Skip to main content
The Keckley Report

Primary Care Gatekeeping Plus Capitation: is it the Right Combination?

By August 10, 2020March 1st, 2023One Comment

Last Thursday, Chicago-based Oak Street Health (OSH) became the latest healthcare services company to become a publicly traded corporation. Its underwriters set its share price at $21. Investors liked the company’s story driving its price to $43.47 at mid-day Thursday and before settling at $39.00 as markets closed Friday. Not a bad week for its investors, especially insiders and underwriters who owned shares prior to the IPO. And not a bad start for the company which netted $328 million to fund its expansion plans.

Oak Street Health operates 54 primary care centers in 9 states. It targets seniors who are Medicare Advantage members who “appreciate more time with doctors, getting rides to and from appointments and same-day scheduling. From fitness classes to Medicare help, we’re here to give you more time, more support and more understanding about your health.” It calls itself as a “scrappy” organization that makes decisions with “imperfect information on the fly” while “radiating positive energy” among its caregivers.

In its pitch, youthful CEO Mike Pykosz, a 2007 Harvard Law grad, takes dead aim at unnecessary hospital use as the key to the company’s operating philosophy: “The quality of care for older adults in America isn’t working today, despite the U.S. spending more than any other country on healthcare…We created an integrated model that provides measurably higher quality care, a vastly improved patient experience, at a lower cost, that keeps our patients happy, healthy and out of the hospital.” Co-Founder and Chief Medical Officer Griffin Myers, a Harvard-Northwestern trained internist, describes the company’s focus as “value-based primary care services”.

Rounding out its youthful leadership team is a seasoned board. Its 11 members include representation of Blue Cross Blue Shield of RI and Humana, investors General Atlantic and Newlight Partners and two independent directors experienced in technology and health policy.


Health costs are unsustainable prompting consumers, employers, insurers, and government purchasers to reduce spending.
According to a Centers for Medicare and Medicaid Services, national health care spending reached $3.81 trillion in 2019 and is projected to increase to $4.01 trillion by the end of 2020 and $6.19 trillion by 2028. It projects that Medicare spending will increase 7% annually and its hospital trust fund will be insolvent by 2026 as 10,000 seniors enroll daily and pressure to reduce soaring federal deficits mount among lawmakers. Employers are cutting back on employee health benefits and consumers are increasingly unable to afford their healthcare premiums and out of pocket obligations.
Primary care gatekeeping is the optimal strategy to control population-health costs by reducing demand for hospitals and specialists through aggressive, holistic, primary, and preventive health.

Direct access to specialist services coupled with annual medical inflation for technology and drugs and hospital price increases create a health spending tsunami that can be mitigated only by primary care gatekeeping. In developed systems of the world countries with equivalent or better outcomes, spending for primary care is 12-14% of total spending; in the U.S., it’s 5.5%-7.7%. Oak Street is betting its primary care centric model will outperform alternative payment programs proposed by CMS for its fee-for-service providers with better outcomes for its patients and lower health costs for its customers—sponsors of Medicare Advantage plans.


Technology and Data (Oak Street Health Canopy Platform)
The use of technology and analytics to customize care, reduce error, align social determinants with unique personal services needs and manage referrals for additional services required.

Whole Person Care
A holistic clinical model that integrates physical, emotional, and behavioral interventions via clinicians, counseling, fitness and nutrition coaches, prophylactic vision and dental care focused on senior wellbeing. Care teams led by physicians/nurse practitioners meet daily to discuss patient needs and necessary interventions. They are encouraged to spend more time with patients and performance bonuses are tied to patient outcomes and quality of care, not the volume of patients seen. The care teams are central players in the “Oaky culture”.
Capitated Arrangements with Insurers
9 in 10 of Oak Street’s seniors are Medicare Advantage enrollees: Humana’s MA plan accounted for 49% of its corporate revenues last year alone. That means its revenues are predictable and its business proposition for plans is based on how much Oak Street directly contributes to lower medical costs for their enrollees.
Most Oak Street patients are scheduled for 8 in-person visits annually. Telehealth is embedded in its care management regimen to augment in-person visits and frequent interaction with members of the Oak Street care team is encouraged.

It seems to work: in its SEC S-1 filing July 10, it reported a “51% reduction in hospital admissions, 42% reduction in 30-day readmission rates and 51% reduction in emergency department visits, all while maintaining a Net Promoter Score of 90 across our patients based on survey data we gathered from patients after their physician visits from June 2018 until March 2020.”


Primary care gatekeeping featuring whole-person care in tandem with capitated payments by health insurers and large employers is gaining momentum.  It’s also gaining traction in states that offer Medicaid managed care plans and in Medicare Advantage plans that now serve 27 million seniors. In January, San Francisco-based One Medical (ONEM) which operates primary care clinics for large employers, completed its IPO. Primary care expansion plans by Optum Health, Walmart, Walgreens, CVS, and private equity-backed upstarts like Palladina, ChenMed, Privia, Iora and others have been announced. It’s understandable: chronic diseases account for 75% of health spending in the U.S. system and a third of these can be mitigated through aggressive primary care gatekeeping.

Today, 49% of all primary care physicians are employed by a hospital/health system—up 11% since 2016. The rest practice in large independent medical groups or they are employed by the likes of Oak Street or One Med. For hospitals, strengthening the gatekeeping role of their employed primary care providers is dicey: restricting access to specialists and lowering utilization of hospital services means less revenue and internal tension.  It’s easier to dabble in shared risk arrangements with insurers than accept full financial risk via capitated payments. But in many markets, it’s inevitable thus requiring dramatic re-thinking of the hospital’s primary care business strategy.

The tandem of primary care gatekeeping and capitation is not new to U.S. healthcare: it’s foundational to many integrated health systems like Kaiser and was briefly the norm in the mid-1990’s as insurers embraced capitation with limited success. What’s new is its context: health costs, medical inflation, affordability, access, social determinants, and chronic disease prevalence are better understood and data enabling delineation of unnecessary and non-evidence-based interventions more widely used.

When the stock market opens this morning, Oak Street Health will operate in its first full week as a publicly traded company with a market capitalization of $9.3 billion and its stock trading at $37.11 per share. It has piled up $369.4 million in losses since its beginning, but investors think they’re onto something despite all the risks.

But for its members, that doesn’t matter. Consumers care less about ownership and more about the value of the service they purchase. What matters to them is their health and wellbeing and no surprises about what they’ll pay.

That’s the future for primary care. The youthful leadership and seasoned board of Oak Street see it along with others.  Time will tell if they’re right.

P.S. The U.S, represents 4% of the world population but 22% of Covid-19 deaths. This New York Times piece unpacks the sequence of events and miscues that have hampered the U.S. response. Worth reading.


Oak Street Heath;

One Medical;

Luisa Beltran “This 8-Year-Old Health Care Start-up Has a Market Cap of $9 Billion. Here’s What Happened” Barrons August 6, 2020;

Karen Robinson-Jacobs “Shares In Senior-Focused Oak Street Health Jump 90% In Market Debut” Forbes August 6, 2020

Tomi Kilgore “Oak Street Health’s stock paces NYSE gainers on first day of trading” MarketWatch August 6, 2020;

Atul Gupta, Sabrina T. Howell, Constantine Yannelis, Abhinav Gupta “Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes” November 2019;

John Hechinger, Sabrina Willmer “Life and Debt at a Private Equity Hospital” Bloomberg August 6, 2020


2019 Patient-Centered Primary Care Collaborative (PCPCC) Evidence Report;

Fisher et al “Financial Integration’s Impact On Care Delivery And Payment Reforms: A Survey Of Hospitals And Physician Practices” Health Affairs August 2020

Furukawa et al “Consolidation Of Providers Into Health Systems Increased Substantially, 2016–18” Health Affairs August 2020;


Executive Orders Week of August 3-7:

  • President Trump issued an Executive Order, Improving Rural Health and Telehealth Access that directs the Department of Health and Human Services (HHS) to create mechanisms that offer rural providers flexibilities from Medicare rules that enhance use of telehealth, facilitate predictable reimbursement and encourage value-based payment arrangements.

  • President Trump signed Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States Thursday that would require the federal government to buy “essential medicines” and certain medical supplies from American manufacturing plants, the Food and Drug Administration has 30 days to make a list of medications, drug ingredients and medical devices that federal agencies would have to purchase from U.S. manufacturing facilities. The executive order does not apply if the drugs and supplies are not already made in the U.S., or if the policy would “cause the cost of the procurement to increase by more than 25 percent.”

The White House “Executive Order on Improving Rural Health and Telehealth Access” August 3, 2020

The White House “Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States” August 6, 2020;


Missouri Becomes Second State to Expand Medicaid this Year

Last week, Missouri voters approved Medicaid expansion initiative Amendment 2 by a vote of 53% to 47%. expanding Medicaid eligibility to adults between the ages of 19-65 whose income is at or below 138% of the federal poverty level (annual income of $17,608 for an individual and $36,156 for a household of four). Oklahoma was the most recent state to approve Medicaid expansion in June passing with 50.5% of the vote.

Rachel Roubein “Missouri voters latest to approve Medicaid expansion” Politico August 5,2020

CMS Releases 2021 Proposed Outpatient Prospective Payment Rule

Last Tuesday, CMS proposed a 2.6% pay raise for Medicare outpatient services in its proposed 2021 outpatient prospective payment system rule. Highlights:

  • Total payments to providers would increase by $7.5 billion to nearly $84 billion.

  • Reimbursements for 340B-acquired drugs will be at average sale price minus 28.7% (the 2020 rate is ASP minus 22.5%)

  • The addition of 11 procedures delivered in ambulatory surgical centers, including total hip replacements, and phase out of the inpatient-only list over three years. ASCs would get a 2.6% pay increase under the proposed rule, increasing their total payments by more than $5 billion to about $160 billion in 2021.

  • Urban hospitals would get a wage index boost of about 0.2%, while rural hospitals would get a raise of about 0.4%.

  • Streamlining hospital star rating system adjusting for patient severity, readmission rates et al.

  • Relaxation of supervision requirements for outpatient therapeutic services in hospitals and critical access hospitals by allowing allow physicians to directly supervise pulmonary rehabilitation, cardiac rehabilitation, and intensive cardiac rehabilitation services using telehealth technologies

  • Allowance physician-owned hospitals to apply to expand prohibited in the Affordable Care Act.

Michael Brady “Providers miffed by CMS plan to boost physician-owned hospitals” Modern Healthcare August 6, 2020;

Unmet Home Care Needs of Medicare Fee for Service Enrollees Significant

The geriatrician research team analyzed fee-for-service Medicare beneficiaries ages 65+ surveyed in the National Health and Aging Trends Study between 2011 and 2017. Key findings:

  • 5% of those surveyed received any home-based medical care between 2011 and 2017 (mean follow-up time per person was 3.4 years) and 75% of home-based medical care recipients were homebound.

  • 11% of the total homebound population (4.4 million fee-for-service Medicare beneficiaries in 2017) received any home-based medical care between 2011 and 2017.

  • Receipt of home-based medical care was more common among homebound beneficiaries living in metropolitan areas and assisted living facilities. The significant unmet needs of this high-need, high-cost population and the known health and cost benefits of home-based medical care should spur stakeholders to expand the availability of this care

Reckrey et al “Receipt Of Home-Based Medical Care Among Older Beneficiaries Enrolled In Fee-For-Service Medicare” Health Affairs August 2020 David Leonhardt “The Unique U.S. Failure to Control the Virus” New York

Times August 7, 2020;

BLS July Jobs Report: Modest Gains

Healthcare added an estimated 125,500 jobs in July vs. 351,600 added in June, according to preliminary data released Aug. 7 by the Bureau of Labor Statistics.

  • Ambulatory services added 126,200 jobs last month vs. 367,800 in June.

  • Hospitals added 27,400 jobs in July vs. 2,100 they in June—a number the BLS revised down from its initial June projection of 6,700 jobs.

  • Overall, the economy added 1.8 million jobs and the unemployment rate fell 0.9 percentage points to 10.2%.

U.S. Bureau of Labor Statistics

Physician-Hospital Integration Not Associated with Improved Quality

Researchers analyzed 739 hospitals and 2189 physician practices stratified according to whether they were independent or were owned by complex systems, simple systems, or medical groups. Key findings:

  • Quality scores favored financially integrated systems for four of nine hospital measures and one of nine practice measures, but in no case favored complex systems. Greater financial integration was generally not associated with better quality.

  • The majority of hospitals reported participating in payment reform initiatives (82% for those in complex systems, 83% for those in simple systems, and 62% for independent hospitals).

  • More than 80% of practices reported participating in at least one payment reform model, and a majority of practices were involved in an accountable care organization (ACO). Fewer than 30% of practices of any type reported that they were located in a very competitive market; this differed little by ownership status.

“We found little relationship between financial integration of hospitals and physician practices and better quality, as measured by higher levels of adoption of care delivery and payment reforms… Bigger system size was not associated with better scores.”

Furukawa et al “Consolidation Of Providers Into Health Systems Increased Substantially, 2016–18” Health Affairs August 2020;

VA Choice Program: Vets Experiences in Community Clinics Improved but Access Remains Problematic

Timely access to outpatient care was a primary driver behind the Department of Veterans Affairs’ (VA’s) increased purchase of community-based care under the Veterans Access, Choice, and Accountability Act of 2014, known as the Choice Act and the VA Maintaining Internal Systems and Strengthening Integrated Outside Networks Act of 2018. Researchers compared veterans’ experiences in VA-delivered and community-based outpatient care after implementation of the act for outpatient specialty, primary, and mental health care received during 2016–17. Findings:

  • Patient experiences were better for VA than for community care in all respects except access. For specialty care, access scores were better in the community; for primary and mental health care, access scores were similar in the two settings.

  • Although all specialty care scores and the primary care coordination score improved over time, the gaps between settings did not shrink.

Megan E. Vanneman et al “Veterans’ Experiences With Outpatient Care: Comparing The Veterans Affairs System With Community-Based Care” Health Affairs August 2020

One Comment

  • tadalista 40 mg says:

    <b> <a href=""&gt; tadalafil 40 mg </a> </b> pills have Tadalafil as its rule dynamic fixing which is accessible in 40 mg quality. It is reliable to impact out the concern around the pelvic organs by releasing up the smooth muscles and giving ample circulation system to the penis. This prompts increment a harder erection for a more drawn out term during sex.