All right. Should we get started? I'm trying to sneak it out with the start of that song. All right, great. Well, thanks everybody for coming today to the 2023 investor presentation at the Cowen Healthcare Conference for The Oncology Institute. This is our forward-looking statement disclaimer slide. So, what is The Oncology Institute? So, we're not a new company. We've been around since 2007. We started out in California. We're now scaled, and we're the nation's largest value-based oncology physician group in the country, and really seeking to address a rapidly growing problem, which is the rapidly rising costs and inequality of care in the oncology specialty. We've got first-m over advantage, disrupting oncology care, and we've demonstrated that we can do it in a model with profitable unit economics.
We've got a technology platform that ensures that we standardize care across all of our clinic locations, which is one of the major issues with oncology: a wide variation in standards of care. We've got future growth that's exciting ahead of us and a new market entry model that's predictable with scalable economics. So this is really the problem that we're trying to address and solve every day at the Oncology Institute, and that is the rapidly rising costs of oncology care in the U.S. So obviously everybody's aware of how unaffordable healthcare is, but the oncology industry is a major contributor to that. So over $200 billion in spend and rising. The major contributor to that is really the rising cost of therapeutics. So it's been on a sustained double-digit CAGR for the last 16+ years.
Actually, we just got the kind of reset in drug pricing for 2024 this past couple of months, and same story as always. Just saw a rapid kind of double-digit rise in costs. What that means is that, it's a big problem for payers, who are bearing the costs of those therapeutics, rising in an escalating trend, and for patients as well who have an out-of-pocket cost and very often have difficulty getting access to care, or they actually even delay the start of care because they can't meet their out-of-pocket, spend. Also, with, the advance in therapeutics, we now treat many diseases which were previously fatal as chronic diseases. So the number of U.S. adults that are living with cancer and on a chronic therapeutic has risen dramatically over the last several years. It's now 9.5% of U.S. adults.
So, and again, we've been tackling this problem since 2007 and shown that we can grow very successfully and be profitable, with unit economics, in this model. So, this is our revenue and milestone timeline, and you can see very rapid CAGR in revenue, 43.4%. We guided 2023 to $320 million. The zero got truncated off in this slide for some reason. But, again, there is a high demand for our services because we are really the only scaled model that is addressing this problem, lowering the cost of therapeutics both for our patients and payer partners, and doing so in a way that delivers great results and great outcomes for the patients that we serve. So again, for those that aren't familiar with kind of the oncology industry, in general, so there's sort of what we do, and then there's the fee-for-service model.
The issue in oncology is really that 85%-90% of the revenue for a fee-for-service practice comes from the drugs. Those are typically reimbursed costs plus 6% or better depending on their contracts, which means that they're highly incentivized by volume because the more drugs you use and the higher costs those drugs are, the more it impacts your bottom line. So they're really incentivized to use high-cost therapies, use therapies off-label or for indications which are not necessarily guideline-based, and they incentivize their physicians around that model. So again, kind of churn and burn, rapid escalation in drug utilization and using things off-label leading to escalating costs for this specialty. Our model kind of flips out on its head. So we incentivize our physicians with quality and outcomes.
because we take risk on almost half of our revenue on capitated contracts where our payer partners delegate down all the costs of oncology care for Part B drugs and Part B physician services to us, we're just incentivized to use high-value therapies, meaning 100% NCCN guideline adherence. And many times for many, many different cancer types, there can be, for example, a biosimilar therapy, which is clinically equivalent for a patient as a non-biosimilar at a fraction of the cost. Obviously, if you're running a fee-for-service practice, that would not be good for your P&L. But for us, because we're taking risk on the drug spend for our patients and payer partners, we can prescribe that biosimilar, lowers out-of-pocket costs for our patients and lowers costs for our payer partners and drives margin for TOI where we're taking risk.
We tailor our practice and invest a lot of resources to individual patient needs. A big part of the oncology journey for a patient is coordination of care, and that also leads to excess spend when it's not done well. Again, it's not that fee-for-service practices are philosophically opposed to that, but they just don't have the time and resources necessary to give that to patients. That's really where we excel. This has been supported by patients and payers for the last 16 years. This is a bit about our current, sort of scale. We currently have risk, primarily Part B capitation, although now some Part B and D capitation models for about 1.8 million lives. That's a mix of product types, both managed Medicaid or MediCAL in California, commercial HMO, and Medicare Advantage.
One thing that this is obviously our November 2023 investor deck. We will be working on updating the metrics so that it's more clear on future earnings calls as far as the breakdown in capitation economics by market because I think that's been an area of lack of clarity in the past. Over 64,000 unique patients treated a year. We've demonstrated we can reduce costs for cancer spend, and that's total claims, Part A, B, and D by over 25%. That's in California, which is a relatively low-cost market. We've got many things that we do for patients in the community, which typically you'd associate with a tertiary quaternary center. So one of the largest community-based clinical trials programs in the country, and a number of other things like our outpatient transfusion and outpatient stem cell transplant program.
As I mentioned, over half of our revenue comes from value-based agreements where, again, we're taking risk on behalf of our patients and payer partners. Those are just some of the key payers that we work with. Really, the first decade or so of the Oncology Institute's history was started in California. Most of our key clients are delegated medical groups, which have a Knox-Keene license and can capitate directly with a specialist for care. As we've expanded, and we talked about this in our last earnings call, as we've expanded outside of California and delegation differs in new markets where health plans retain that network delegation, we've learned how to capitate directly with health plan partners, which opens up a lot of new markets for us and a lot of interesting opportunity. Again, this is just some of our clinical results.
So, dramatically effective at lowering costs, but also at lowering utilization. So, our model, which emphasizes, again, coordination of care and putting patients on the right therapeutics and addressing supportive care needs, dramatically lower hospital utilization, fewer inpatient deaths, all while driving higher patient satisfaction, which is very consistent with clinical trials that has shown that when you incorporate things like palliative care and patient decision-making early in a cancer journey, it actually leads to better outcomes and better patient satisfaction. And again, you know, over 64,000 unique patients treated a year and very, very high levels of patient satisfaction showing that there is a world in which you can actually lower costs for patients and payer partners and drive better outcomes and better patient experience. These are really the three fundamental levers that we use at TOI to manage cost of care.
So about 80% of the cost of care reduction, roughly, comes from effective treatment utilization. By effective treatments, what we mean is reducing practice pattern variability. That's a big problem in oncology because you've got many different cancer types, and for every cancer type, you have a dozen or more approved chemotherapeutics and complex regimens. Again, because of that misalignment for a fee-for-service practice, there's a variance towards highest-cost therapy and using things off-label or for longer than a patient needs it despite progression of disease. So we're very effective at reducing practice pattern variability. We have a shared EHR across all of our clinic locations, which ensures that our pathways are all NCCN guideline adherent, and we've got a very reliable treatment pattern across all of our physicians. Again, providing high-value services in the community, so access to clinical trials. Why that's important?
One, the patient doesn't have to travel to a high-cost tertiary quaternary center where they inevitably get, you know, integrated into the health system and bounce around between specialists. They can get those clinical trials delivered directly in the community, and that drug cost comes off-risk for our payer partners. And then we've got scaled drug purchasing and vertically integrated dispensary and pharmacy practices. Again, highly convenient for patients. We've demonstrated that we can fill drugs very quickly for patients and dramatically lower out-of-pocket costs, and allows us to lower the cost trend on drugs. Our High-Value Cancer Care Program, really what that is, is specialized cancer care navigation and care management. We developed that program about six years ago. You're now starting to see some sort of upstarts in the oncology industry, which are really providing a sort of care management-specific program, aimed at taking Part A risk.
Again, this is something that we've been doing for years as part of our overall, sort of program for patients and dramatically successful at lowering Part A utilization. And lastly, appropriate coordination with palliative and hospice services with our payer partners. So this is our current scope. So, we actually, as we recently announced, have entered two additional states with a network-only model, since this slide was produced. So we are now delivering services with WellBe Senior Care in Illinois and Ohio. By far, our biggest market remains California, although we've now opened several clinics in Florida, and that's kind of rapidly growing and take risk for populations in other states as well. And really, the secret for us is the ability to drive margin and, and favorable unit economics as we layer on additional sort of value-based and capitated contracts at our clinics.
So we'll typically enter a market with an anchor payer partner under a capitated arrangement. We do treat fee-for-service patients, so we will see any patient that walks through our door as well as straight Medicare patients, and we participate in EOM. But as we add on successive capitated arrangements, those become highly accretive to our bottom line. And really, the reason for that is that our model is set up with network adequacy in mind. So we'll typically have three to four clinics per county. We take population-level risk versus a, you know, 20,000 sq ft mega center, which is really focused on infusion. So we've got plenty of physician capacity to take on additional lives as we add in value-based contracts in a new market. And really, these are the levers we pull to sustain our long-term growth trajectory, which I showed on that early slide.
So, one, our existing markets, we still continue to grow. So we still continue to add capitated and value-based contracts in California where we've been for now 16 years. We expand our covered lives. So, that means adding additional specialties. So we recently added radiation oncology as a service in California. That affects about 40% of patients that need both a medical and radiation oncologist. And we do some Medicare direct contracting through EOM. In new markets, again, we establish a presence. We set up our clinic locations for network adequacy. We've been in the Florida market now for two years and have the ability now to take population-risk contracts with our clinic footprint. What we're seeing in new markets outside of California is highly attractive economics. And the reason for that is just dramatically higher utilization versus the West Coast, you know, typically multifold.
What that means is that we can provide a lot of value for our payer partners and also contract at, at rates that are delivering savings for them but are very favorable for TOI as well. Then, again, our model very attractive for physicians to practice in our new markets. We've had zero issues kind of recruiting physicians in markets that we enter. Again, I think primarily because our model is, is sort of philosophically aligned with how physicians want to practice medicine. And lastly is service expansion. And we do this across all markets. So that's our ancillary services, which include radiation oncology. Again, good for continuity of care for patients, great for fee-for-service patients in terms of margin. Our pharmacy and dispensary, as we announced in our last earnings call, we opened a pharmacy in California.
The use case of that was to recapture fills on MediCAL patients who were unable to fill through our medically integrated dispensaries about 18 months ago due to state legislation. That is by far our largest population in terms of patients that we treat and take risk for in California. So that was fantastic. And there's select other markets and states where pharmacies versus dispensaries can make sense. Clinical trials, again, very, very favorable margin, come off risk for our payer partners, typically zero out-of-pocket costs for patients. So they adhere to our value-based principles, and are something that we can offer and really do better for underserved populations in the communities where we operate. And lastly, as we talked about a bit on our last call, MSO services.
So now that we're taking capitation risk directly with health plans, most health plans do not want to narrow a network to a single specialist. So we found a way to engage independent oncologists and provide them the tools to be successful in value-based care in addition to having our employed clinics in a market, which is really unique because prior to that, you typically had your network-only models which just layered over independent practices or your purely employed models. But that hybrid solution allows you to take risk with a health plan partner, and differentially deliver value. And lastly, we're doing some really interesting things around data monetization as well, just given the scope and high number of patients that we serve; we generate some very interesting data.
So, again, I know this slide is rather complex, but, again, this just is meant to cover sort of the multiple drivers of revenue growth and margin expansion in our model. So I already covered sort of the individual services that we provide. The products that we cover, again, we're taking that 1.8 million lives. We're taking risk on managed Medicaid, Medicare, and commercial HMO. And we are, in our upcoming earnings call and sort of revision on our investors deck, we'll come with some clarifying remarks around KPIs that we can track, to help you understand our different markets. Our revenue model, about half, roughly, is capitation. We also have some other value-based care constructs such as the bundled payment methodology, which we recently announced a partnership with Carrum in Las Vegas. We have some other similar sort of models, and then fee-for-service. And then geographic diversity.
Again, as we expand across the country, we've got kind of critical density in the West, but we are seeing much greater opportunity outside of the West Coast to provide value to our payer partners. And again, this just kind of goes to kind of the flow of funds for when we work with payers, how we're able to deliver value by taking risk on the cost of care related to Part B and sometimes Part B and D for a patient. So I know 2023 is now behind us. So again, our guidance was $293 million-$320 million in revenue, gross profit $60 million-$70 million. Our big focus, and as discussed in our last two earnings calls, is really eliminate cash burn, drive to Adjusted EBITDA profitability, and you know, prove new markets. We sort of remain steadfast to that.
Value-based lives, again, you know, within range, 1.75 million-2 million. So we'll have our upcoming earnings call coming up soon and sort of talk a little bit about full year and update our deck as well. So, any questions? It's Gary. Hi.
Can you talk a little bit about how the mechanics will look different for that new national payer for what a capitated contract is on your group, historically your group delegated contracts that work? And I'm just thinking about how on those group contracts, my understanding was, you know, they were going to. You as like a high-value specialty provider directing those, you know, patients to you. But if we're taking like a broader market value-based care contract, is it narrow enough? The network, you have to, you have enough coverage of the market to provide it. Like, that's just in my head.
Can you kind of walk us through the differences?
Yeah, absolutely. So our clinic footprint doesn't change. So we could take the network in a completely narrowed fashion. But again, I think, from a health plan perspective, they don't really want to narrow member choice. So what we do is we have our employed clinics, but we'll cap off at sort of a discount to the utilization of the entire market, sort of the legacy utilization. And then by engaging sort of key independents, which we partner with our payers to identify and providing them with tools to help manage EOM, we get both the benefit of patients that pass through our clinics where we're differentially lowering utilization as well as kind of bending the cost curve on the engaged independents. So that overall allows us to kind of move down the market trend substantially.
What do you have to do on the engaged independents? Have you been able to demonstrate like proof of concept to the plan's purpose? Or is that, that's kind of coming after this first contract? Or how do you think about that?
Yeah, that's a good question. I mean, we've got, proof of concept from our own data in our own clinics. We don't, I mean, this obviously is, is something new for us, so we don't have, you know, proof of concept on it yet. Other questions?
All right. I'm thinking about Heritage. Have you, on your largest, payer customers, have you, I know you put it, put it up on the slide, but have you ever ranked like your largest? The only reason I asked was I just know, Heritage was kind of rumored that Carrum was looking to acquire them and that kind of news back then.
But like, was there any reason why a sale of something like that would affect the relationship with?
Yeah, I mean, I think that we haven't disclosed the exact like lives by payer partner, just to maintain confidentiality for their purpose. I mean, the ranking is probably what you would suspect based on other presentations you've heard from the primary care groups. I will say that, you know, we've really aimed to try and diversify our client base over the last couple of years since we've gone public and expanded to new markets, exactly for that reason so that we don't have like a single, you know, potential point of failure. But again, our track record in terms of retention of partners has been pretty, pretty good for the last 16 years. Other questions? Yes.
Have you seen any changes in utilization for oncology given you're taking on risk for 50% maybe more of your populations? And if there are changes, like, do you feel you're, because you have the fee-for-service business, that serves as a buffer for any kind of utilization spikes?
Yeah, I mean, that's a good question. We've got a pretty good [Med Econ] team, so we track utilization pretty carefully on like a quarterly, quarter-by-quarter basis and track new therapeutics as they come out and price them into our model. There's a couple of things that we don't take risk on, which are very low incidence and high cost. So like a CAR-T, for example, or select chemotherapy regimens which require inpatient hospitalization for monitoring simply because that's paid for out of the Part A bucket. We don't treat pediatric patients.
But, you know, by and large, we're able to, and, and again, I think because we've got such a large pool of lives that are taking risk on, sustain kind of those, you know, rare kind of higher cost drug situations because it kind of gets put into the overall risk pool.
Yes. So just looking at your revenue growth, seeing an inflection on it in the past couple of years and then talking about, you know, systemic capitation and kind of bridging to EBITDA, how do you think that slope changes or does it stay the same to get there?
Yeah, I mean, that's a great question. So, I, I don't think that we're seeing a slowdown in terms of our ability to grow.
I mean, we still, you know, despite treating a lot of patients, we're still a very, very small percentage of the overall like U.S. oncology market. So there's, like a lot of other specialties, room for like multiple-scale national providers in the oncology space. And we're seeing more, I think, as we should in 2023, more sort of activity and opportunity on the growth side than we ever have. So I think that'll continue to grow. And then, some of the things that I covered, which we do, again, the economics trend favorably as we grow. So drug, drug purchasing as you tranche up and what you're purchasing every quarter, you get successive discounts. And then our ability to kind of drive margin through adjacent specialties when we get larger markets with critical density like radiation oncology, again, overall, I think helps eliminate the cash burn.
So, as we covered in the last couple of earnings calls, again, we had a pretty focused effort on restructure as well in 2023 and eliminated quite a bit of SG&A out of our system that we had taken on during the first couple of years as a public company. So, that obviously helped as well.
What do you, just following up on the utilization question, I think, you know, [Avalon] recently and then Humana, or United, talked about Part B drugs and oncology, you know, picking up a little bit. And I think at one point there was a little bit of a thesis around a deferred care in the pandemic meant deferred cancer diagnoses and maybe you're going to see some pick up or disclose. Is that any of that either what the large plans have said recently or just that, maybe stale COVID thesis?
Does any of that resonate with what you guys are seeing or is it just like business as usual?
Yeah, no, I, I'd say that like anecdotally, I think we're seeing more like urgency around people wanting to partner with us than I've ever seen. I've been with the organization five years. So, I think the, the acceleration in opportunity is definitely there. And it's not just that factor which you mentioned. It's, so it's like rising drug costs. There's the COVID-related delays in diagnoses, but then also the Rule 28 changes impacting the, you know, folks on the top line. You know, they have to make up that somehow, right? So controlling costs and specifically specialist care I think is pretty important. Great. Other questions? All right. Well, I want to thank everybody for joining us today and stay tuned. Thanks so much.