Oak Street Health’s stock fell 20% today after the company disclosed it’s facing an inquiry from the Department of Justice. In a Monday filing, the company shared that the DOJ is investigating whether the company might have violated the False Claims Act, specifically looking into its relationships with third-party marketing agents and its provision of free transportation to patients.

In a Monday afternoon earnings call, CEO Mike Pykosz said the company plans to cooperate with the DOJ’s investigation, but had little else to share about it, noting the company just got a civil investigative demand a week ago.

“We haven’t had any meaningful dialogue with the DOJ. We’re still learning as well,” he said.

The inquiry doesn’t necessarily mean Oak Street will face litigation, but the process could take months as the DOJ investigates.

The agency has launched several recent False Claims Act investigations related to Medicare Advantage plans. In many of these cases, the DOJ has alleged that insurers wrongfully inflated payments for Medicare Advantage plans, where private insurers receive a set amount from Medicare based on a patient’s risk score.

Earlier this year, Sutter Health paid $90 million to settle allegations that it had submitted inflated diagnosis codes for certain Medicare Advantage Beneficiaries. The agency also recently filed a lawsuit against Kaiser Permanente, alleging that it had altered patients’ records to add diagnoses that weren’t related to their visit.

Oak Street Health does not provide insurance, but it has struck risk-based contracts with Medicare Advantage plans, including ones administered by Humana, Wellcare and Cigna. It operates primary care centers for Medicare patients, and provides transportation to appointments.

When an analyst asked about the investigation, including whether the company had gotten any leads from third-party insurance agents, and if there was any relationship between that and the DOJ’s inquiry into its transportation services, Pykosz demurred.

“I’m not really sure what the link is,” he said. “I’m still trying to get my hands around what the inquiry is based on and what information they’re looking for.”

Covid’s continued effect
For the third quarter, Oak Street Health reported revenues of $388.7 million, a 78% increase from the same period last year. But it also saw its net loss widen, increasing from $59.3 million in the third quarter of 2020 to $109.9 million in the third quarter of 2021. It has a total of 131,500 patients, the majority of which are through its risk-based contracts.

As with other companies, the Covid-19 pandemic continues to affect Oak Street Health’s business. Because so many patients skipped doctor’s appointments last year, or clinics were closed, Oak Street said its new patients in 2021 had lower than average risk scores, meaning it got less capitated revenue.

It also saw a pattern of lower medical claims last year as more patients deferred care, but saw higher than average medical costs from late 2020 through the second half of 2021.

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