From Bloomberg Businessweek:
Oak Street’s [a 9-year-old company seeking to reinvent care for Medicare patients with low incomes and chronic health problems] business model is possible because of the way it gets paid. Doctors and hospitals traditionally have fee-for-service arrangements, where each test, procedure, or hospital trip generates a payment. The most intense specialty care is often the most lucrative. Critics say this system directs too much time and money to expensive, needless services, while other valuable care—such as preventive screening—is neglected.
Oak Street and others flip this model through agreements with private plans that receive a monthly per-patient fee from Medicare. The plans then pass most of that fee on to Oak Street for patients who sign up. The company takes on the risk for those patients’ total cost of care.
This setup lets Oak Street profit if its members’ medical costs are below what Medicare pays. To avoid costly hospital visits, the company seeks to deliver a high “dosage of primary care,” Myers says. It aims to see its most vulnerable patients about every three weeks. Even the healthiest members are encouraged to visit primary-care providers every three months.
Oak Street executives say this approach saves money, though a report last year in the journal Health Affairs cautioned it could increase total spending. Medicare pays health plans more for taking care of patients with greater documented health problems. The higher payment is intended to keep plans from cherry-picking healthy members. But it means Oak Street and its health plan clients boost monthly revenue by documenting their members’ health conditions, even if they’re not able to reduce their medical costs. “These organizations are living in a relatively cash-rich environment, where they can take those dollars and invest in trying to do good for their patients,” says Amol Navathe, who sits on the Medicare Payment Advisory Commission and is a health economist at the University of Pennsylvania.