Revenue from capitated contracts now makes up half of One Medical’s net revenue, even though the primary care provider’s at-risk members comprise just 5% of its total membership, according to new financial filings.
The discrepancy, coming roughly a year after One Medical’s entrance into capitation with its acquisition of value-based medical group Iora Health, illustrates how lucrative capitated Medicare programs can be for managed care organizations.
In the at-risk arrangements, participating organizations like One Medical receive per-member-per-month payments for managing patients’ healthcare needs and associated spending, with the goal of capturing income by controlling costs.
And One Medical, which is pending a $3.9 billion acquisition by Amazon, expects the trend to continue.
“We expect our Capitated Revenue to increase as a percentage of total net revenue in future periods,” One Medical disclosed in a 10-Q filed with the Securities and Exchange Commission on Wednesday.
When San Francisco-based One Medical nabbed Iora for $1.4 billion last June, some aired concerns the merger was a marriage of two opposing operational models. One Medical operated in fee-for-service arrangements, with the majority of its business coming from charging commercially insured members per-visit fees.
However, the provider’s third-quarter results illustrate how drastically its revenue streams have shifted over the past year.
Of One Medical’s $261.4 million in net revenue in the quarter, 50% was from capitated arrangements in Medicare. Its next-largest source of revenue, partnerships with health networks and enterprise clients, made up just 25%.
Overall, Medicare revenue made up 51% of One Medical’s revenue, and commercial revenue 49%.
By comparison, in the third quarter of 2021 — the first time One Medical’s financials included Iora’s operations, though it only contributed a month of revenue — partnership revenue accounted for 36% of net revenue, and capitated revenue made up 20% of net revenue.
One Medical’s fluctuating revenue streams are especially notable in light of its membership breakdown. Despite capitated arrangements now bringing in the majority of revenue for the primary care operator, it manages care for only 40,000 at-risk members compared to the 775,000 members who join either individually as consumers by paying an annual membership fee or are sponsored by payers or employers.
Despite skyrocketing capitated revenue, One Medical’s bottom line still depends heavily on how well it can control member costs. The company said in the filing that its medical claims expense is expected to increase as its capitated revenue does in the future, which could hamper potential earnings growth as One Medical — which has a history of significant losses — chases profitability.
One Medical’s medical claims expense ratio — how much it pays on claims for its at-risk members divided by the capitated revenue they bring in — was 78% in the third quarter, as it brought in $130.8 million in capitated revenue but spent $102.2 million on claims.
That’s compared to 87% at the same time last year.
Amazon announced it was buying One Medical in July as the e-commerce giant looks to build out its healthcare delivery business. Analysts noted that Amazon, with its extensive data experience, could help One Medical with risk management in its value-based arrangements.