Thought-Leaders newsletter

Perspectives on a selected key topic August 2022

hat are your thoughts on the implications of Amazon’s One Medical acquisition? Is this a deal Amazon can make work? If so, why? What do you think that might do to the delivery of primary care services?

Dudley Morris
Senior Advisor, BDC Advisors

Amazon is basically trying to provide some form of instantaneous ‘Amazon Care’ with 24-hour telehealth services, with referrals to partners that can be academic medical centers or heath systems.

They're looking to fill out their delivery network by making this acquisition and it fits well with their Prime model of having a membership model and paying for a membership. However, I don't know how easy it is going to be for them to integrate One Medical into their various operations.

Some have said, ‘you better lock down your primary care physicians, because Amazon’s going to come and eat you up.’ When they bought Whole Foods, everyone thought it would be a huge impact, but there are plenty of alternatives out there, and I don’t notice that (other supermarket chains) are going out of business.

I’ve actually been a One Medical member for the past three years, and I have not been impressed that they are any more convenient to use or better than any other alternatives in the market. You still have to take your chances on the one doctor they pick, but they do have a lot of doctors. The positive about One Medical is that they had quarterly revenues close to $300 million for the first three months of the year. That makes them an almost a billion-dollar operation, which is considerable. And they appeal to a younger audience.

We’ll see what happens, but I'm not sure that Amazon really has a coherent strategy for healthcare at the moment.

Samantha Prokop
Partner, Gunster Law Firm

When Amazon acquired One Medical, we anticipated that we would see additional, non-traditional buyers in the primary care space. Names like CVS, Walgreens, and Walmart came to mind. CVS has already expanded outside of its traditional pharmacy role into the pharmacy benefit manager space with its acquisition of Caremark and into the insurance/payer space with its acquisition of Aetna. What these moves mean for the industry is that healthcare providers who traditionally were looking to sell to private equity/venture capitalist buyers now have a broad network of potential buyers for their practices.

Primary care providers in particular are sought-after targets, because their patient lives are what gets counted towards receiving capitated (per patient/per month fees) versus traditional fee-for-service models where providers got paid based on the services they performed. Under these capitated payment models, the entity receiving the (per member per month) payment manages various aspects of the patient’s care and gets to keep money that is not spent ( a penny saved is a penny earned).

Without an alignment of financial incentives, specialist providers can kill any type of savings companies that accept full risk under capitated arrangements receive.

What this means for the industry from my perspective is:

• Primary care (and other providers) should look to get to a size and scale that they are attractive for sale if they are thinking of selling.
• Providers need to think outside the box and find ways to attract more patients and also implement new, convenient healthcare delivery systems with a strong focus on technology.
• Providers should look past traditional buyers and consider how their business can fit within alternative models. Practices should be thinking about how they can provide solutions for those businesses taking on full risk contracts who need to control the cost of care. The key is to follow the money and see where your practice can contribute to savings by reducing costs while still providing quality care.
• We are likely to see the healthcare delivery model change where telehealth becomes prevalent and access to care becomes more convenient for patients. There will also be an increase in healthcare applications and other methods to collect patient health data to be used for data mining.
• Providers will have new competitors with strong financial backing and established access to huge patient populations as well as state-of-the art technology platforms.

Sebastian Seiguer
CEO, emocha Health

There is no reason to believe that Amazon’s acquisition of One Medical will have any significant impact on healthcare. There are thousands and thousands of healthcare facilities in this country, and there are many other virtual primary care providers, such as Eden Health, Heal and PeopleOne.

There is a physician and nursing shortage in the U.S., and the change of One Medical’s ownership does not change that growing problem. One Medical caters to a narrow segment of society, and the fact remains that the highest cost drivers in this country are people of lower income with deadly chronic diseases. These populations are not Amazon Prime members, they are not shopping at Whole Foods, and will not value the convenience of bundled grocery-pharmacy-primary care subscriptions.

With a CVS, Walgreens, or Walmart everywhere, accessing medications is not a major issue for the average consumer. Wait times for major procedures such as surgery or specialist visits will continue as One Medical is not a hospital; they provide referrals like any other primary care provider.

This acquisition is very interesting news for digital health entrepreneurs, but in reality, it will result in very little change to the status quo.

Missing from the Amazon health strategy is an approach to managing chronic conditions for the most costly and vulnerable populations. The ever-rising cost of medications will only increase if Amazon’s approach broadly succeeds. Prescribing and delivery convenience has artificially inflated medication demand and caused medication prices to spike.

While more choices for healthcare access can only be good for the customer experience, healthcare is not a commodity. There are limits to customer or ‘user’ experience being valued over quality of care. Amazon’s massive consumer network is therefore not likely to broadly adopt One Medical as their primary care provider any time soon. Even if they do, it is not clear that their health will improve or that they will receive better care than they do now with their current providers.

Laura Kreofsky
Senior Vice President of strategy, Pivot Point Consulting

I think Amazon can definitely make it work. But the question is, to what end? What is their long game in healthcare and what are they willing to wait it out?

I personally believe that this is about evolving a belief system about healthcare being a social good into really a commoditized service. However, (similar) transactions aren't far behind it.

You go back 50 years, and it was the family care doctor who took care of the whole family. Obviously, that has shifted a lot. We're taking in sort of a next quantum leap with this move into what I'm calling retail health care or digital first healthcare.

Over the short-term, I think care will become more accessible from a cost perspective, because you can go into many of these Amazon-like settings and for a fixed fee of around $100 you can get an x-ray or throat culture. There’s also an intangible (benefit) around it being more convenient for patients, who may not have to miss work for care.

But over the short-term, if the patient can’t get past the Amazon care experience into specialty care, they may fall into a black hole, and costs could increase.

I also think it's a very big wakeup call for integrated health systems and other organizations trying to orient themselves towards value-based care. They will be asking, ‘how do we build partnerships with organizations like Amazon and CVS'?

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