Sargam Choudhury
PM827 Strategic Management of Healthcare Organizations
Case Study Analysis 2
3/5/2025
Oak Street Health’s success was tied to the evolving healthcare landscape, which
provided both opportunities and challenges. The growing shift toward value-based care created
an opening for Oak Street’s model to thrive, as it emphasized proactive primary care designed
to reduce hospitalizations and improve outcomes for elderly patients in underserved
communities. Medicare Advantage, a major payer for Oak Street, had expanded significantly,
with enrollment increasing from 37% to 51% of Medicare beneficiaries in the years leading up to
its acquisition by CVS. This meant that more seniors were entering risk-based care
arrangements, making Oak Street’s capitated payment model highly relevant. However, there
were potential threats as well. The Centers for Medicare and Medicaid Services (CMS) started
scrutinizing risk adjustment payments and making changes to its reimbursement models, which
could impact Oak Street’s financial performance. Additionally, operating in low-income areas
meant managing social determinants of health that could make cost savings more challenging.
What set Oak Street apart was its fully integrated, patient-centered approach. Unlike
traditional primary care settings, Oak Street’s clinics were designed with a strong community
focus. Instead of standard waiting rooms, they featured community spaces where patients could
participate in social events and educational programs. Their high-touch care model involved
small patient panels, with each physician responsible for 400-500 patients, allowing for more
personalized and frequent interactions. This model led to a 51% reduction in hospital
admissions and a 42% drop in 30-day readmissions compared to Medicare fee-for-service
benchmarks. By reducing unnecessary hospital visits and improving chronic disease
management, Oak Street achieved financial profitability by year three, which is an impressive
feat in healthcare. The company’s ability to negotiate capitated contracts also ensured stable
revenue streams while incentivizing better care.
A major strategic decision for Oak Street was the development of its proprietary
electronic medical record (EMR) system, Canopy. Unlike off-the-shelf platforms like Epic or
Cerner, Canopy was designed specifically for Oak Street’s value-based model. It integrated
patient data from multiple sources, used machine learning to predict health risks, and
streamlined workflows to reduce administrative burdens on clinicians. This system was
instrumental in maintaining efficiency across Oak Street’s expanding footprint, ensuring that new
centers could rapidly scale and replicate the organization’s success. Building Canopy in-house
was likely the right move; it allowed the company to fine-tune its platform to support proactive,
team-based care, rather than adapting to a generic system not designed for its unique
approach.
With the acquisition by CVS, Oak Street’s CEO, Michael Pykosz, faced critical strategic
considerations. First, he needed to determine how Oak Street could leverage CVS’s vast
resources while preserving its core identity. CVS’s existing healthcare assets, such as
MinuteClinics and Caremark, its pharmacy benefit manager, offered potential synergies, but
integrating these without disrupting Oak Street’s model required careful planning. Second, the
expansion strategy needed to be reassessed. Should Oak Street concentrate growth in existing
markets where infrastructure was already in place, or expand into new regions where CVS had
a strong presence? Another key factor was whether to broaden Oak Street’s model to serve
non-Medicare populations, such as Medicaid patients or younger adults with chronic conditions.
Finally, cost optimization was crucial. With CVS expecting each Oak Street center to contribute
$7 million in EBITDA at maturity, Pykosz had to explore ways to streamline operations without
compromising care quality, perhaps by consolidating telemedicine and IT functions across the
two organizations. In the end, Oak Street’s future under CVS hinges on striking a balance
between leveraging the scale of a healthcare giant and maintaining the personal, high-touch
approach that made it successful in the first place.
Sargam Choudhury
PM827 Strategic Management of Healthcare Organizations
Case Study Analysis 2
3/5/2025
References
Leemore Dafny; Thomas H. Lee (2024). Oak Street Health: From Start-up to Strategic
Acquisition. Harvard Business School, Product #9-324-053, 22p.
