1Life Healthcare, Inc's. (ONEM) CEO Amir Dan Rubin on Q4 2021 Results - Earnings Call Transcript

Feb. 23, 2022 9:03 PM ET1Life Healthcare, Inc. (ONEM)
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1Life Healthcare, Inc. (NASDAQ:ONEM) Q4 2021 Earnings Conference Call February 23, 2022 4:30 PM ET

Company Participants

Ken Goff - VP, Investor Relations

Amir Dan Rubin - Chairman, President & Chief Executive Officer

Bjorn Thaler - Chief Financial Officer

Conference Call Participants

Lisa Gill - JPMorgan

Jailendra Singh - Credit Suisse

Ricky Goldwasser - Morgan Stanley

Elizabeth Anderson - Evercore ISI

Sarah James - Barclays

Daniel Grosslight - Citi

Nick Spiekhout - William Blair

Jessica Tassan - Piper Sandler

Operator

Good day, ladies and gentlemen, thank you for standing by. And welcome to One Medical Fourth Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to your speaker host Ken Goff. Please go ahead.

Ken Goff

Thank you, operator. Hello, everyone, and welcome to One Medical's fourth quarter and full year 2021 earnings call. I'm Ken Goff, Head of Investor Relations; and I'm joined today by Amir Dan Rubin, Chair and CEO of One Medical; and Bjorn Thaler, Chief Financial Officer of One Medical. A complete disclosure of our results can be found in our press release issued earlier today, as well as in our related Form 8-K, all of which are available on our website, investor.onemedical.com. As a reminder, today's call is being recorded, and a replay will be available on our website.

As part of our comments today, we will make forward-looking statements. These statements are based on management's current views, expectations and assumptions and are subject to multiple risks and uncertainties. Actual results may differ materially, and we disclaim any obligation to update any forward-looking statements or outlook.

Please refer to the risk factors in our most recent annual report as updated from time to time by our other reports and filings with the SEC, including our quarterly reports. We believe that the COVID-19 pandemic continues to create particular complexity when it comes to providing a forward-looking view of the business, and we are providing our guidance on a good faith basis per recent SEC recommendations. We would like to specifically caution investors that our performance will be harder to predict for the foreseeable future. Our forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, February 23, 2022. Information contained in today's statement should not be relied upon as representing our estimates as of any subsequent date.

Of note, it is One Medical's policy to neither reiterate nor adjust the financial guidance provided on today's call unless it is also done through a public disclosure such as a press release or through the filing of a Form 8-K. Today, we will discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GAAP metrics can be found in today's earnings release. Finally, during the call, we may offer incremental metrics to provide greater insights into the dynamics of our business. These details may be one-time in nature, and we may or may not provide updates in the future.

And with that, I'll turn the call over to Amir.

Amir Dan Rubin

Thank you, Ken. And thank you, everyone, for joining us. The fourth quarter capped off an exciting year for One Medical, as we continued to perform, innovate and grow with our mission to transform health care for all, simultaneously delivering exceptional results for multiple key stakeholders.

We delighted even more members and extended our reach from a growing number of adults and children to even more seniors in risk-based model. We assisted even more employers, facilitating hybrid work environment with our hybrid model on virtual and in-person care to support employee recruitment and retention, improved levels of health and productivity and value-based care savings.

We further improved our environment for providers and our team with our built-for-purpose technology, operating systems and outstanding medical offices to even better position ourselves to be the best place in which to deliver health care and to innovate for the future.

And we continued advancing more highly coordinated care by digitally and clinically integrating care with health network partners and extending our senior health at-risk health plan relationships.

As we delivered for these stakeholders, we grew membership by 34% and achieved positive adjusted EBITDA prior to the acquisition of the Iora senior health business. In 2022, we will continue to advance better health, better care and better value and a better team environment to even more people across all stages of life and even more markets.

Now let me review in more detail our human-centered and technology-powered differentiated model and how we are continuing to simultaneously address the needs of and deliver positive impacts to multiple key stakeholders.

Our differentiated One Medical model has been designed to be human-centered with a unique membership orientation, facilitating low friction access to health care with our incredible team across virtual and in-person settings.

And it's also been designed to be technology-powered with our built-for-purpose software powering our team to offer longitudinal care across hybrid setting and helping us clinically and digitally align with health network partners and help coordinate high-value care across a continuum of settings and payment models.

Turning to our members. We hear that they continue to highly appreciate the health care experience and outcomes we deliver. Last year, we continued to deliver average Net Promoter Scores of 90 for member satisfaction. We continue to average 90% or greater annual member retention, including 90% or greater retention with our consumer members, 80% plus retention with our at-risk senior members and 90% plus enterprise annual contract value retention.

Our technology innovation, along with our hybrid model and dedicated team, continued driving high member engagement levels, which support our strong results. With our consumer and enterprise members, we averaged approximately 11 interactions per member last year, including approximately two times in-person and nine times digitally. Similarly, for our senior health population, we averaged more than 21 interactions per member, including approximately three times in-person and 18 times digitally.

In terms of growth, we saw a 34% increase in members year-over-year, reaching 736,000 members at the end of the last calendar year. Our member count includes 703,000 consumer and enterprise members, growth of 28% over last year; and more than 33,000 at-risk senior members, growth of more than 65% on a pro forma basis compared to Iora a year ago.

For this growing base of members, we continued delivering outstanding health outcomes and high-value care. This past December, the New York City Health Department once again showed us to be ranked first for viral load suppression among HIV patients. Our mental health services have been shown to drive a 50% reduction in severe anxiety in recent data from a health plan in one of our markets.

For diabetic patients, we achieved reductions in average blood glucose levels at twice what others have shown in publications, moving more patients from uncontrolled to controlled diabetes as per a peer-reviewed study published last year.

With our further expansion into at-risk senior health services, we're extending our premier experience to more and more aging adults and enabling better health outcomes.

Since the closing of the Iora acquisition last fall, we have been able to successfully bring One Medical senior members into at-risk senior health relationships in two legacy One Medical markets, showcasing our ability to align our senior commercial members into at-risk health programs.

Additionally, we've been able to demonstrate that we can retain our members and then reduce medical claims expense ratios over a series of years. For example, we continued to see declining medical claims expense ratios in all of our cohorts of at-risk patients, showing our ability to reduce avoidable costs and waste and improve health.

While our newest 2021 cohort had initial year one medical claims expense ratios above those seen for prior year one cohort due to COVID-related impacts, our prior year cohorts overall have continued to show year-over-year medical claims expense ratio decline.

More specifically, with our Medicare Advantage population, when comparing first year cohort medical claims expense ratios to last year's 2021 medical claims expense ratio, our 2017 and prior cohort has declined from 103% to 74%, our 2018 cohort has declined from 108% to 83%, our 2019 cohort has declined from 97% to 83%, and our 2020 cohort has declined from 98% to 91%, all of which you can see in our 10-K.

Beyond delighting our members, we continue to address the needs of employers. In 2021, we added approximately 500 new employers, now reaching more than 8,500 employers. We added employers in such sectors as entertainment, consumer goods, software, insurance, manufacturing, real estate, construction, biotech, education, financial services, professional services and many other sectors.

As we've extended our hybrid model to more and more markets, we are also gaining the attention of larger and larger employers. For example, we are delighted to begin rolling out One medical nationally to the employees and dependents of one of the nation's largest banks.

As previously noted last year, we also maintained an enterprise contract value retention rate of over 90%. And more than 75% of employer clients now extend the One Medical benefit to dependents.

We continue to hear from employers how they value that our model combines digital health, in-person care, testing, vaccination verification and care services, whole family care, pediatrics, behavioral health and care coordination with specialty services.

Moreover, employers are seeing that we not only are an outstanding benefit to support recruitment, retention and productivity of employees, but can also save them money. We have noted in the past a peer-reviewed study published in the Journal of American Medical Association, JAMA Network Open, how we saved an employer 45% on their health benefits costs.

Additionally, this past quarter, we received data from a regional commercial health plan, indicating that we achieved top-tier performance at the 90th percentile in avoidable emergency room visits for adults and at the 100th percentile for pediatrics in their accountable care offering.

We performed at the 95th percentile on value-based care measures such as avoiding unnecessary imaging for low back pain and at the 90th percentile in avoided medical admissions for ambulatory care-sensitive conditions, which includes such things as avoiding admissions for diabetes or hypertension by providing proactive primary care.

In addition to delighting members and employers, we're also transforming health care deliveries for our providers and teams. Our purpose-built model supports premier providers delivering longitudinal primary care, reducing burdens and frustrations experienced elsewhere. For example, we estimate that our technology platform requires 40% fewer tasks than providers would experience elsewhere with a major electronic health record system.

Our salaried provider model and dedicated support team facilitates our providers focusing on the health care needs of our members across digital and in-person modalities.

Our technology and team model stands in contrast to incentives and approaches so prevalent elsewhere, which focus on maximizing fee-for-service volumes, which can encourage lower-value transactional care, less longitudinal engagement with patients and greater provider burnout.

We believe we are the best place for primary care providers and our teams to deliver innovative health care, whether they seek to deliver care in-person or virtually, whether they serve children, adults or seniors and across markets around the nation. Accordingly, we believe that our model allows us to better attract and retain providers.

Indeed, we are pleased to share that Forbes and Statista have just recognized One Medical as one of America's best employers in the nation for the second year in a row. With our health network partners, we believe we can better coordinate care across the range of settings, owning the complexity of coordinating care on behalf of members and payers and delivering value-based stake [ph].

And we are continuing to grow our partnerships in markets. Today, we are pleased to announce a new partnership with Hartford HealthCare in Connecticut. Accordingly, we will continue to expand our reach with our national digital health presence and soon entering our 29th in-person market.

We are also working with a number of health network partners to further coordinate care for all our members, building upon our clinical and digital integration and alignment around value-based care. We believe these partnerships will be tremendously impactful and differentiated as we grow our senior health population.

We have also continued expanding our health plan relationships in our senior health at-risk model, growing from just one major health plan partner at the start of 2020 to eight health plan partners in 10 different markets by the end of 2021.

Adding multiple payers positions us to increase their growth potential and promote even higher retention levels as patients who might switch between health plans with which we contract may now be able to maintain their longitudinal provider relationship with us.

Looking back on the past 2 years, we expanded members by 74%, an increase from approximately 7,000 to more than 8,500 enterprise clients. We launched Remote Visits, our National One Medical Now virtual services, our Mindset behavioral health services, our Healthy Together COVID service, further extended our One Medical for kids services and extended further into at-risk senior care with the Iora acquisition.

At the same time, the volatilities and uncertainties that COVID has brought over these last 2 years will still continue and have some impacts on us in 2022, including volatility in member growth due to the vaccine verification members we served last year, lower COVID-related revenue from things like testing and assuming the lag in the return to more normal visit rates for non-COVID-related primary care, some staffing outages in the beginning of the year, driven by the surge in Omicron, and an increase in near-term medical expense ratios, driven by COVID.

Notwithstanding some of this overhang from these COVID-related factors, we believe we have never been better positioned to serve more people in more markets across every stage of life with better health, better care, better value and a better team environment.

We are making smart investments in our team, our technology and our growth. And we believe our strategic positioning has never been stronger. We'd like to thank our incredible human-centered and technology-powered team who continue in their dedication to transforming health care for all.

Now let me hand it over to our CFO, Bjorn Thaler, to take you through some of our numbers further. Bjorn?

Bjorn Thaler

Thanks, Amir. And hello to everyone joining us on today's call. As Amir discussed, One Medical today reported strong fourth quarter and full year 2021 results. Throughout the year, we continued our strong commercial goals, reached positive adjusted EBITDA in our pre-Iora business more than a year earlier than initially expected, significantly expanded our TAM with our entrance into the Medicare space, performed meaningfully better than our initial 2021 guidance issued about a year ago and closed the acquisition of Iora, performing in line with or better than the guidance we shared when we closed the transaction. We are confident that our model and approach to care, along with our expanded offering, will position us well to create long-term value.

On this call, I will walk through the fourth quarter and full year 2021 revenue drivers, discuss our expense and profitability metrics, touch on our balance sheet and cash position and provide color around our guidance for the first quarter and full year 2022. I'll remind you that we closed the acquisition of Iora on September 1st. So the fourth quarter is the first full quarter to include the full impact of our Iora's financial results.

We finished 2021 with a total member count of 736,000 members, representing growth of 34% over last year. At risk members grew to more than 33,000, reflecting growth of more than 65% compared to legacy Iora's at-risk member count at year-end 2020 and within the guidance range we provided last quarter, which is just under a third of our total at-risk members coming from direct contacting.

Consumer and enterprise members grew 28% year-over-year to 703,000, slightly above the top end of our range. And enterprise members now make up approximately 61% of total commercial members.

Keep in mind that as discussed on our Q3 earnings call, in the third quarter, we added 18,000 to 25,000 vaccine verification enterprise members, members who were asked by their employers to verify their vaccination status through One Medical, but who have not previously used us for their primary care and who we believe may surely [ph] in 2022.

While we will continue to work hard to showcase our capabilities to these members and convince that we have an opportunity to convert them into continuing One Medical users, we do not currently expect to retain most of these members.

Excluding 21,500 vaccination verification members, the mid-point of our estimated range, our total consumer and enterprise membership was up 24%, still showing very strong year-over-year growth.

This growth was driven by strong new sales, as well as continued high member retention. For example, we continued to retain more than nine out of 10 consumer members. And we retained more than nine out of 10 enterprise customers, as measured by enterprise contract value, with 75% of our total enterprise clients covering their employees and dependents.

At the same time, we signed approximately 500 new enterprise clients in 2021, with the average number of eligible lives per client increasing by more than 40% year-over-year, signaling our strong and growing value proposition in the market, particularly for larger employers.

At the time of our IPO, we said we were targeting membership growth in the low 20% range for the foreseeable future. Since year end 2019 and excluding the impact of the Iora acquisition and 21,500 vaccination verification members, we have grown at a compound annual growth rate of 27%.

Moving to revenue. Total net revenue for the fourth quarter grew 89% year-over-year to $230.2 million, $8 million above the high end of the guidance range we issued on our last earnings call. This growth and our performance compared to our guidance was driven primarily by our at-risk business, with Medicare revenues contributing $99.5 million to total net revenue in Q4.

Fourth quarter total commercial revenue came in at $130.7 million and up 7% year-over-year against the difficult comp with Q4 2020, revenue elevated by a meaningful increase in COVID-related services and associated revenues.

So while this past quarter's commercial revenue growth was driven by an increase in members, it was partially offset by a decline in COVID-related revenue compared to the prior year. Looking at the 2 year compound annual growth rate for our fourth quarter, it was a strong 30%.

Fourth quarter net fee-for-service and partnership revenue was $107.5 million, up 4% year-over-year. And membership revenue in the fourth quarter grew 27%, essentially in line with the growth in commercial members.

Q4 Medicare revenue was $99.5 million, with $96.7 million in capitated revenue and $2.8 million from fee-for-service and other Medicare revenue. Medicare revenue growth was driven primarily by growth in direct contracting as we aligned more fee-for-service Medicare patients to risk-based care.

Looking at Q4 revenue for legacy One Medical and Iora separately. Legacy One Medical revenue came in at $130.2 million, and Iora revenue came in at $100 million. As mentioned previously, going forward, we will no longer be discussing the legacy One Medical and legacy Iora revenue separately as we integrate our operations.

Turning to full year 2021. Total net revenue grew 64% to $623.3 million. This was driven by the inclusion of $130 million in Medicare revenue since the close of the Iora acquisition and continued strength in the commercial business. In 2021, commercial revenue increased 30% to $493.3 million, the third straight year of 30% growth.

Looking at One Medical excluding the impact of Iora, we had full year revenues of $492.7 million, approximately $8 million above the high end of our initial 2021 guidance provided on our Q4 2020 call.

Since the close of the acquisition on September 1, Iora contributed $130.6 million in 2021 revenue, more than $16 million above the high end of the guidance we provided in connection with the close of the transaction. Again, I will note that going forward, we will not be breaking these numbers out separately as we integrate our operations.

Moving down to P&L. Medical claims expense for the fourth quarter was $90.5 million, translating to a 94% medical claims expense ratio. Our third-party medical claims were modestly higher than we were expecting for the quarter, pressured by increased medical usage from deferred care with the late increase in COVID hospitalizations during the Omicron surge in December and into January.

As Amir mentioned, through the full year ended 2021, we continued to see meaningful improvements in medical claims expense ratios on a cohort basis with improvements compared to the prior year across all cohorts.

Cost of care, which we are recording on a consolidated basis, given our expectations to ultimately change care of most of our members in most of our clinics regardless of [indiscernible] mechanism, grew 44% in the fourth quarter year-over-year to $102.2 million, due primarily to the addition of Iora.

We also saw growth in COVID-related costs and continued our investments in our providers, support labor and new offices. Despite these investments, care margin came in at a strong $38 million, which was the high end of our guidance range, equating to 16% of revenue. As a reminder, this is the first full quarter since the acquisition of Iora.

Fourth quarter SG&A came in at $112.9 million. Adjusted for stock-based compensation and legal and integration-related costs, SG&A would have been $78.1 million or 34% of revenue, in line with recent quarters. And this is despite the addition of Iora, which will provide us with additional leverage opportunities for the combined platform going forward, as each incremental member better leverages our largely fixed cost base.

At the same time, we are continuing to make meaningful investments in our marketing capabilities, growing the team to help increase brand awareness and in preparation for new market launches. We also continue to build out our sales team as we grow across the country as well as our product and tech team to continue to further innovate and expand our technology.

As a result of these perpetual investments and the other dynamics we have discussed, adjusted EBITDA for the quarter came in at negative $40.6 million, at the mid-point of our guidance range.

Taking a look at the full year. We generated $188.1 million in care margin in 2021, up 30% from last year. Our care margin percentage came in at 30% for the full year, impacted by the inclusion of a partial year of Iora, which drove significantly higher revenue per member, but for 2021 at a negative care margin. And finally, adjusted EBITDA for full year 2021 was negative $34.9 million, a margin of negative 6%, driven by the dynamics I just shared.

Turning now to the balance sheet. We ended the quarter with $501.9 million in cash and marketable securities, a decrease of $88.1 million from the third quarter. This was primarily driven by $73.2 million in cash used for operating activities, which included a $20.4 million payment of accrued expenses primarily related to the Iora acquisition that we paid out in the fourth quarter, as well as a $5.9 million increase in accounts receivable and a $6.7 million decrease in operating lease liabilities, both due to the timing of certain payments.

We also had $19.7 million in capital expenditures over the course of the fourth quarter as we continued to invest in our geographic expansion and technology. We continue to believe that our cash and marketable security balance, together with our ability to moderate our discretionary spending, will provide us with sufficient liquidity to fuel our growth.

For example, we have previously mentioned that on average, we spend approximately $1.5 million for new office in capital expenditures, not counting initial start-up costs. In 2022, we expect to open between 30 and 40 new offices. Furthermore, we expect that at-risk members who are new to One Medical will continue to have a negative care margin in the beginning.

Our unique member model and longitudinal approach to care allows us to deploy alternate engagement strategies. For example, taking care of members on a fee-for-service basis in this Y H2 [ph] before taking full risk on these members in direct contracting. While this approach can reduce near term at-risk member growth and revenue, it can also reduce cash needs and boost profitability.

Turning to our outlook for the coming year. I'll start by reiterating what Amir said earlier. One Medical strategic positioning is as strong as it has ever been. We have grown our membership, revenue, geographic footprint and service offerings, while continuing to provide excellent service to our customers.

While COVID has introduced some near-term volatility, we remain on course for the long run. And we have executed on our long-term target set out as part of our IPO, with average membership growth of 29% and the revenue growth of 34% in the commercial business since 2019.

I'll also note that there has been some recent discussion about the future of the direct contracting program. We had approximately 10,000 direct contracting members as of year end 2021, which increased to approximately 13,000 as of January of this year. Our guidance today assumes that the program continues in its current form.

Starting with guidance for the full year 2022. We expect total members to come in between 830,000 and 852,000, year-over-year growth of 14% at the mid-point or growth of 18% excluding 21,500 vaccine verification members.

These vaccine verification members joined us predominantly in Q3 of 2021, yet these members did not come with much associated revenue. And at this point, we don't expect to retain most of these members in 2022.

Consumer and enterprise members are expected to range between 790,000 and 810,000, which implies 17% year-over-year growth, excluding these estimated vaccination verification members, and a 24% compound annual growth rate since 2019. And our at-risk members are expected to range from 40,000 to 42,000 networks, growth of 23% over 2021 at the mid-point.

We expect full year 2022 total net revenue to come in between $1.045 billion and $1.085 billion. Commercial revenue is expected to be between $530 million and $550 million, a guidance range which we believe to be appropriate, given the COVID-related volatility.

Speaking about COVID. COVID-related services provided on balance some temporary revenue tailwinds in 2021, and we project these revenue tailwinds to decrease significantly in 2022.

And while we are projecting a meaningful decline in COVID-related services over last year, we are at this point also projecting a lag in a return to more normal visit patterns for routine non-COVID-related primary care.

And looking at the Omicron surge in January, similar to many employers across the country, we also experienced some staffing outages due to an increase in affected team members, which resulted in some forgone revenue and higher costs. We estimate the year-over-year impact to revenue per member attributable to these COVID dynamics to be between 5 and 10 percentage points of revenue.

Looking at the mid-point of our 2022 commercial revenue guidance compared to prior to the pandemic in 2019, the 3 year compound annual growth rate is expected to be 25%, right in line with the expectations we set at the time of our IPO and prior to the pandemic.

Medicare revenue for the full year 2022 is expected to range from $515 million to $535 million, which implies growth at the midpoint of 32% compared to an annualized fourth quarter of 2021, our first full quarter including the senior business.

Care margin for the coming year is expected to range from $195 million to $215 million. At the mid-point, this implies growth of 35% over 4Q 2021's annualized run rate.

We believe this guidance is appropriate [ph], given the medical utilization we have seen with the surge of Omicron hospitalizations as we entered the year and which have since moderated.

Adjusted EBITDA for 2022 is expected to range between negative $135 million and negative $115 million for the year. At the mid-point of the range, that would imply a $37 million improvement over the annualized run rate from the fourth quarter of 2021.

And as I said earlier, despite near term COVID volatility, we will continue to invest in long-term growth, and we are planning to open 30 to 40 offices in 2022 as we continue to expand our national presence.

Now let me turn to guidance for the first quarter of 2022. We expect to end the quarter with total members in the range of 752,000 to 773,000, implied growth of 28% year-over-year at the mid-point.

The consumer and enterprise member count is expected to be between 715,000 and 735,000, which implies 21% year-over-year growth and 18% year-over-year growth, excluding the estimated vaccination verification members.

We expect at-risk membership to come in between 37,000 and 38,000 members, which at the mid-point would imply year-over-year growth of 76% compared to our Iora's member count as of the first quarter of last year.

We expect first quarter total net revenue to range between $240 million and $250 million. Commercial revenue is expected to be between $115 million and $120 million, slightly down year-over-year at the midpoint of the range due to the COVID-related impact, including the foregone revenue from Omicron-related staffing outages I mentioned earlier and given that Q1 2020 included an increase in COVID-related revenues and CARES Act funding.

Medicare revenue is expected to range between $125 million and $130 million, implied growth of 105% compared to Iora's revenue from Q1 2021 at the mid-point of the range.

First quarter care margin is expected to be between $35 million and $45 million, down from last year, given the inclusion of our at-risk business in our financial results and the COVID dynamics I discussed earlier.

Looking at our senior at-risk population, while we have continued to see our cohort medical claims expense ratios decline year-over-year, as previously described. We have seen an increase in COVID-related hospitalizations and associated costs due to Omicron, particularly in early January, though we have seen hospitalizations starting to moderate.

And finally, adjusted EBITDA is expected to range between negative $40 million and negative $30 million, down from last year, due primarily to the inclusion of the Medicare business and the other factors I already discussed.

In conclusion, One Medical performed very well in 2021, posting strong results in a challenging operating environment, expanding our offerings to all stages of life and growing our membership base, employer relationships, health network partnerships and geographic footprint. Despite COVID causing some near term volatility, our value proposition, long-term trajectory and financial outlook are as strong as ever.

And with that, we'll open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question coming from the line of Lisa Gill from JPMorgan. Your line is now open.

Lisa Gill

Thanks very much. Good afternoon, Bjorn and Amir. And thanks for all the detail. I just really want to start, Amir, with just a couple of your expectations. First, you did talk about the physician cost and the fact that some physicians were out because of Omicron.

But can you talk about what you're seeing on labor costs, are you seeing any issues around labor shortages? And within your guidance, did you have to increase any of those salaries that you have for your current physicians?

And then secondly, when we think about Omicron, can you just talk about what you have in that expectation of your medical cost trends for 2022?

Amir Dan Rubin

Yeah, Lisa. Thank you for the question. Yeah, a couple of things. I think first of all, we're not immune to certainly the broader factors that we're seeing in the economy in terms of labor. But I don't think we have any extraordinary or outsized issues there.

We certainly have factored into our projections any increased costs. And we did have to factor even a little bit incrementally more as we were heading into the New Year. So those are in our numbers, and those were factors we needed to consider.

In terms of Omicron impact, like as other employers saw, we did have some employees not able to come in. And that did impact us in the beginning of the year and towards the end of last year a little bit in terms of being able to accommodate our members.

And certainly, as we mentioned on the prepared remarks, we did see a little bit of that in our medical claims expense ratios. But we are seeing those begin to moderate and expect those to moderate through the end of the year.

Lisa Gill

Great. Thank you.

Operator

And our next question coming from the line of Jailendra Singh with Credit Suisse. Your line is open.

Jailendra Singh

Thank you. And good afternoon, everyone. Maybe if you guys can talk about your MLR expectations for Iora for 2022, maybe at least provide some directional color around quarterly cadence.

Just trying to understand that particular cohort, you see opportunity to improve MLR in 2022. Just give some color there or expectations next year.

Bjorn Thaler

Yeah, happy to. So yeah, we certainly do continue to believe that the medical claims expense ratio this year is going to be driven in part by COVID. Certainly, last year, we saw a fair bit of that playing out as well as COVID-related care. And certainly, if you look at 2021, that has contributed to higher medical costs in the near term among our population of patients. Maybe just as a reminder, we actually had 94% medical claims ratio in Q4 and 92% since the acquisition of Iora closed.

So as I then walk you through 2022, we are certainly projecting a moderation throughput this year to sort of more normalized numbers. Again, January, we did see some increase in hospitalizations, but our assumptions do expect a normalization throughout the rest of the year.

Jailendra Singh

Okay. Thank you.

Operator

And our next question coming from the line of Ricky Goldwasser with Morgan Stanley. Your line is open.

Ricky Goldwasser

Yeah, hi. Good evening. So two questions here. First of all, Amir, in your prepared remarks, you talked about the underlying assumption for 2022 that you're going to see a lag in return to routine primary care. So what are you seeing in the marketplace that makes you think that it's going to take us longer to get to normalized environment?

And then my second question is around your expectation for fiscal year 2022 burn rate, and just sort of how should we think about cash flow guidance?

Amir Dan Rubin

Yeah. Great, Ricky. Thanks so much. I'll start that, and maybe I'll hand it over to Bjorn as well. But - or I can just cover that. Yeah, in terms of the return to normalization, as we've mentioned in the past, over the past couple of years, we've seen our overall kind of visit levels, if you will, and utilization levels higher than pre-COVID, but that's when you include the COVID-related visits and testing and the things of that nature.

And when you look underlying that, when you exclude COVID-related testing and other visits, those routine visits haven't yet returned to pre-2019 levels. And in many markets across the country, we haven't seen people return to all of their normal activity, including return to the offices and other normal activities, including big group setting activities. So that leads us to be cautious in the projection as to when we see that routine primary care return.

In terms of the cash question, as Bjorn mentioned, we have more than $500 million in cash and marketable securities and believe we are well positioned there. We also have the ability to kind of moderate our growth and manage the level of at-risk patients that we take and the level of offices that we open. So we think we're well positioned there.

Bjorn Thaler

And maybe just to give you a little more color there. You obviously heard our adjusted EBITDA guidance year-to-date. When I think about the bridge to cash from there, we are expecting to open 30 to 40 new offices. The average CapEx per office is about $1.5 million [ph] as I mentioned. And those are really the two biggest pieces as I think about the cash flow here.

Even if you take a step back, historically, we've capitalized about probably $10 million to $15 million of technology spend every deal. Those are the big buckets as you think about bridge from adjusted EBITDA to cash.

Ricky Goldwasser

Thank you.

Operator

Our next question coming from the line of Elizabeth Anderson with Evercore ISI. Your line is open.

Elizabeth Anderson

Hi, guys. Thanks so much for the question. I was wondering if you could comment on the selling season in the commercial business and sort of how you're seeing that trend this year and any notable changes versus last year?

And then also if you could comment on your Iora synergy targets and how they're tracking versus your expectations? Thanks.

Amir Dan Rubin

Yeah. Thanks, Elizabeth. In terms of the employer segment, I'd say one of the things that we're starting to see that's pretty exciting, and we mentioned on the call today, is we're starting to attract the larger and larger employers. And we mentioned we've attracted also one of the larger banks, which is exciting to us. We also announced today on the call that we will be entering into our 29th market, again, making us more and more attractive to larger and larger employers.

Now as you start talking with the larger and larger companies, the lead times to roll those programs out sometimes can take a little longer and the processes of selling to those employers and rolling out programs might take longer. But in general, I would say nothing fundamentally different, except for the fact that we're attracting larger and larger employers.

In terms of the Iora synergies, we feel really good about the synergies and about the integration. We feel our integration is coming together extremely nicely, bringing together our teams, bringing together our technologies as well.

And then on the revenue side, we believe we're on track or even favorable to the midpoint of our revenue synergy. So feel very positive there.

Elizabeth Anderson

Perfect. Thanks.

Operator

And our next question coming from the line of Sarah James with Barclays. Your line is open.

Sarah James

Thank you. I appreciate the MLR breakdown by cohort. How should we think about the admin load assigned to that segment where - does MLR need to be to hit breakeven? And if you can just update us on your thoughts of when that segment may hit breakeven? Thanks.

Bjorn Thaler

Yeah. Good question. I think from the MLR perspective, obviously, for the total company, right, it's a question of really growth [ph] As I think you heard from Amir earlier today, our longitudinal approach to care actually provides us with a unique opportunity to - particularly in direct contracting to maybe take care of members for a year or two on a fee-for-service basis before we change the funding model here to an at-risk model.

And I think that is really something that obviously will impact revenue growth, member growth, but it will also impact our medical loss ratios, and it will impact EBITDA, given that where those cohorts coming early on tend to be negative. So I think we have a unique opportunity here.

When you look at the cohort, certainly our most, call it, mature cohort, which is sort of 2017 and prior, I think, is performing pretty well overall. You will see in our 10-K that we had sort of 74% medical loss ratio for 2021 in a year that overall was really challenging, given the COVID dynamics.

So we feel very good about our ability to continue to drive the financial results here on those cohorts. And really what you will see for the combined company is a question of mix and growth of the individual cohorts.

Sarah James

Got it. Any color on how you think about the admin load assigned to your Medicare segment?

Bjorn Thaler

Yeah. I mean the cost of care, obviously, is something that we are going to disclose on a combined basis. And that's really driven by the fact that we expect to take care of most of our members across most of our offices together.

You've heard and we had talked earlier about the engagement that we are designing with our members. And that's definitely something that we're going to do in all of our offices or most of our offices, notwithstanding that some of them might be specialized.

So really when you look at the total care margin guidance, I think that to me really sums up both the third-party medical cost as well as how much we need to invest into our business to take care of our members. And then on the SG&A side, that's really where I think you will see a lot of the leverage coming in from our largely fixed cost base between our two companies.

Sarah James

Thank you.

Operator

And our next question coming from the line of Daniel Grosslight with Citi. Your line is open.

Daniel Grosslight

Hi, guys. Thanks for taking the question. A bit of a bigger picture question for you. As you open up new offices, I think you mentioned 30 to 40 new offices this year. Do you intend to keep Iora and One Medical facilities separate? Or will they be consolidated under the One Medical brand?

And in geographies where there's both Iora and One Medical facilities, how are you thinking about combining those and saving a little bit on cost?

Amir Dan Rubin

Yeah. Thanks, Daniel. Yes, in general, we are indeed thinking of these as one set of One medical facilities and have already started bringing them together. For example, as we already stated, we're already taking risk in legacy One Medical offices, right. So we already have at-risk members in those markets.

Certainly, we have certain offices that were situated near the city center and offices that were situated near the senior center that may continue to attract different populations. And some city center offices aren't great for pediatrics or maybe geriatrics. And so we will have potentially different services in different offices.

But in general, we are thinking about this in a common way. So as we grow in a lot of suburban areas, those offices, those markets can serve all populations. Of course, we're leveraging common technology, corporate staff. We're bringing together our virtual team members. So these things are leveraged across the organization.

Daniel Grosslight

Got it. Thank you.

Operator

And our next question coming from the line of Ryan Daniels with William Blair. Your line is open.

Nick Spiekhout

Hey, guys. Nick Spiekhout in for Ryan. Thanks for taking my question. I guess we've been seeing kind of increasing competition in the MA payer market with churn rates increasing at a couple of the legacy payers that are losing members to kind of the newer entrants.

Just wondering how that's affecting churn at Iora, particularly with respect to [indiscernible] managed lives and then how that's impacted your 2022 expectations?

Amir Dan Rubin

Yeah. Thanks, Ryan. Well, I think as we noted, we went from one payer in the beginning of 2020 to more than eight - to eight payers now in 10 markets with multiple payers in each of our markets. So that certainly supports us well to be multi-payer if there is changes in any particular payer. And we did see that ability to retain some of those members that might have switched health plans that maybe we wouldn't have been able to retain in the past.

So certainly, that's positive news, and that allows us to kind of diversify our payer sources, if you will, and our opportunities for growth. Of course, we also have the opportunity through direct contracting as well. So those things are indeed factors, and that's why we are growing our member base.

Having said that, we grew our revenue and our members really nicely and felt really good about that. But certainly are preparing ourselves to - and continuing to be multi-payer.

Nick Spiekhout

Great. Thanks for the color.

Operator

Our next question coming from the line of Jessica Tassan with Piper Sandler. Your line is open.

Jessica Tassan

Hi. Thank you so much for taking the questions. So I think we were just focused on the vaccine verification members. Can you just remind us maybe of the impact those members have on each of your three patient - patient revenue lines?

And then just help us understand if anything kind of changed with respect to your view on the potential to convert those members to traditional paying or primary care One Medical members? Thank you.

Bjorn Thaler

Yeah. I'll take that one. So from the revenue perspective, these members actually do not contribute the meaningful amount of revenue in 2021, and we certainly don't expect them to do in 2022.

The reason for that, if you recall, given our membership model, our employers are paying us on a per employee per month basis typically. So they are paying for all of their employees or they tend to pay for all of their employees, I should say.

So just by us signing up these members and providing additional verification services to the employer, we really did not generate meaningful incremental revenue on those members in 2021.

What we did do, however, is obviously deepen our relationship with their employers, with their benefits teams. So that's one of the main reasons why we said, yes, let's do that, let's integrate [ph] customer service.

In terms of our ability to retain them in 2022, we certainly think we have a great opportunity to keep showcasing our capabilities to them. I think that is a great opportunity for us.

But when you take a step back, these are, in fairness, employees of customers or enterprise customers, who have in the past not interacted with us. They were now asked by an employer to sign up with us, so they can verify their vaccination status.

That's why at this point, I'm not necessarily assuming to retain most of those members. But we'll certainly continue to educate them about the benefits that they have and our value proposition.

Jessica Tassan

Thank you.

Operator

Thank you. And that's all the time we have for our Q&A session today. I would now like to turn the call back over to Mr. Amir Rubin for any closing remarks.

Amir Dan Rubin

Well, I'd like to thank everybody for joining our session today and for all of your enthusiasm and support for One Medical and our mission to transform health care for all. Have a great evening, everybody. Thank you so much.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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