the average doctor. We're creating a really differentiated data set. And part of that data set is the subjective judgment of our doctors. We want that, right? We want our doctors to use their judgment because they've seen a lot of patients and there's things that sometimes data can't pick up that a doctor seeing the patient and spending time with them can.

So we put all that together, which creates a pretty unique data set, and that's the data set that we will do these -- use this machine learning algorithms on. And then, yes, we use it certainly more than just the two data points that I shared. Those are just the two that got published in the New England Journal of Medicine Catalyst article. But we -- there's other things we can predict and other things we can analyze about our patient population.

It is much more focused on the patient level than kind of the center or market level today because that's really where care is delivered, right? And so if we can better understand our patients and the risk going to the hospital and obviously, other risk factors we also look at -- we have a readmission risk model, for example, that's been highly predictive. If we can better identify who's at risk, then we can spend a lot more resources to get it in front of those challenges before they happen. And the more you can pinpoint the patient at risk, the more you can intervene. And it's a positive cycle, right? Because then you intervene and you figure out, hey, some of them are false positive.

That's OK because the ones that are real, then you can understand even more and more and more and keep investing in the right places. So that's kind of how we think about those models working. And again, I think it's something that the kind of machine learning and data science is an important component, but -- it's necessary but not sufficient to get this type of results. You also need the ability to pull in kind of more and different data types in the beginning, and then you need the ability to act upon that data.

Well, if you have all three of those, you can really make a big difference.

Sean Wieland -- Piper Sandler -- Analyst

Thanks for that. So is it -- am I reading too much into this? Your commentary around the predictive elements of the algorithms and then you saying economics will be better than you thought in the direct contracting, are those two statements related or no?

Mike Pykosz -- Chief Executive Officer

They're related in the fact that one of the reasons we can generate really strong patient surpluses is because we're able to identify our at-risk patients and we're able to act upon it and keep them healthier, right, which obviously is the only reason we are able to drive down medical costs. One of the reasons we have improved kind of over time, right, on our care model effectiveness is we are much more effective at using data and identifying who's at risk. And Canopy allows us to act upon that in a more systematic manner. So the Oak Street care model today is better than it was four or five years.

It wasn't bad four or five years ago. It's actually really good, but it's even better today. And so I think to that extent, yes. We are not saying hey, we have these great predictive algorithms and they are predicting the medical cost for our traditional Medicare patients and acts -- therefore, there's our direct contracting.

Like the improvement -- the actual real improvement in patient outcomes that drives the surplus is in part driven by -- it's driven by a lot of things, but in part driven by Canopy and the data algorithms. But that's not -- it's not -- those things aren't used for finance, right? So Tim's not the one -- he's not the customer of those data algorithms. It's really more our doctors.

Sean Wieland -- Piper Sandler -- Analyst

Right. Thanks for the clarification.


Your next question comes from the line of Kevin Fischbeck from Bank of America. Please go ahead. Your line is now open.

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. This is Adam on for Kevin. A quick question about the quarter, and then I have a follow-up question. With the guidance raised, how much of it was due to sequestration related to the revenue and EBITDA?

Tim Cook -- Chief Financial Officer

Yeah. Hey, Adam. It's Tim. So as folks know, sequestration, the sequestration holiday was extended from just Q1 of 2021 for -- through the remainder of the year.

That is a bit of a pickup from a revenue perspective. Typically speaking, our -- the revenue we receive from plans is reduced by about 2%. So there is a bit of a pickup for the last three quarters of the year relative to what we had before. So it's included in there to a degree.

And it also increased our medical costs for the year. So I think from a net impact -- from an EBITDA impact, the benefit of sequestration is relatively small. It's essentially our MLR applied against the incremental revenue for the year. So sequestration is in there to the degree that it impacts our business.

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

So ex that, it was -- things were kind of tracking in line?

Tim Cook -- Chief Financial Officer

Yes. I mean, I think we are -- look, at this point, it's only May, right? So -- early May at that. So we continue to be very optimistic about the prospects for the remainder of the year, as you can tell by the increase in pretty much all the metrics for -- from a guidance perspective. But I think we'll continue to see how things develop for the remainder of the year and update you all as we learn more.

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

OK. And then my actual question is there was a $1 million acquisition in the cash flow statement. It's obviously really small, but with all the new cash on the balance sheet, just kind of wondering what the latest thinking was around M&A and if we're going to see more of these kind of -- I mean that's a really small deal, but that's kind of a signal of more to come.

Mike Pykosz -- Chief Executive Officer

Yeah, this is Mike. I think we'll continue to be opportunistic on the M&A front, and I think that can take a lot of different shapes. So in that case, it was a very small practice that we just closed on and we're beginning to integrate. And when we think about M&A on a practice front, the key is we're not going to buy things and kind of be an overlay business, right? There are people doing that.

That's not what Oak Street does. We believe the effectiveness of our care model is having it focused only on Medicare patients and having it be kind of run in its full, right? And as -- I truly believe what I said in the last question, where the whole is much, much greater than sum of the parts. And we have a lot of parts. We need to run all those parts.

And so that means we can't just have a normal physician group that sees all different age of patients and kind of with normal staffing and just kind of put our model on top. That doesn't work. And so in the case where we do acquisitions, we will, for lack of a better term, break the practice apart and in some cases, keep running a practice that sees commercial patients and younger patients but then take the Medicare patients and see them separately. Sometimes we will wind down the practice and see the Medicare patients out of our centers.

So there's a couple of different ways we can execute upon this, but the key is really the doctors in the practice. And if they believe in the way Oak Street practices medicine, they want to see patients within -- as part of Oak Street, we can try to make -- find a way to compensate them for what they've built as independent practitioners but then bring them on to our model. If they're just looking for a check for what they've built, that's not going to be a great fit with us because we really -- we practice medicine differently and it works very effectively, but we want to -- we need to keep that from a culture and a patient-focused perspective. And so in the case of the one that you're referring to, which obviously was a very small practice, there was a couple of doctors who were relatively far along in their careers.

Their panel was mostly Medicare patients already just naturally, and they love what we're doing. They actually found us and said, can we -- is there a way to work together? And so we were able to make it work out, and it won't -- their number of patients won't look different than the rest of the patients we care for. So that will be something we do. But again, we're talking about $1 million in the big scheme of things for expenditure on that one.

And so I think there'll be some small ones like that, that are much more opportunistic. Will we do bigger M&A? I mean that's not a core part of our strategy. So if, obviously, something presents itself that we feel very strongly about, we can always -- we'll look at it. But right now, digital remains the biggest approach.

And I think the -- I always think about these small tuck-in acquisitions as somewhat an extension of our sales and marketing activity.

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

Make sense. Appreciate it.


Your next question comes from the line of Lisa Gill from J.P. Morgan. Please go ahead. Your line is now open.

Lisa Gill -- J.P. Morgan -- Analyst

Great. Thanks very much and good morning. Mike, I just wanted to start with your initial comments around vaccinations. You said 105,000 people have been vaccinated.

Can you talk about how many of those are your existing patients and if there's potential recruitment tool? So bring people in, see the opportunities of an Oak Street site. So that would be my first question. And then secondly, I just really want to understand your telehealth strategy and how that fits into Canopy. I know we've talked in the past about longitudinal care, but how do you see your telehealth offering over time?

Mike Pykosz -- Chief Executive Officer

Yeah. On the first question around the vaccinations, I mean first and foremost and most importantly, we're really proud of our vaccination effort because it really helped, had positive impact to the communities we serve. Many of them are some of the hardest communities hit by COVID. And so we were really glad to step up, and we were -- very early on, we were doing 1a, healthcare workers in the City of Chicago and Cook County.

Other places asked us to help them vaccinate healthcare providers who weren't employed with big hospital systems. They were having trouble finding a place for them to get in. So we're glad they took that stuff on and did it nights and weekends. So it was a broad effort.

The vast majority obviously of those 105,000 people were older adults given who we serve. And I do think, historically, the more people spend time with Oak Street -- in Oak Street, the more excited they are about it and the higher percentage of them that become patients. And so one of the reasons why our community marketing efforts in 2019 and prior were so effective is because you really are taking something that sounds too good to be true and you're making it real. You are taking something that people aren't really shopping for as a consumer and you're helping them understand why there's something better out there, right? And so many times, our patients are just going to the ER for their care prior to becoming a part of Oak Street when they're sick.

Or they have a doctor's office but it's generally sort of a qualified health center than kind of a standard doctor's office as part of the hospital system. They can't -- it's hard to get appointments, right? It's a four week wait to get appointments. The appointments are short, and they can't get follow-up. And that -- while they may have a doctor, right, that's not the type of care that they need, right? And the challenge for us is that people don't realize it needs to be better, right? Their expectations are so low that they kind of accept them.

And so the more we can meet people, the more we can educate them about what Oak Street does and really educate them, most importantly, about what they need and what they should expect from care and how that will kind of improve their overall well-being, patients are -- people are pretty likely to join Oak Street as patients. So I'm hopeful we'll see the same thing, and optimistic and we're starting to see, for people that met us from the vaccination standpoint. I grew up in the Chicago area, and so -- not too far from one of our centers in the suburbs. And when people who were -- people I knew or old neighbors, things like that, some of them got vaccinated at Oak Street, and they were really impressed, right? They beg the question why they weren't patients already at Oak Street, but they came back said wow, your center is really nice and I didn't realize how great it was.

And I was thinking, guys, what have I been saying to you guys? What's my mom been telling you for the last seven years? She's not bragging about her son, right? This is real. But I think that was -- it kind of opens your eyes about how much of an opportunity we have to continue to reinforce our message, our brand, what we do because even people that really should know about Oak Street and why it's special are still really surprised when they visited the centers for the first time. And so I think a long-winded way to say yes, I would hope that this will become a tailwind for growth. But I think it's just the tip of the iceberg around what we can get back to as far as working in the community and educating people about Oak Street now that COVID is hopefully continuing to subside.

That's your first question. On telehealth, I think we look at telehealth -- it's really for two purposes, right? Purpose #1 is to have an option for our patients that is more convenient for them when they want it. And that telehealth is not just kind of a longitudinal wellness check, it's also kind of on-demand telehealth. It fits their -- if they have urgent needs.

And so it does allow us to kind of add more kind of tools in our toolkit, so to speak, to meet our patients where they are, to improve their experience and improve their quality of care. The second thing I think it lets us do is kind of more efficiently open up kind of more touch points, right? So maybe not a full visit, right, but it's just a quick telehealth interaction, right? I think one of the things that we are breaking at Oak Street because we're not encumbered by fee-for-service economics is kind of this idea of what a visit is with a doctor, right? Either it's a -- there's kind of a very well-defined interaction that's a provider visit, and a lot of that is driven by what you need to do to bill that visit, right? And even on the telehealth front, there's some of that still that are billable. We really don't care about that, right? We care about interacting with our patients and intervening when it's necessary or kind of wanting to manage them and getting ahead of things. And so when you think about it that way, you can blur the lines a bit between what's a visit and what's not.

And I think telehealth is great there because it allows you for a more personal interaction between a phone call and actually bringing someone in person. So right now, telehealth is a very small fraction of our business, not because we don't want to do more telehealth but because that's what our patients want, right? Our patients so far has strongly preferred coming in to see us in person. Part of that's due to the demographic we serve. I think part of that is due to the relative clinical complexity of our patients.

And -- but I do think as telehealth becomes more prevalent and as people age in who are now using telehealth for the first time, younger, I think it will continue to be a larger portion of what we do. But I think it gives us a really nice complement to our model, and we really aim to have -- and I feel very strongly about this. If you have kind of a telehealth option that's separate from the primary care option, you are creating issues with coordination, you're creating more fragmented care. And we need to do the opposite.

We need more coordination and less fragmentation in patient care. And so that's why we aim to have kind of a longitudinal telehealth option, which is by the same provider that provides them care in person, right? On top of that, we're going to get to have the kind of more urgent telehealth option that will likely be a different central nurse practitioner but will have the same records, same care plan, same access to Canopy, etc. And so by doing that, we can really create a seamless experience but more importantly, a coordinated and non-fragmented care environment for our patients across all these channels.

Lisa Gill -- J.P. Morgan -- Analyst

Great. Thank you very much.


Your next question comes from the line of Justin Lake with Wolfe Research. Please go ahead. Your line is now open.

Justin Lake -- Wolfe Research -- Analyst

Thanks. Good morning. A lot's been covered here, but I have a few follow-ups. One, just want to make sure I heard correctly Mike.

You said that all things being equal, I think it was in response to Bob's question around center growth, we could think about a similar increase in centers over the next couple of years relative to what you increased from '20 to '21 as long as things are kind of going similarly in terms of improving economics.

Mike Pykosz -- Chief Executive Officer

Yeah. That is what I said. And as you read it back to me, I agree with it still. So I think yes.

Justin Lake -- Wolfe Research -- Analyst

Good, good. And then I wanted to follow up on the direct contracting. Specifically, I think what you had said previously was that you expected the claims-aligned members to be -- to have economics that were materially lower than an uncertain relative to Medicare Advantage. And now it sounds like you expect the entirety of direct contracting to be kind of in line with Medicare Advantage economics.

So is that what you're kind of seeing out there? So the revenue's that much better that we expect it all to be kind of similar to MA.

Mike Pykosz -- Chief Executive Officer

I mean with a bunch of asterisks on it, we're a month into the program, and we're getting early data, etc., etc. I mean yes -- from both the more detailed methodology that we now understand as we've gotten more into the program as well as what we're seeing from the initial revenue and kind of historical cost data, yes, we feel like kind of across the book, it will look a lot similar to MA.

Justin Lake -- Wolfe Research -- Analyst

OK. And especially on those claims-aligned members, I wouldn't expect there to be much of a ramp. To the extent you've been seeing them for a year or 2, you know their kind of medical issues, all that. Is this something where in the next couple of quarters, you should be able to tell us kind of what's going on with those members and we should be seeing them kind of running at real meaningful margin?

Mike Pykosz -- Chief Executive Officer

Yeah. Justin, I think it's a good question. I think we are undecided at this point. And we'll -- I hear the request but -- as far as how much we're going to break out kind of our different patient components and different patient groups, and so I hear the question.

Again, my expectation is the contribution will look very similar from a -- to kind of our MA book overall on our direct contracting book. But again, I think we're still figuring exactly how we're going to report what. We don't want to break out too granular things because it 6,500 patients. Like three months of 6,500 patients is not actuarially sound either, right? So we know revenue, we know historical costs, and that will give us a good sense.

But as with all the book, there'll be some movement that's just driven by small numbers.

Tim Cook -- Chief Financial Officer

Yes. Maybe Justin if I could just add to that. It's Tim. Mike mentioned this earlier.

We have a lot of data on our patients, but until we see what specific patients flow through on the actual direct contracting rosters, it's hard to know exactly what all the data will look like and therefore, what we get paid. And I think as we've gotten more data and it's confirmed what we had hoped to see, we've been more positive on what the economic opportunity could be, to Mike's point. And then one of the benefits -- as folks know, when we take on -- take Medicare Advantage -- new Medicare Advantage patients on to our platform, it takes some time for us to document and understand their health conditions. And that flows through in the form of higher reimbursement in future years, but those are annual cycles, I could say.

In direct contracting, we've been seeing these patients -- some of these patients for a number of years. That -- we've already gone through that period of time, and therefore, as patients -- as we convert into direct contracting, we'll be able to have more tenured-type economics in some patients that we've been seeing for a while. And I think that dynamic was entirely well understood when we first started talking about this program a few months ago.

Justin Lake -- Wolfe Research -- Analyst

Makes perfect sense. Thanks for all the color.


Your next question comes from the line of Elizabeth Anderson from Evercore. Please go ahead. Your line is now open.

Elizabeth Anderson -- Evercore ISI -- Analyst

Hi, guys. Thanks so much for the question. My first question is in terms of the cost of care as we sort of move through the year. I think you talked about, I would say, some of the reopening and that kind of thing.

But is there anything else you would point to in terms of the pacing of that cost of care as we move through the year?

Tim Cook -- Chief Financial Officer

No, I'd say -- Elizabeth, this is Tim. It's going to follow the timing of new center openings. So as we open new centers, obviously, we're going to incur the costs associated with opening those centers. And so we would expect that -- the cost of care dollars to increase commensurately with the acceleration of new center openings in the latter half of the year.

Elizabeth Anderson -- Evercore ISI -- Analyst

OK. That's very helpful. And then as we move through the pandemic, have you -- are there any changes in your thoughts about providing specialty care? And any kind of specific areas, whether mental health or cardiology or any other kind of areas or any kind of mix shift on that front?

Mike Pykosz -- Chief Executive Officer

Yeah. So we actually already provide a large amount of care for our patients on the mental health front. We have an integrated behavior health program, including licensed clinical and social workers with a specialist on the ground, and we have a team of psychiatrists to kind of support them and will provide kind of in-person psychiatry for patients who need it. So that is something we are really kind of already doing, and it's a pretty core pillar of our care model.

The things like cardiology and things I think are some of the things we're assessing. I talked earlier about how we have dozens of things we can do every year, and certainly, one of those is cardiology. I think if we -- the next specialist we have I guess would be cardiology because I think it is pretty close into primary care. We're able to get some of the benefits of having our own cardiology group by working with e-consult specialists.

There's a great company called Rubicon who we work with who does a very nice job of kind of providing our doctors the ability to kind of have a consult with a specialist, cardiology being one of them. And so cardiology is a good example of something where, oftentimes, it's not that the person needs to be seen by the cardiologist but you really want to have the person's test results and kind of condition run by someone who's got a bit more expertise, especially for kind of newer primary care doctors who are less attached with these conditions. And so that's a great way to leverage kind of the e-consult business. I think over time, non-interventional cardiology could be a good candidate, something to bring on for Oak Street.

But again, if we do it, it's not -- certainly not to generate volume or revenue. It's really to lower our cost by providing better coordinated and focused care for those conditions.

Elizabeth Anderson -- Evercore ISI -- Analyst

Got it. That makes a lot of sense. And do you use Rubicon for anything besides cardiology or is it sort of more focused in that area?

Mike Pykosz -- Chief Executive Officer

No, no. It's across specialties. And again, if you think about the type of specialists, the ones that are much more like -- a specialized primary care visit are great candidates for e-consult. So we use it across specialists.

Some specialists, you actually need to get certain testing or procedures that only a specialist can do. But when it's more just the consultations, it's a great tool.

Elizabeth Anderson -- Evercore ISI -- Analyst

Yeah, that make sense. Thank you.


Your next question comes from the line of John Ransom from Raymond James. Please go ahead. Your line is now open.

John Ransom -- Raymond James -- Analyst

Hi, good morning. How should we think about -- if an MA plan, for example, has a good loss ratio quarter in March, what is the lag in terms of how you recognize either higher or lower cost with your population, just kind of based on your true-ups and some of the natural lag in your P&L?

Tim Cook -- Chief Financial Officer

Hey, John. It's Tim. What I would say on that is that obviously, we were receiving plans -- data from plans on a bit of a delayed basis, right? So a plan is going to receive the claims, process those claims and send us a file. And so there's just some natural latency in that process.

So it can be roughly a month to two months depending upon the plan and the quality of the data flow. That being said, with respect to your question, as it pertains to accruing for medical costs, there's also a factor of just how do we accrue for our patients versus what work -- or how do the plans accrue. Methodologies might be slightly different. At the end of the day, we're looking at the same type of data but the approach might be different.

And I'd say one of the challenges that we have with a population size of 75,000 at-risk patients, it's very different than taking a large national MA plan that has millions of patients. They're going to see far smaller amounts of variability in their data because they're looking at basically national-level trends, whereas we're going to see greater volatility given the fact that we're looking at a smaller data set across more specific markets. So it's -- I would say it's -- all of this work is more art than science, of course. But when it comes to Oak Street compared to a national health plan, it's going to be even more so that.

And the last thing I'd say is, just remember, our patients are Medicare Advantage patients on the at-risk side, and therefore, what we're going to experience is going to be far more related to that specific population versus a more diversified payer that might have a large commercial book that might be seeing other trends in the market that might be different than what we experienced for seniors.

John Ransom -- Raymond James -- Analyst

OK. And just a follow-up question. Your -- given your pace of openings, you're in a war for talent with respect to some scarce assets like primary care physicians and psych people and behavioral health. Just what's your kind of state of the world in terms of being able to staff this opportunity relative to any point in the past?

Mike Pykosz -- Chief Executive Officer

Yeah, I think actually, in a lot of ways, it's very similar to how we think about patient acquisition. We need a really strong value prop for our team, and I believe we have one. And we regularly survey our provider group, and 95% of them say they'd recommend Oak Street to a friend or family member as a place to work and 99% of them say Oak Street allows them to do their best work. So we believe we have a really strong value proposition for our clinicians because they -- most clinicians didn't go into medicine to generate fee-for-service volume, all right? They went into medicine because they want to help people, they want to keep people healthier, and Oak Street helps give them the time and the resources to do that, and we compensate them for keeping people healthier.

And so I think a lot of our clinicians really, really appreciate that. And we certainly have had success in the past, and continuing to, in hiring great clinicians to our platform. I would say some of the best clinicians because they want to practice medicine differently, they understand the Oak Street model and they really want to be part of it. So I think that's one of the I think frankly, advantages we have, is we're not relying on trying to purchase or partner with an existing practice and kind of -- whatever kind of clinicians and their attitudes and their talents and their culture that exists in the independent physician world we're kind of encumbered by.

We really pick and choose who we want, and we think we can attract the best because of our model. And just like from a patient standpoint, we were out there every day and our team is out there every day really helping to get more awareness in the physician and the nurse practitioner community about Oak Street and why we're a great place to work. And the more people learn about us, the more we're able to hire. So we feel really good.

I don't know if necessarily I would call it a talent war, but we feel great about our ability to hire outstanding clinicians. I think we have an amazing clinician team, and I think we'll keep adding to that because the value prop for them is phenomenal.


[Operator signoff]

Duration: 63 minutes

Call participants:

Mike Pykosz -- Chief Executive Officer

Tim Cook -- Chief Financial Officer

Robert Jones -- Goldman Sachs -- Analyst

Ricky Goldwasser -- Morgan Stanley -- Analyst

Ryan Daniels -- William Blair -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

Lisa Gill -- J.P. Morgan -- Analyst

Justin Lake -- Wolfe Research -- Analyst

Elizabeth Anderson -- Evercore ISI -- Analyst

John Ransom -- Raymond James -- Analyst

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