Amazon will see you now: reading between the lines of the One Medical acquisition
Amazon sent shockwaves through the health technology sector when it revealed plans last week to buy primary care network One Medical for $3.9 billion.
The acquisition, which brings almost 190 clinics, a subscription telehealth service and contracts with thousands of employer clients under Amazon’s umbrella, could fast-track the e-commerce giant’s goal of assembling a vertically integrated healthcare business, experts said.
The deal also helps One Medical by giving the 15-year-old company a deep pool of capital to drive growth. Amazon might also assist One Medical with risk management in its Medicare business, newly acquired last year in a $1.4 billion takeover of Iora Health.
The deal’s near-term effects on the sector are unlikely to be large. But what the deal represents — Amazon muscling into care delivery — should concern both One Medical’s primary care competitors as well as larger companies aiming to capture a greater slice of the $4 trillion healthcare market, experts said.
“This leaves no doubt that Amazon is serious about healthcare,” Paddy Padmanabhan, CEO of Damo Consulting, said in an email. “Amazon is digging in for the next phase of growth.”
‘They set out to make some money’
Amazon now has offerings in telehealth and in-person primary care, diagnostics, pharmacy and wearables. The company could potentially integrate medical data with apps offering recommendations for health activities and products, reducing the time and burden of doctor’s visits, delivering drugs through online pharmacy PillPack, providing food through Whole Foods or Amazon Fresh — with a primary care doctor linked in all the way.
“I think that’s huge. Does it fix everything that’s wrong with our healthcare system? No. But they didn’t set out to fix our healthcare system. They set out to make some money,” said Michael Abrams, managing partner of health consultancy Numerof & Associates.
One Medical slots into Amazon Care, Amazon’s hybrid primary care program for employers launched one year ago. Amazon has expanded the virtual care element of the program nationwide, but the in-person benefit, where Amazon dispatches nurse practitioners to patients’ homes, has lagged amid difficulties scaling in a tight labor market.
With the addition of One Medical, Amazon gains access to 188 medical offices in 25 markets. It also gets their employer clients, which include Airbnb and Google.
Amazon Care has struggled to bring on clients, partially due to its lack of a track record, Abrams said. Adding 8,000 new contracts is a “big jump for them,” Abrams said — “clearly a shortcut to accelerated growth in the primary healthcare space.”
“They didn’t set out to fix our healthcare system. They set out to make some money.”
Michael Abrams
Numerof & Associates Managing Partner
But “the workforce problem overall is inherently a problem for both One Medical and Amazon Care and all clinician-focused service providers. I don’t think this solves that,” said Nathan Ray, healthcare M&A lead at West Monroe.
Yet Amazon appears to see One Medical as worth a premium. It’s the third-largest Amazon acquisition, trailing $13.7 billion for Whole Foods and $8.5 billion for MGM Studios — dwarfing the $1 billion Amazon shelled out for PillPack in 2018.
“No one better than Amazon to overspend on things that have potential,” Ray said.
One Medical’s rationale
For One Medical, joining with Amazon brings stability. The company, which went public in 2020 and has grown to about 770,000 members, has reported consistent losses. Its financial outlook has dimmed, as have those of its health tech peers, amid a market downturn.
One Medical “most likely needed to raise additional capital in the next 12 months,” SVB Securities analyst Whit Mayo said in a note on the acquisition. “One can argue that placed the company in a unique and vulnerable position.”
Rebecca Pifer/Healthcare Dive, NYSE data
The primary care market has become increasingly competitive as standalone providers like One Medical, Oak Street Health and VillageMD vie — and, in some cases, partner — with companies like CVS Health and UnitedHealthcare to expand their networks of clinics.
“Getting acquired by Amazon provides a great path to sustained growth in a market where the battle for primary care is intensifying,” Padmanabhan said. “Being a standalone primary care provider comes with risks and uncertainties.”
Amazon could also help One Medical’s risk management as the company adopts more value-based care arrangements, experts said. The majority of One Medical’s business historically comes from charging commercially insured members per-visit fees, but with the Iora buy last year the company now also serves Medicare patients, steering them into full-risk arrangements.
Scaling value-based care can be difficult for providers without extensive data experience. “I think somewhere down the line that’s where Amazon thinks they’ll be of most use,” Ray said.
Either way, primary care, retail health and telehealth players should take note, experts said.
When Amazon began piloting its care delivery offering for Seattle employees in 2019, it was a minor worry. But with the addition of One Medical, Amazon could become a real threat.
“This is serious competition,” Abrams said. “I think we can expect the anxiety level among healthcare executives, especially the ones that are paying attention, to quietly increase.”
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