- One Medical's revenue hiked almost 50% in its first financial quarter since integrating value-based medical chain Iora Health, though higher operating expenses, including the cost of care and medical claims expense, drove a steep increase in net loss.
- The San Francisco-based primary care group beat Wall Street forecasts with third-quarter revenue of $151.3 million, though earnings slid in just under analyst expectations. Net loss of $78.6 million in the quarter was up significantly from a loss of $16.4 million the same time last year, One Medical reported in its results released late Wednesday.
- One Medical, which upped its full-year guidance on the results, closed out the quarter with total membership of 715,000, a 40% jump year over year, and continues to shift more members into more lucrative at-risk arrangements.
In June, One Medical announced it was acquiring Iora for $2.1 billion, expanding its focus beyond fee-for-service and into Medicare's risk-based programs, which can be extremely profitable but raised eyebrows among some market watchers worried about clashing business models.
Following the buy, One Medical now has a combination of consumer and enterprise members and at-risk members. The former pay for their own membership or are sponsored by a third party like a payer, and drive commercial revenue. One Medical manages the health of and costs for the latter, resulting in Medicare revenue.
The acquisition expanded One Medical's total addressable market to $870 billion, and geographically positioned it to reach about 40% of the U.S. population in current markets.
The chain continues to focus on capturing the patient across their lifespan, building out offerings for members as they transition from commercial insurance to Medicare and enter into Medicare Advantage and other Medicare risk models, CEO Amir Dan Rubin told investors on a Wednesday call.
One Medical has slowly pushed more members into risk, with results in higher per-member, per-month revenue: It ended the quarter with 32,000 at-risk members, up from 21,000 as of March. That step-up was driven both by continued growth on the MA side and by Medicare direct contracting, management said.
Currently, at-risk membership makes up less than 5% of One Medical's overall membership base. But Medicare revenue in the quarter was $30.5 million, more than a fifth of overall revenue.
Despite the revenue boost, such arrangements also come at a higher cost for One Medical, at least for the moment.
Higher costs of care for Iora members dragged on One Medical's margin in the quarter, analysts noted, which has been a key area of concern for investors post-deal.
"Due to the addition of Iora, our care margin as a percent of revenue declined this quarter, and we expect it to decline further in the next quarter as Q3 only included Iora from Sept. 1 onward," Dan Rubin said.
The company reported a relatively high medical loss ratio of 87%, a marker of how much One Medical paid in medical claims divided by capitated Medicare revenue.
One Medical stressed its MLR is likely to improve over time, and chalked the high percentage up to integrating more at-risk members.
As One Medical signs up new at-risk members and opens new offices to serve them, its MLR will increase initially because of a potential increase in medical claims expense from a lag in improvement in health outcomes with a member's tenure, the company said. There could also be a lag in documenting members' health statuses, resulting in different capitated Medicare revenue compared to the health status of an at-risk member — and of course, the pandemic must be taken into account.
"The folks who are coming in unmanaged this year, they're certainly running at medical claims expense ratios that frankly are higher than what we've typically seen," CFO Bjorn Thaler told investors. "I think that's a little bit where we see some of that catch up here on the deferred care and also some of the challenges as a result of COVID coming in here."
But increases in COVID-19 testing and vaccine administration were a "modest tailwind" for One Medical in the quarter, Thaler said, as pandemic-related programs are an opportunity to get new customers in the door and drive long-term value. A number of new members signed up predominantly for employer-mandated vaccine verification purposes in the quarter, and One Medical plans to work to get those consumers to stay.
However, risk of member churn post-COVID-19 is another sticking point for investors, Jefferies analyst Stephanie Wissink said.
And the capitated primary care space has become increasingly competitive. In October alone, Walgreens doubled its stake in value-based medical network VillageMD, while senior-focused Oak Street Health acquired a virtual care provider to integrate specialty care into its model.
Dan Rubin said Iora helped to differentiate One Medical, citing the company's reach across pediatrics, adults, aging adults and seniors and its extensive geographic footprint as key competitive advantages.
"We feel very great about our positioning going into the new year," Rubin said.
One Medical plans to be in 28 markets soon. In the third quarter, the primary care network entered Raleigh-Durham, North Carolina, and upcoming launches include Houston; Milwaukee; Columbus, Ohio; the Miami, South Florida region; and Dallas-Fort Worth, Texas.
Iora is also expanding its payer clientele and subsequent pool of potential at-risk members. Historically, the value-based chain only contracted with a single health plan, Humana, but over the past several months has signed "several" new contracts with MA plans, including Aetna, Centene, Cigna, Devoted, UnitedHealthcare and Blue Cross Blue Shield plans, Dan Rubin said.
One Medical expects to add at least another 1,000 at-risk members by year's end, and at least 12,000 additional consumer and enterprise members. For 2021, the company expects to bring in revenue between $606 million and $615 million, representing almost 61% year-over-year growth at the midpoint.