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3 scenarios: Exploring Amazon’s One Medical acquisition and what it means for the future of health care (Part 2)

By Ty AderholdPrianca Pai

August 10, 2022

    What will Amazon do next in health care? That's the question on most industry leaders' minds after they announced plans to acquire One Medical. And it is a question with few obvious answers.

    On the one hand, this is the third-largest company in the world entering the care delivery space with their third-largest acquisition ever. It's easy to imagine a world where Amazon becomes a dominant player in all facets of health care. On the other hand, one acquisition does not lead inevitably to future success.

    Remember: this is not Amazon's first entry into health care. They have spent significant money both internally and on previous acquisitions and have not yet contributed to any major disruption of the industry.

    Last week, we discussed what this move meant for health care right now.  Today, we examine potential outcomes for Amazon, and what that would mean for health care five years from now.

    We have limited ourselves to three potential scenarios for Amazon's health care enterprise in 2027:

    • Limited growth with minimal disruption
    • Noteworthy growth and disruption in the employer and consumer market
    • Significant growth and vertical consolidation leading to broad industry disruption.

    For each, we highlight what would have to be true about Amazon and the broader health care market for them to occur. 

    Scenario 1: Limited growth with minimal disruption

    What Amazon does: Amazon uses One Medical and Iora as long-term testing grounds. They remain a separate business, but they have access to Amazon's deep pockets to support growth and innovation. The profit from the relatively lucrative Iora business keeps Amazon in the Medicare space and allows them to experiment in the commercial consumer space. One Medical feeds Amazon's other health care offerings, improving revenue for Amazon Pharmacy and Alexa Health.

    However, Amazon's health care businesses see limited growth overall and remain in silos, similar to Amazon Fresh and Whole Foods today. Amazon entices consumers through discounted bundled services, such as discounted One Medical for Prime members.

    Adoption is limited to brand loyalists and the limited segments of consumers who are willing to enter into direct-to-consumer (DTC) health care models. Amazon slightly reduces their own health care spend as some employees shift to high-touch hybrid primary care and telehealth from One Medical and Amazon Care. Still, a lack of widespread adoption and inability to control downstream care costs limits the effectiveness of this approach.

    Overall, Amazon remains in the health care business, but they do not commit significant additional resources.

    What happens to health care: This largely maintains the health care status quo. The DTC digital health world consolidates, but it still makes up a fraction of the entire health care market. A few health systems see value from partnerships with these DTC offerings, but not enough to significantly shift any system's strategic priorities.

    Major players such as CVS, WalmartWalgreens, and some payers continue to invest in the primary care space, but they run into similar challenges. Other big tech and retail companies observe how meager these returns are, and they are even more hesitant now to follow them into the care delivery space than they were in July 2022.

    Scenario 2: Noteworthy growth and disruption in the employer and consumer market

    What Amazon does: Amazon quickly expands their health care business. They integrate One Medical into Amazon Care to develop a single care delivery arm for employees and consumers. Amazon sees early success in reducing employee health care cost through One Medical/Amazon Care and other integrated health care capabilities such as Amazon Pharmacy.

    A majority of Amazon employees adopt this hybrid model, which features low premiums and appealing tools and benefits, including price transparency tools, 24/7 access to synchronous and asynchronous care, and synergies with other Amazon services such as Alexa, Amazon Pharmacy, and Whole Foods. Over time, they extend this model to other employers and to payers as an add-on offering to commercial insurance.

    Amazon applies lessons from their employer model to their DTC offerings. Their innovations in areas such as price transparency and ease of access weaponize consumerism against legacy health care stakeholders (like health systems, plans, health solutions companies).

    Amazon leverages this growth, their in-house EHR, and their existing data capabilities to create comprehensive consumer profiles. This combination of front-end consumer tools and back-end consumer data positions Amazon to become one of the dominant players in the commercial primary care market.

    To support this growth, Amazon invests heavily in the care delivery space via acquisitions and partnerships. They begin to aggregate physicians and pursue partnerships with both health systems and physician groups to provide specialty access. They make parallel investments in telehealth, including asynchronous services and remote monitoring, to further expand the reach of their physicians.

    What happens to health care: There is moderate to significant disruption to the employer and direct-to-consumer spaces. Employers choose to partner with Amazon, or they find or develop a similar offering from big retail or health solutions companies like CVS, Walgreens, and Optum.

    Physician groups, payers, and health systems all face significant disruption. Physician groups find it even harder to stay independent, as Amazon and other major players are willing to highly incentivize joining their ranks as they compete for physicians. Amazon becomes a natural buyer of physician practices as private equity looks to exit the industry.

    Payers begin to lose negotiating power as Amazon and their competitors form tight partnerships with health systems. Some health systems benefit from new, high-volume referral streams from these partnerships.

    Systems that can't or won't partner with Amazon and other giants could struggle in many markets to sustain volumes—and they become prime targets for acquisition. And patients begin to see these new chains as the front door to care instead of Google or the emergency department.

    Scenario 3: Significant growth and vertical consolidation leading to broad industry disruption

    What Amazon does: Amazon moves beyond bundling services for employers and consumers and pursues vertical integration similar to others in the industry (like UHG and CVS). Amazon leverages its consumer profiles (from scenario 2) to offer programs where members opt-in to hyper-personalized health and wellness suggestions for groceries, products, and services using individual and aggregated member data across its platforms.

    Its embeddedness in patients' day-to-day helps it identify proactive care prompts and interventions. These programs help Amazon unlock effective digital patient activation and engagement—giving them a competitive edge in Medicare Advantage and other risk-based arrangements.  

    Amazon is poised to disrupt the continuum of care: as an out-of-industry player, they aren't constrained by misaligned incentives of legacy stakeholders. Their consumer-first model and industry-leading logistics infrastructure allows them to provide low-cost, wraparound pharmacy care and expanded home-based care services.

    They plan to use a direct-to-consumer model to provide the most common medications to their One Medical patients at competitive rates through partnering with a variety of pharmaceuticals manufacturers—effectively cutting out traditional pharmacy benefits managers.

    Some speculate that they might go into generic drug manufacturing to further drive down prescription drug costs. Others see a long-term strategy to circumvent traditional health insurers using its health care ecosystem and employer relationships to deliver a new-in-kind "insurance" model.  

    What happens to health care: The outcomes of scenario two also occur here, but these industry shifts accelerate changes to payers and health system operational models so these traditional players can effectively compete. Vertically integrated players (and inevitable new regulations) are set to lower prescription drug prices and incentivize further shifts to value-based care.

    A race to transform data into timely and holistic health care insights for patients, providers, and life sciences companies is on. Non-health care data becomes increasingly valuable to Amazon and its giant competitors, as they work to integrate health care as a part of daily life, not simply a yearly wellness visit. 

    Who wins: Exploring Amazon’s One Medical acquisition and what it means today (Part 1)

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    Amazon's plan to acquire primary care provider, One Medical, set the industry abuzz in July. The chatter falls into two camps. Some view Amazon's entry into care delivery as a brilliant move and constructive disruption for an industry that needs it.

    Here is our take, which features a few near-term winners.

    Read more

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