OAK STREET HEALTH, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help the reader understand
our business, financial condition, results of operations, liquidity and capital
resources. This discussion should be read in conjunction with our unaudited
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q and our audited financial statements and the
accompanying notes as well as the sections entitled "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our 2021 Form 10-K.

The discussion contains forward-looking statements about the business,
operations and financial performance of the Company based on our current
expectations that involves risks, uncertainties and assumptions. Actual results
could differ materially from those discussed in or implied by forward-looking
statements as a result of various factors, including those discussed above in
"Forward-Looking Statements," as well as those discussed under the "Risk
Factors" section in our 2021 Form 10-K.

Business Overview

Oak Street Health, Inc. (collectively referred to as "Oak Street Health," "OSH,"
"we," "us," "our" or the "Company") was formed as a Delaware corporation on
October 22, 2019 for the purpose of completing a public offering and related
restructuring transactions (collectively referred to as the "IPO") in order to
carry on the business of Oak Street Health, LLC ("OSH LLC") and its affiliates.
As the managing member of OSH LLC, Oak Street Health, Inc. operates and controls
all of the business affairs of OSH LLC and its affiliates. Our common stock
trades on the New York Stock Exchange ("NYSE") under the ticker symbol "OSH."

Oak Street Health was designed to provide and manage Medicare-eligible patients'
total healthcare through capitated, value-based arrangements. We created a new
care platform because the then-existing primary care infrastructure was not
built with the capacity to drive the significant improvements in cost and
quality the current health system needs. We decided to focus on the Medicare
market due to its size, growth tailwinds and largely clinically cohesive
population. We designed our platform to take risk in managing patients' health
below an agreed-upon baseline cost because we believed there was a meaningful
opportunity to produce system-wide cost savings by changing where and how
patients' healthcare is delivered. Our platform's design has included
investments in technology and patient-centered, community-based care delivery to
create a different and, we believe, better approach to addressing the needs of
high-risk Medicare-eligible patients.

As of June 30, 2022, the Company operated 144 centers across 20 states, which
provided care for approximately 191,000 patients. We, together with our
affiliated physician practice organizations, employ approximately 5,300 team
members, including approximately 500 primary care providers. Our operations are
organized and reported under one segment.
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COVID-19 Update on our Business

On March 11, 2020, the World Health Organization designated COVID-19 as a global
pandemic. The rapid spread of COVID-19 around the world and throughout the
United States has altered the behavior of businesses and people, with
significant negative effects on federal, state and local economies, the duration
of which is unknown at this time. Various policies were implemented by federal,
state and local governments in response to the COVID-19 pandemic that caused
many people to remain at home and forced the closure of or limitations on
certain businesses, as well as suspended elective procedures by health care
facilities. The on-going COVID-19 global pandemic disproportionately impacts
older adults, especially those with chronic illnesses, which describes many of
our patients.

The COVID-19 pandemic has impacted both our per-patient capitated revenue and
medical claims expense. Throughout the pandemic, our risk scores for existing
Oak Street Health patients have been consistent with our historical experience.
New patients in 2021 had lower risk scores than what we would expect based on
historical experience, due to a lack of availability of care in 2020 as the
healthcare system was inaccessible to non-Oak Street Health patients for several
months in 2020 because of local COVID-19 restrictions. As we are able to more
completely and accurately document both current and new patients' health
conditions, we expect that risk scores will increase to reflect the true
severity of these patients' conditions, which we would further expect to result
in increased revenue for our 2022 fiscal year. It is unknown to us at present
how significantly, if at all, this new patient risk score dynamic might impact
our business during the full 2022 fiscal year.

As we are financially responsible for essentially all of the healthcare costs
associated with our at-risk patients whether we provide that care or a third
party provides that care, we suspect that the healthcare costs of patients
infected with COVID-19 will be greater than had COVID-19 not occurred. It is
impossible, however, to know what other healthcare issues these patients may
have encountered in their pre-COVID-19 lives and whether the COVID-19 costs are,
or will be, greater or lesser than the costs these patients would otherwise
incur. Because of the COVID-19 related volatility in medical cost data in 2020
and 2021 and the surge in COVID-19 cases at the end of 2021 and beginning of
2022, we do not believe that these periods can serve as a reliable basis for
estimating our future performance and do not know what the impact from COVID-19
will be on medical costs in the future. Given these factors, per-patient medical
costs may be greater for the full 2022 fiscal year than the levels we
experienced in our recent historical results. We do believe, however, that the
impact of on per-patient revenue and medical claims related to COVID-19 that we
expect to experience will not have a materially detrimental effect on our
long-term financial performance in future periods.

The COVID-19 pandemic had an impact on our results from operations, cash flows
and financial position for the six-months ended June 30, 2022, primarily as a
result of an increase in cases in early 2022 due to the Omicron variant. Based
upon claims paid to- date, our direct costs related to COVID-19 claims were
approximately $82.6 million for the period from March 1, 2020 through June 30,
2022. We estimated that total COVID-19 claims incurred during the six-months
ended June 30, 2022 were approximately $17.7 million, which was comparable to
our direct COVID-19 claims of $13.3 million for the six-months June 30, 2022. We
expect to incur additional COVID-19 related costs given the volume of positive
cases in our markets. Due to the uncertainty of COVID-19 infection and
hospitalization rates, we cannot estimate any incremental COVID-19 related costs
we may incur in future periods.

We will continue to closely monitor the COVID-19 pandemic and its continued
impact on the economy, our patients and prospective patients and our business.
The ongoing effects of the pandemic, as well as the extent and significance of
any future variants, remain unresolved and could continue for an extended period
of time. Even as the COVID-19 pandemic subsides, disruptions caused by the
pandemic, including labor shortages, supply chain disruptions, and inflationary
pressures, may continue and could, in turn, have a negative impact on the
Company. Further, recurring COVID-19 outbreaks, including outbreaks caused by
different virus variants, could have the potential to impact the Company and its
future results of operations, cash flows and financial position.

The full extent to which the COVID-19 pandemic has and will continue to directly
or indirectly impact our business, future results of operations and financial
condition will depend on factors that are highly uncertain and cannot be
accurately predicted, including new information that may emerge concerning
COVID-19 including the impact of new variants of the virus, the actions taken to
contain it or treat its impact and the economic impact on our markets. Such
factors include, but are not limited to, the scope and duration of stay-at-home
practices and business closures and restrictions, rate and effectiveness of
vaccinations in the U.S., government-imposed or recommended suspensions of
elective procedures, and expenses required for supplies and personal protective
equipment. Because of these and other uncertainties, we cannot estimate the
length or severity of the impact of the pandemic on our business. Furthermore,
because of our business model, the full impact of the COVID-19 pandemic may not
be fully reflected in our results of operations and overall financial condition
until future periods. We will continue to closely evaluate and monitor the
nature and extent of these potential impacts to our business, results of
operations and liquidity.
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For additional information on the various risks posed by the COVID-19 pandemic,
please see the "Risk Factors" section included in our 2021 Form 10-K.

Key Factors Affecting Our Performance

•Adding New Patients in Existing Centers: Our ability to add new patients is a
key indicator of the market's recognition of the attractiveness of the Oak
Street Platform, both to our patients and Medicare Advantage ("MA") plan
partners, and a key growth driver for the business. As we add patients to our
existing centers, we expect these patients to contribute significant incremental
economics to Oak Street Health as we leverage our fixed cost base at each
center. We grow our patient base through our own internal outreach efforts,
which drive most of our new patient growth, as well as assignments from our MA
plan partners. We grew our patient base from approximately 122,000 patients as
of June 30, 2021 to approximately 191,000 as of June 30, 2022.

•Expand our Center Base within Existing and New Markets: We believe our core
market consists of approximately 27 million patients, and we served
approximately 191,000 patients as of June 30, 2022. As a result, we believe
there is significant opportunity to expand in our existing markets through the
acquisition of new patients to existing centers and addition of new centers. For
the long term, these strategically developed new sites allow us to access
additional neighborhoods while leveraging our established brand and
infrastructure in a market. Our existing markets today represent a small
fraction of the overall market opportunity. Based upon our experience to date,
we believe our care model can scale nationally, and we therefore expect to
selectively and strategically expand into new geographies. Additionally, we
began participating in the Global and Direct Contracting Model as of April 1,
2021, which we are hopeful will allow us to manage existing fee-for-service
("FFS") patients on an at-risk basis. The Direct Contracting Model and the
Accountable Care Organization Realizing Equity, Access and Community Health
("ACO REACH") model, as its successor, create new opportunities for the Centers
for Medicare & Medicaid Services ("CMS") to test an array of financial
risk-sharing arrangements in the traditional Medicare fee-for-service
population, and it will enable us to assume financial risk for the cost of care
for some patients covered by traditional Medicare. Through the Direct
Contracting model, CMS aims to transform risk-sharing arrangements in Medicare
FFS, empower and engage beneficiaries (or patients or members) in their own care
delivery, broaden participation in CMS Innovation Center models, reduce provider
burden and shift providers from FFS to value-based payments in primary care. The
stated goals of the ACO REACH model are to advance health equity to bring
benefits of accountable care to underserved communities, promote provider
leadership and governance, and protect beneficiaries and the model with more
participant vetting, monitoring and greater transparency. There can be no
assurances, however, that these or any other payment models that align with our
strategy and investments will be continued or changed in ways that could be
disadvantageous to our business.

•Contract with Payors: Our economic model relies on our capitated arrangements
with payors and CMS, which manage and market MA plans across the United States.
In our short history, we have been able to establish strategic value-based
relationships with over 30 different payors as of June 30, 2022, including each
of the top 5 national payors by number of MA patients. These existing contracts
and relationships and our payors' understanding of the value of our model
reduces the risk of entering into new markets as we typically have payor
contracts before entering a new market. Maintaining, supporting, and growing
these relationships, particularly as we enter new geographies, is critical to
our long-term success.

•Effectively Manage the Cost of Care for Our Patients: The capitated nature of
our contracts with payors requires us to prudently manage the medical expense of
our patients. Our care model focuses on leveraging the primary care setting as a
means of avoiding costly downstream healthcare costs, such as
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acute hospital admissions. Our patients, however, retain the freedom to seek
care at emergency rooms or hospitals; we do not restrict their access to care
beyond the limits of their MA plan, although we have developed many capabilities
to manage and control the associated costs of this care. Therefore, we are
liable for potentially large medical claims should we not effectively manage our
patients' health. On October 20, 2021, we acquired RubiconMD Holdings, Inc.
("RMD"), a leading technology platform in New York providing access to
specialist expertise. The acquisition enables Oak Street Health to integrate
virtual specialty care into its existing care model, which is expected to
significantly streamline the referral process and better manage costs, enhance
patient experience and provide comprehensive care far beyond traditional primary
care.

•Center-Level Contribution Margin: We endeavor to expand our number of centers
and number of patients at each center over time. Due to the significant fixed
costs associated with operating and managing our centers and the increases we
experience in patient contribution on a per-patient basis the longer a patient
is part of the Oak Street Platform, we generate significantly better
center-level contribution margins (defined as (i) patient revenue, excluding
Medicare Part D revenue minus (ii) the sum of (a) medical claims expense,
excluding Medicare Part D related expenses, and (b) cost of care, excluding
depreciation and amortization) as the patient base within our centers increases
and matures and our costs decrease as a percent of revenue. As a result, the
value of a center to our business increases over time.

•Seasonality to our Business: Our operational and financial results, including
at-risk patient growth, per-patient revenue, and medical costs, will experience
some variability depending upon the time of year in which they are measured. We
typically experience the largest portion of our at-risk patient growth during
the first quarter, when plan enrollment selections made during the prior Annual
Enrollment Period ("AEP") from October 15th through December 7th of the prior
year take effect. Our per-patient revenue will generally decline over the course
of the year. As the year progresses, our per-patient revenue declines as new
patients join us typically with less complete or accurate documentation (and
therefore lower risk-adjustment scores) and our attrition skews towards our
higher-risk (and therefore greater revenue) patients. Finally, medical costs
will vary seasonally depending on a number of factors, including the weather
which can be a driver of certain illnesses, such as the influenza virus. We
would therefore expect to see higher levels of per-patient medical costs in the
first and fourth quarters. Medical costs also depend upon the number of business
days in a period as periods with fewer business days will have lower medical
costs all else equal.

•Investments in Growth: We expect to continue to focus on long-term growth
through investments in our centers, care model, and sales and marketing. In
addition, we expect our corporate, general and administrative expenses to
increase in absolute dollars for the foreseeable future to support our growth
and because of additional costs of being a public company.
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Executive Summary

The following table presents key financial statistics for the three and
six-months ended June 30, 2022 and 2021:

                                                   For the three-months ended                       For the six-months ended
(dollars in millions)                         June 30, 2022           June 30, 2021           June 30, 2022           June 30, 2021
Centers                                                144                      95                     144                      95
Total patients                                     191,000                 122,000                 191,000                 122,000
At-risk                                            134,000                  88,500                 134,000                  88,500
Fee-for-service                                     57,000                  33,500                  57,000                  33,500
Total revenues                              $        523.7          $      

353.1 $ 1,037.5 $ 649.8
Loss from operations1

                       $       (112.7)         $       

(99.3) $ (203.8) $ (163.1)
Net loss1

                                   $       (148.3)         $       

(100.3) $ (245.0) $ (164.3)
Platform contribution (Non-GAAP)2

           $         34.1          $       

5.0 $ 73.9 $ 42.0
Patient contribution (Non-GAAP)2

            $        124.5          $       

65.3 $ 251.2 $ 156.8
Adjusted EBITDA (Non-GAAP)2

                 $        (53.1)         $       

(53.5) $ (95.5) $ (70.9)

_______________________________________

1Includes stock-based compensation expense as shown in the table in the Results
of Operations section below.
2See "Non-GAAP Reconciliations" below for reconciliations to the most directly
comparable financial measures calculated in accordance with GAAP and related
disclosures.

Centers

We define our centers as those primary care centers open for business and
attending to patients at the end of a particular period. Our centers are leased
or licensed by Oak Street Health MSO, LLC or an affiliated entity and, pursuant
to the terms of certain contractual relationships between Oak Street Health MSO,
LLC and our affiliated medical practices, made available for use by the medical
practices in the provision of primary care services.

Total Patients

Total patients includes both at-risk MA and Direct Contracting patients (those
patients for whom we are financially responsible for their total healthcare
costs) as well as fee-for-service Medicare patients (those patients for whom our
affiliated medical groups submit claims to the federal government for direct
reimbursement under the Medicare program or to MA plans with which we do not
have value-based arrangements). We define our total at-risk patients as at-risk
patients who have selected one of our affiliated medical groups as their
provider of primary care medical services as of the end of a particular period
or have been aligned under the Direct Contracting program. We define our total
fee-for-service Medicare patients as fee-for-service Medicare patients who come
to one of our centers for medical care at least once per year. A fee-for-service
patient continues to be included in our patient count until the earlier to occur
of (a) more than one year since the patient's last visit, (b) the patient
communicates a desire to stop receiving care from us or (c) the patient passes
away.

Non-GAAP Financial Measures

We utilize certain financial measures that are not calculated based on GAAP.
Certain of these financial measures are considered "non-GAAP" financial measures
within the meaning of Item 10 of Regulation S-K promulgated by the SEC. We
believe that non-GAAP financial measures provide an additional way of viewing
aspects of our operations that, when viewed with the GAAP results, provide a
more complete understanding of our results of operations and the factors and
trends affecting our business. These non-GAAP financial measures are also used
by our management to evaluate financial results and to plan and forecast future
periods. However, non-GAAP financial measures should be considered as a
supplement to, and not as a substitute for, or superior to, the corresponding
measures calculated in accordance with GAAP. Non-GAAP financial measures used by
us may differ from the non-GAAP financial measures used by other companies,
including our competitors.

To supplement our consolidated financial statements presented on a GAAP basis,
we disclose the following non-GAAP financial measures: patient contribution,
platform contribution and adjusted EBITDA as these are performance measures that
our management uses to assess our operating performance. Because patient
contribution, platform contribution and adjusted EBITDA facilitate internal
comparisons of our historical operating performance on a more consistent basis,
we use these measures for business planning purposes and in evaluating
acquisition opportunities.
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Patient and platform contributions are reconciled to gross profit as the most
directly comparable GAAP measure as set forth in the below tables under
"Non-GAAP Reconciliations." Gross profit is defined as total revenues less
medical claims expense. Adjusted EBITDA is reconciled to net loss as the most
directly comparable GAAP measure as set forth in the below table under "Non-GAAP
Reconciliations."

Our definitions of patient contribution, platform contribution and adjusted
EBITDA may differ from the definition used by other companies and therefore
comparability may be limited. In addition, other companies may not publish this
or similar metrics. Thus, our non-GAAP financial measures should be considered
in addition to, not as a substitute for, or in isolation from, measures prepared
in accordance with GAAP, such as net loss and loss from operations.

We provide investors and other users of our financial information with
reconciliations of patient contribution, platform contribution and adjusted
EBITDA to loss from operations and net loss, respectively. We encourage
investors and others to review our financial information in its entirety, not to
rely on any single financial measure and to view patient contribution, platform
contribution and adjusted EBITDA in conjunction with loss from operations and
net loss, respectively.

Patient Contribution

We define patient contribution as capitated revenue less medical claims expense.
Patient contribution is intended to isolate the profitability of the Company's
capitation arrangements with our health plan payors and/or CMS for which the
Company provides and/or manages healthcare services for its at-risk patients. We
expect that patient contribution will grow year-over-year in absolute dollars as
our at-risk patient base continues to grow. We would also expect that our
patient contribution per-patient-per-month economics on our at-risk patients
will continue to improve the longer our patients are part of the Oak Street
Platform as we better understand their health conditions and the patients better
engage with our care model. We would expect, however, that our aggregate patient
contribution per-patient-per-month economics on our at-risk patients may
decrease at an aggregate level to the extent our patient growth skews our mix of
patients towards patients newer to the Oak Street Platform.

We would also expect to experience seasonality in patient contribution
per-patient-per-month with the first quarter generally generating the greatest
patient contribution per-patient-per-month, decreasing for the rest of the year.
This seasonality is primarily driven by our adding new patients to the Oak
Street Platform throughout the year, who generally have lower per-patient
capitated revenue compared to our existing patient base.

Platform Contribution

We define platform contribution as total revenues less the sum of medical claims
expense and cost of care, excluding depreciation and amortization and
stock-based compensation. We believe this metric best reflects the economics or
overall profit margin of our care model and related centers as it includes all
medical claims expense associated with our patients' care as well as the costs
we incur to care for our patients via the Oak Street Platform. As a center
matures, we expect the platform contribution from that center to increase both
in terms of absolute dollars as well as a percent of capitated revenue. This
increase will be driven by improving patient contribution economics over time as
well as our ability to generate operating leverage on the costs of our centers.
Our aggregate platform contribution may not increase despite improving economics
at our existing centers should we open new centers at a pace that skews our mix
of centers towards newer centers. We would expect to experience seasonality in
platform contribution due to seasonality in our patient contribution.

Adjusted EBITDA

We define adjusted EBITDA as net loss excluding interest expense and other
income (expense), income taxes, fair value adjustments related to assets and
liabilities recorded in purchase accounting such as earn-out liabilities and
intangibles and related to impairment of equity investments, depreciation and
amortization, transaction/offering costs, one-time in nature litigation costs
and stock-based compensation. We include adjusted EBITDA in this Quarterly
Report on Form 10-Q because it is an important measure upon which our management
assesses and believes investors should assess our operating performance. We also
consider adjusted EBITDA to be an important measure because it helps illustrate
underlying trends in our business and our historical operating performance on a
more consistent basis.
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Results of Operations

The following tables set forth our results of operations for the periods
presented and as a percentage of our total revenues for those periods.

                                                         For the three-months ended                                           For the six-months ended
                                                                   June 30,
(dollars in millions)                       June 30, 2022            2021              % Change              June 30, 2022             June 30, 2021            % Change
Revenues:
Capitated revenue                         $        516.1          $  346.7                   49  %       $     1,022.2               $        637.9                   60  %
Other revenue                             $          7.6          $    6.4                   19  %       $        15.3               $         11.9                   29  %
Total revenues                            $        523.7          $  353.1                   48  %       $     1,037.5               $        649.8                   60  %
Operating expenses:
Medical claims expense                    $        391.6          $  281.4                   39  %       $       771.0               $        481.1                   60  %
Cost of care, excluding depreciation and
amortization (1)                          $         98.9          $   67.0                   48  %       $       194.1               $        127.3                   52  %
Sales and marketing (2)                   $         42.6          $   25.9                   64  %       $        76.4               $         50.0                   53  %

Corporate, general and administrative (3) $ 94.9 $ 74.2

                  28  %       $       183.6               $        147.3                   25  %
Depreciation and amortization             $          8.4          $    3.9                  115  %       $        16.2               $          7.2                  125  %
Total operating expenses                  $        636.4          $  452.4                   41  %       $     1,241.3               $        812.9                   53  %
Loss from operations                      $       (112.7)         $  (99.3)                  13  %       $      (203.8)              $       (163.1)                  25  %
Other income/(expense):
Interest expense, net                               (0.5)             (1.0)                 (50) %                (1.1)                        (1.2)                  (8) %
Other                                              (35.1)                -                  100  %               (40.1)                           -                  100  %
Total other expense                                (35.6)             (1.0)                3460  %               (41.2)                        (1.2)                3333  %
Net loss                                          (148.3)           (100.3)                  48  %              (245.0)                      (164.3)                  49  %
Net loss attributable to non-controlling
interests                                           (0.8)              2.3                 (135) %                (0.6)                         2.9                 (121) %
Net loss attributable to the Company              (149.1)            (98.0)                  52  %              (245.6)                      (161.4)                  52  %
(1) Includes stock-based compensation, as
follows:                                             0.9               0.3                  191  %                 1.5                          0.6                  145  %
(2) Includes stock-based compensation, as
follows:                                             1.7               0.9                   91  %                 2.3                          1.7                   36  %
(3) Includes stock-based compensation, as
follows:                                            47.2              39.7                   19  %                85.4                         80.9                    6  %


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                                                     For the three-months ended                        For the six-months ended
                                                 June 30, 2022            June 30, 2021           June 30, 2022           June 30, 2021
Revenues:
Capitated revenue                                            99  %                 98  %                     99  %                 98  %
Other revenue                                                 1  %                  2  %                      1  %                  2  %
Total revenues                                              100  %                100  %                    100  %                100  %
Operating expenses:
Medical claims expense                                       75  %                 80  %                     74  %                 74  %
Cost of care, excluding depreciation and
amortization                                                 19  %                 19  %                     19  %                 20  %
Sales and marketing                                           8  %                  7  %                      7  %                  8  %
Corporate, general and administrative                        18  %                 21  %                     18  %                 22  %
Depreciation and amortization                                 2  %                  1  %                      2  %                  1  %
Total operating expenses                                    122  %                128  %                    120  %                125  %
Loss from operations                                        (22) %                (28) %                    (20) %                (25) %
Other income/(expense):
Interest expense, net                                         -  %                  -  %                      -  %                  -  %
Other                                                        (7) %                  -  %                     (4) %                  -  %
Total other expense                                          (7) %                  -  %                     (4) %                  -  %
Net loss                                                    (28) %                (28) %                    (24) %                 24  %
Net loss attributable to non-controlling
interests                                                     0  %                  1  %                      -  %                  -  %
Net loss attributable to the Company                        (28) %                (28) %                    (24) %                (25) %


Total Revenues

                               For the three-months ended                   Change                       For the six-months ended                       Change
                               June 30,          June 30,                                                                    June 30,
(dollars in millions)            2022              2021               $                %              June 30, 2022            2021               $                %
Revenues:
Capitated revenue             $  516.1          $  346.7          $ 169.4               49  %       $      1,022.2          $  637.9          $ 384.3               60  %
Other revenue                 $    7.6          $    6.4              1.2               19  %       $         15.3          $   11.9              3.4               29  %
Total revenues                $  523.7          $  353.1          $ 170.6               48  %       $      1,037.5          $  649.8          $ 387.7               60  %


Capitated revenue was $516.1 million for the three-months ended June 30, 2022,
an increase of $169.4 million, or 49%, compared to $346.7 million for the
three-months ended June 30, 2021. This increase was driven primarily by a 51%
increase in total patients under capitated arrangements, slightly offset by a
decrease of approximately 2% in the capitated revenue rate. For the three-months
ended June 30, 2022, we recorded a decrease in capitated revenue of $3.7 million
related to prior periods due to the retrospective trend adjustments made by CMS
under the Direct Contracting program partially offset by favorable developments
within our MA plans. During the three-months ended June 30, 2021, we recorded
$14.5 million of incremental capitated revenue related to prior periods due to
patient retroactivity and increases in our acuity adjustments. When excluding
the prior period revenue for the three-months ended June 30, 2022 and 2021, the
year over year capitated revenue rate per patient increased by approximately 3%.

Capitated revenue was $1,022.2 million for the six-months ended June 30, 2022,
an increase of $384.3 million, or 60%, compared to $637.9 million for the
six-months ended June 30, 2021. This increase was driven primarily by a 51%
increase in total patients under capitated arrangements (including Direct
Contracting, which started as of April 2021) and an increase of approximately 6%
in capitated revenue rate. For the six-months ended June 30, 2021, incremental
capitated revenue of $17.6 million was recorded related to prior periods related
to patient retroactivity and increases in our acuity adjustments. When excluding
the prior period revenue for the three-months ended June 30, 2021, the year over
year capitated revenue rate per patient increased by approximately 9%.
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Other revenue was $7.6 million for the three-months ended June 30, 2022, an
increase of $1.2 million, or 19%, compared to $6.4 million for the three-months
ended June 30, 2021. Other revenue was $15.3 million for the six-months ended
June 30, 2022, an increase of $3.4 million, or 29%, compared to $11.9 million
for the six-months ended June 30, 2021. These increases were driven primarily by
the addition of RMD subscription revenue as result of the acquisition in October
2021 and an increase in fee for service revenue, slightly offset by a decline in
care coordination and care management services revenue.

Operating Expenses

                              For the three-months ended                   Change                       For the six-months ended                       Change
                              June 30,          June 30,                                                                    June 30,
(dollars in millions)           2022              2021               $                %              June 30, 2022            2021               $                %
Medical claims expense       $  391.6          $  281.4          $ 110.2               39  %       $        771.0          $  481.1          $ 289.9               60  %
Cost of care, excluding
depreciation and
amortization                 $   98.9          $   67.0             31.9               48  %       $        194.1          $  127.3             66.8               52  %
Sales and marketing          $   42.6          $   25.9             16.7               64  %       $         76.4          $   50.0             26.4               53  %
Corporate, general and
administrative               $   94.9          $   74.2             20.7               28  %       $        183.6          $  147.3             36.3               25  %
Depreciation and
amortization                 $    8.4          $    3.9              4.5              115  %       $         16.2          $    7.2              9.0              125  %
Total operating expenses     $  636.4          $  452.4          $ 184.0               41  %       $      1,241.3          $  812.9          $ 428.4               53  %


Medical claims expense was $391.6 million or 75% of total revenues for the
three-months ended June 30, 2022, an increase of $110.2 million, or 39%,
compared to $281.4 million or 80% of total revenues for the three-months ended
June 30, 2021. This increase was driven primarily by a 51% increase in total
patients under capitated arrangements, slightly offset by an 8% decrease in cost
per patient. For the three-months ended June 30, 2022, we recorded a reduction
to medical claims expense of $10.9 million related to prior periods. During the
three-months ended June 30, 2021, we recorded incremental medical claims
expenses of $17.6 million related to the first quarter of 2021. When excluding
these prior period costs for the three-months ended June 30 2022 and 2021,
respectively, the year over year medical claims expense per patient increased by
1%.

Medical claims expense was $771.0 million or 74% of total revenues for the
six-months ended June 30, 2022, an increase of $289.9 million, or 60%, compared
to $481.1 million or 74% of total revenues for the six-months ended June 30,
2021. This increase was driven primarily by a 51% increase in total patients
under capitated arrangements (including those under Direct Contracting which
started as of April 2021) and a 6% increase in cost per patient.

Cost of care, excluding depreciation and amortization was $98.9 million or 19%
of total revenues for the three-months ended June 30, 2022, an increase of $31.9
million or 48%, compared to $67.0 million or 19% of total revenues for the
three-months ended June 30, 2021. The increase was primarily driven by increases
in salaries and benefits of $21.0 million; occupancy costs of $3.4 million; and
medical supplies and patient transportation costs of $6.2 million, due to growth
in both the number of centers we operate and the number of team members
supporting our larger patient base.

Cost of care, excluding depreciation and amortization was $194.1 million or 19%
of total revenues for the six-months ended June 30, 2022, an increase of $66.8
million or 52%, compared to $127.3 million or 20% of total revenues for the
six-months ended June 30, 2021. The increase was driven by increases in salaries
and benefits of $42.4 million; occupancy costs of $11.0 million; and medical
supplies and patient transportation costs of $10.5 million, due to growth in
both the number of centers we operate and the number of team members supporting
our larger patient base.

Sales and marketing expense was $42.6 million or 8% of total revenues for the
three-months ended June 30, 2022, an increase of $16.7 million or 64%, compared
to $25.9 million or 7% of total revenues for the three-months ended June 30,
2021. The increase was driven by net headcount growth of $12.7 million and
greater advertising spend of $3.2 million to drive new patients to our clinics.

Sales and marketing expense was $76.4 million or 7% of total revenues for the
six-months ended June 30, 2022, an increase of $26.4 million, or 53%, compared
to $50.0 million or 8% of total revenues for the six-months ended June 30,
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2021. The increase was driven by net headcount growth of $21.2 million and
greater advertising spend of $3.7 million to drive new patients to our clinics.

Corporate, general and administrative expense was $94.9 million or 18% of total
revenues for the three-months ended June 30, 2022, an increase of $20.7 million,
or 28%, compared to $74.2 million or 21% of total revenues for the three-months
ended June 30, 2021. The increase was primarily driven by greater salaries and
benefits, including stock-based compensation expense, of $16.5 million, an
increase in legal and insurance fees of $1.2 million and an increase in
technology costs of $1.6 million. These increased costs can be attributed to
increased headcount to support our growth.

Corporate, general and administrative expense was $183.6 million or 18% of total
revenues for the six-months ended June 30, 2022, an increase of $36.3 million,
or 25%, compared to $147.3 million or 22% of total revenues for the six-months
ended June 30, 2021. The increase was primarily driven by greater salaries and
benefits, including stock-based compensation expense, of $27.6 million, an
increase in legal and insurance fees of $2.6 million and an increase in
technology costs of $3.3 million. These increased costs can be attributed to
increased headcount to support our growth.

Depreciation and amortization expense was $8.4 million or 2% of total revenues
for the three-months ended June 30, 2022, an increase of $4.5 million, or 115%,
compared to $3.9 million or 1% of total revenues for the three-months ended June
30, 2021. Depreciation and amortization expense was $16.2 million or 2% of total
revenues for the six-months ended June 30, 2022, an increase of $9.0 million, or
125%, compared to $7.2 million or 1% of total revenues for the six-months ended
June 30, 2021. The increases were primarily due to capital expenditures
purchased to support the continued growth of our business.

Other (Expense) Income

                                For the three-months ended                    Change                    For the six-months ended                     Change
                                June 30,          June 30,                                             June 30,          June 30,
(dollars in millions)             2022              2021               $                 %               2022              2021               $         

%

Other income (expense):
Interest expense, net          $   (0.5)         $   (1.0)         $   0.5                50  %       $   (1.1)         $   (1.2)         $   0.1                 8  %
Other                          $  (35.1)         $      -            (35.1)              100  %       $  (40.1)         $      -            (40.1)              100  %
Total other expense            $  (35.6)         $   (1.0)         $ (34.6)             3460  %       $  (41.2)         $   (1.2)           (40.0)             3333  %


Interest expense was $(0.5) million for the three-months ended June 30, 2022, a
decrease of $0.5 million, or 50%, compared to $(1.0) million for the
three-months ended June 30, 2021. Interest expense was $(1.1) million for the
six-months ended June 30, 2022, a decrease of $0.1 million, or 8%, compared to
$(1.2) million for the six-months ended June 30, 2021.

Other expense was $(35.1) million for the three-months ended June 30, 2022, an
increase of $(35.1) million, or 100%, compared to $0.0 million for the
three-months ended June 30, 2021. Other expense was $(40.1) million for the
six-months ended June 30, 2022, an increase of $(40.1) million, or 100%,
compared to $0.0 million for the six-months ended June 30, 2021. The increase
was primarily due to a fair value adjustment to the contingent consideration or
earn-out related to the acquisition of RMD in October 2021. During the
six-months ended June 30, 2022, RMD achieved internal metrics that resulted in
the maximum earn-out amount, and we increased the balance of the earn-out
liability to reflect the actual payout amount of $60.0 million.
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Non-GAAP Reconciliations

The following table provides a reconciliation of gross profit, the most closely
comparable GAAP financial measure, to platform contribution. Gross profit is
defined as total revenues less medical claims expense.

                                                 For the three-months ended                       For the six-months ended
(dollars in millions)                       June 30, 2022           June 30, 2021          June 30, 2022           June 30, 2021
Gross profit                              $        132.1          $         

71.7 $ 266.5 $ 168.7
Cost of care, excluding depreciation and
amortization

                                       (98.9)                  (67.0)                (194.1)                 (127.3)
Stock-based compensation                             0.9                     0.3                    1.5                     0.6
Platform contribution                     $         34.1          $          5.0          $        73.9          $         42.0

The following table provides a reconciliation of gross profit, the most closely
comparable GAAP financial measure, to patient contribution. Gross profit is
defined as total revenues less medical claims expense.

                                                       For the three-months ended                       For the six-months ended
(dollars in millions)                             June 30, 2022           June 30, 2021          June 30, 2022           June 30, 2021
Gross profit                                    $        132.1          $         71.7          $       266.5          $        168.7
Other revenue                                             (7.6)                   (6.4)                 (15.3)                  (11.9)
Patient contribution                            $        124.5          $         65.3          $       251.2          $        156.8

The following table provides a reconciliation of net loss, the most closely
comparable GAAP financial measure, to adjusted EBITDA:

                                                                For the three-months ended                       For the six-months ended
(dollars in millions)                                      June 30, 2022           June 30, 2021          June 30, 2022           June 30, 2021
Net loss                                                 $       (148.3)         $       (100.3)         $      (245.0)         $       (164.3)
Interest expense, net                                               0.5                     1.0                    1.1                     1.2
Fair value adjustments                                             35.1                       -                   40.1                       -
Depreciation and amortization                                       8.4                     3.9                   16.2                     7.2
Stock-based compensation                                           49.8                    40.9                   89.2                    83.2
Litigation costs1                                                   1.3                       -                    2.3                       -
Transaction/offering related costs                                  0.1                     1.0                    0.6                     1.8
Adjusted EBITDA                                          $        (53.1)         $        (53.5)         $       (95.5)         $        (70.9)

Liquidity and Capital Resources

Overview

The Company's long-term capital policy is to: maintain a strong balance sheet
and financial flexibility; reinvest in its care model; and invest in strategic
opportunities that reinforce its care model and meet return requirements. To
date, we have financed our operations through private placements of our equity
securities, payments received from various payors, the issuance of Convertible
Senior Notes and our IPO. We believe that our access to capital markets will
provide adequate resources to fund our short-term and long-term operating and
financing needs. As of June 30, 2022, we had cash, restricted cash and cash
equivalents of $136.8 million. Our cash and cash equivalents primarily consist
of highly liquid investments in money market funds and cash. Since our inception
and through June 30, 2022, we have generated significant operating losses from
our operations as reflected in our accumulated deficit and negative cash flows
from operations.

1 Litigation costs included in the calculation of Adjusted EBITDA include only
those costs which are considered one-time in nature and outside of the ordinary
course of business based on the following considerations which we assess
regularly: (i) the frequency of similar cases that have been brought to date, or
are expected to be brought within two years, (ii) the complexity of the case,
(iii) the nature of the remedy(ies) sought, including the size of any monetary
damages sought, (iv) the counterparty involved, and (v) our overall litigation
strategy, such as litigation costs related to the DOJ matter and class-action
lawsuit (refer to Note 10 in the Form 10-Q herein).
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We expect to continue to incur operating losses and generate negative cash flows
from operations for the foreseeable future due to the investments we intend to
continue to make in expanding our operations and sales and marketing and due to
additional general and administrative costs we expect to incur in connection
with operating as a public company. As a result, we may require additional
capital resources to execute strategic initiatives to grow our business.

We believe that the proceeds from the convertible debt offering in 2021 are
sufficient to satisfy our anticipated cash requirements, which consist of
capital expenditures, working capital, and potential acquisition and strategic
transactions, for the next twelve months even with the uncertainty arising from
the COVID-19 pandemic. Our assessment of the period of time through which our
financial resources will be adequate to support our operations is a
forward-looking statement and involves risks and uncertainties. Our actual
results and our future capital requirements could vary because of, many factors,
including our growth rate, the timing and extent of spending to open new centers
and expand into new markets and the expansion of outreach activities.

We may in the future enter into arrangements to acquire or invest in
complementary businesses, services and technologies, including intellectual
property rights. We have based this estimate on assumptions that may prove to be
wrong, and we could use our available capital resources sooner than we currently
expect. We may be required to seek additional equity or debt financing. In the
event that additional financing is required from outside sources, we may not be
able to raise it on terms acceptable to us or at all. If we are unable to raise
additional capital when desired, or if we cannot expand our operations or
otherwise capitalize on our business opportunities because we lack sufficient
capital, our business, results of operations and financial condition would be
adversely affected.

Convertible Senior Notes, Capped Call Transactions and Marketable Debt
Securities

In March 2021, we issued $920.0 million aggregate principal amount of
Convertible Senior Notes. Concurrently with the pricing of the Convertible
Senior Notes, we entered into capped call transactions to mitigate the impact of
potential economic dilution to our common stock upon conversion of the
Convertible Senior Notes. The Convertible Senior Notes are governed by an
Indenture, are general senior, unsecured obligations of the Company and will
mature on March 15, 2026, unless earlier redeemed, repurchased or converted.
Refer to Note 8, Long-Term Debt, of the notes to consolidated financial
statements included in this Quarterly Report on Form 10-Q.

Total proceeds realized from the sale of the Convertible Senior Notes, net of
debt issuance and offering costs of $22.1 million, were $897.9 million. We used
approximately $123.6 million of the net proceeds to pay the cost of the capped
call transactions. We intend to use the remainder of the net proceeds for
general corporate purposes, which may include working capital, capital
expenditures, and potential acquisitions and strategic transactions.

The Indenture contains customary covenants related to timely filings and
reporting, and customary events of default. As of June 30, 2022, we were in
compliance with all covenants under the Indenture.

Changes in Cash Flows

The following table presents a summary of our consolidated cash flows from
operating, investing and financing activities for the periods indicated.

                                                 For the six-months ended
(dollars in millions)                      June 30, 2022           June 30, 2021           $ Change               % Change

Net cash used in operating activities $ (179.4) $ (82.0) $ (97.4)

                     119  %
Net cash provided by (used in) investing
activities                                        194.6                  (688.8)              883.4                     (128) %
Net cash provided by financing
activities                                          1.2                   776.9              (775.7)                    (100) %
Net change in cash                       $         16.4          $          6.1          $     10.3                      169  %


Operating Activities

For the six-months ended June 30, 2022, net cash used in operating activities
was $(179.4) million, an increase of $(97.4) million in cash outflows compared
to net cash used in operating activities of $(82.0) million for the six-months
ended June 30, 2021. The principal contributors to the year-over-year change in
the operating cash flows were as follows:

•A net change of $(9.9) million in net loss and non-cash charges and credits,
primarily due to an increase in net loss for the business, as noted above under
"Results of Operations" offset by the fair value
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adjustment to RMD contingent consideration (see Note 5 to our consolidated
financial statements included in this Quarterly Form on Form 10-Q) and other
non-cash charges.

•An increase of $(87.5) million in cash outflows related to operating assets and
liabilities primarily resulting from:

•Changes in accounts receivable due to the timing of collections and the growth
in the number of at-risk patients;

•Changes in liability for unpaid claims due to the growth in the number of
at-risk patients; and,

•Changes in accounts payable and accrued compensation and benefits due to the
timing of payments to our vendors.

Investing Activities

For the six-months ended June 30, 2022, net cash provided by investing
activities was $194.6 million, an increase of $883.4 million in cash inflows
compared to net cash used in investing activities of $(688.8) million for the
six-months ended June 30, 2021 primarily due to the net cash inflows of $903.9
million from sales, maturities and purchases of marketable debt securities,
offset by continued increased investments in our centers and purchases of
property and equipment of approximately $(21.7) million.

Financing Activities

Cash provided by financing activities for the six-months ended June 30, 2022 was
$1.2 million, primarily related to the proceeds received from the exercise of
options. Cash provided by financing activities for the six-months ended June 30,
2021 of $776.9 million was primarily due to $897.9 million in proceeds from the
issuance of the Convertible Senior Notes, partially offset by cash outflows of
$123.6 million related to the capped call transactions completed in March 2021.

Contractual Obligations and Commitments

As of June 30, 2022, our contractual obligations are summarized in the table
below.

                                                        Less than 1                                                 More than 5
(dollars in millions)                  Total                Year              1-3 Years          3-5 Years             Years
Convertible Senior Notes            $   920.0          $         -          

$ - $ 920.0 $ -
Operating lease obligations

             441.6                 41.8               101.4               97.6                200.8
Contingent consideration                 60.0                 60.0                   -                  -                    -
Total                               $ 1,421.6          $     101.8          $    101.4          $ 1,017.6          $     200.8


Convertible Senior Notes- The Company holds borrowings under our Convertible
Senior Notes, which have a 0% interest rate. The Convertible Senior Notes are
governed by an indenture ("Indenture"), dated as of March 16, 2021, between the
Company and U.S. Bank National Association, as the trustee. Under the Indenture,
the Convertible Senior Notes are general senior, unsecured obligations of the
Company and will mature on March 15, 2026, unless earlier redeemed, repurchased
or converted.

Operating lease obligations- The Company leases offices, operating facilities,
vehicles and information technology ("IT") equipment, which are accounted for as
operating leases. These leases have remaining lease terms of up to 30 years,
inclusive of renewal or termination options that the Company is reasonably
certain to exercise. Also included in the operating lease obligations are
license fees paid as a reimbursement to Humana for its costs of owning or
leasing and maintaining the centers, including reimbursements for rental
payments and leasehold improvements.

Contingent consideration- As part of the acquisition of RMD, the Company is
obligated to pay contingent consideration of up to a maximum earn-out of $60
million during the fiscal year 2022 or 2023 should the acquired company achieve
certain internal usage volumes in the year following the acquisition. RMD met
the internal usage volumes during the three-months ended June 30, 2022, and the
Company increased the balance of the earn-out liability to reflect the expected
payout amount of $60.0 million. This amount will be paid to RMD's shareholders
in the third quarter of 2022. Per the merger agreement with RMD, the Company is
able to fund up to $32.5 million of this payout via common shares in Oak Street
Health.
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Off-Balance Sheet Obligations

As of June 30, 2022, we did not have any significant off-balance sheet
arrangements.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes have been
prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires us to make estimates and assumptions that affect the amounts
reported amounts of assets, liabilities, revenue and expenses, and related
disclosures. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances. We evaluate
our estimates and assumptions on an ongoing basis. The future effects of the
COVID-19 pandemic on our results of operations, cash flows and financial
position are unclear, however, we believe we have made reasonable estimates and
assumptions in preparing the financial statements. Actual results may differ
from these estimates. To the extent that there are material differences between
these estimates and our actual results, our future financial statements will be
affected.

For a description of our critical accounting policies, see "Critical Accounting
Policies" in our 2021 Form 10-K. There have been no significant changes in our
critical accounting estimate policies or methodologies to our condensed
consolidated financial statements.

Recently Adopted Accounting Pronouncements

For a description of recently issued accounting pronouncements, see Note 2,
Summary of Significant Accounting Policies, to our consolidated financial
statements included in this Quarterly Report on Form 10-Q.