Amazon's plan to acquire primary care provider, One Medical, set the industry abuzz last week. 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.
Others are more bearish and see the announcement as a race to the bottom for health care. While the deal appears to fit comfortably within Amazon's consumer ecosystem, honestly, we can't be sure what this means for health care because Amazon has many options—and likely will experiment.
That said, the nature of the deal and the players involved still tell us a lot about where health care is today, and where it is likely headed—at least in the short run. Here is our take, which features a few near-term winners.
1. The biggest winner: Hybrid care
Amazon could have acquired one of the many telehealth vendors in the market. Instead, it chose to acquire One Medical, a company with a reputation for seamlessly combining virtual and in-person care delivery.
The reality is patients may need or want to see an in-person provider either upstream or downstream of a virtual interaction. Doubling down on digital has not translated into big wins for improved care or profitability (don't forget the Teladoc and Livongo merger). Simply put: the thoughtful integration of brick-and-mortar is a valuable complement to a digital health strategy.
2. Accessible, team-based primary care
One Medical's primary care model is focused on accessible, team-based care—a model the industry has been slow to embrace with still many lagging in adoption. Amazon's acquisition makes the fundamentals of team-based primary care almost non-negotiable: convenient care, strategic deployment of APPs, integrated behavioral health, and chronic care management.
The health care industry talks big about the value of primary care, but woefully underinvests in it. From a business perspective, primary care is often overlooked compared to other specialties simply because of its low margins. Amazon's purchase of One Medical—and at a premium valuation—brings new attention to primary care as a value-additive component of the continuum of care.
Some questioned Walgreens bet on national primary care chain, VillageMD, but today that decision seems validated with Amazon following suit. Amazon and Walgreens both picked established national players with a virtual option and a physician workforce to support its model. Clearly, there is an appeal for having a national footprint hybrid care delivery model and adjacent pharmacy services. Especially if Amazon sees brick-and-mortar as the front door to retail pharmacy, could we see Amazon Pharmacy having a physical presence alongside One Medical clinics?
Walgreens seems well-positioned to respond to the competitive implications of this acquisition in the immediate future.
Neither winners nor losers
It's still too soon to tell how things will turn out in some areas of the industry. Here are some ideas and stakeholders that are neither clear winners nor losers in the short run:
1. Value based care
Amazon bet on a fee-for-service player in the primary care space instead of one of the many value based primary care chains. If Amazon keeps Iora, with its Medicare Advantage business, then risk-based contracting could be a winner. Whether the One Medical acquisition happened or not, the momentum toward value-based care seems strong enough to us that value-based care won't be a loser.
That said, without Iora, Amazon likely doesn't have the financial incentives to embrace a true population health strategy. So let's not jump to the idea that we'll be seeing holistic care delivery with food prescriptions through Whole Foods anytime soon.
2. Health systems
One Medical's revenue is significantly tied to health system partnerships. If Amazon supports One Medical to scale these partnerships and give health systems a fee-for-service focused primary care partner, health systems might have less pressure to change their model of care and continue to be the epicenter of care delivery.
Of course, to attract and keep Amazon as a partner, health systems will probably have to sacrifice some control over the patient journey. Health systems could experience a steeper path to meeting patients' rising expectations for convenience in health care.
It has never been easier to fragment health care. Employers and employees are bombarded with point solutions, so the appeal of a potential Amazon health care bundle that connects virtual care (Amazon Care), in-person care (One Medical), pharmacy (PillPack), and wearables (Halo) through a unified ecosystem is obvious. The reality of such an offering or when it will appear is unclear.
But employer expectations for convenience and an integrated bundle are only going to rise if Amazon takes the lead here. How employees respond to the idea of Amazon touching so many aspects of their lives is, however, another question.
Best case scenario: Amazon pushes the health care industry toward a tech-enabled, consumer-centered health care experience, improving patient access and outcomes.
Worst case scenario: This deal—and the "me-too" deals that follow it—ultimately gives affluent consumers a more convenient experience of finding and receiving care at the expense of both health equity and patient data privacy. One Medical and Amazon Prime are membership-based models that serve those who can afford it. Whole Foods and One Medical locations co-locate in more high-income, urban areas. Investments here could simply lower already minor barriers to care for those who already have access.
Stakeholders likely to respond
So, did anyone actually lose? No, not yet. But several industry stakeholders are likely preparing. Here are some players who are likely figuring out how to respond.
1. CVS and Walmart
CVS and Walmart have enormous physical footprints and ambitions to compete in care delivery, but neither has made the same kind of national investments in physician-staffed clinics and virtual like Walgreens and now Amazon. CVS and Walmart so far have chosen a "build" strategy which will require time to recruit physicians, prove a care model, and scale to the number of clinics Walgreens and Amazon have today.
If CVS or Walmart choose to shift towards buying into this space, Amazon's valuation of One Medical will increase the price of a potential acquisition.
2. UnitedHealth Group/Optum
UnitedHealth Group and its Optum unit are so large that there are no immediate risks, but the competitive landscape has shifted. This is especially true if Amazon decides to keep Iora and compete in Medicare Advantage or leverage its new assets and partnerships to enter more broadly into the insurance business.
This acquisition also sets the stage for similar deals in the future, the aggregate of which, UHG and Optum will have to plan around.
Advisory Board is a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group
The Federal Trade Commission is likely to investigate whether this deal is anti-competitive, but the vertical nature of this integration makes it seem likely to go through. That will probably appear feckless to the general public who don't understand what Amazon is actually buying.
It will also set the stage for ongoing contention with politicians, consumers, and other industry giants when Amazon begins to experiment with its assets and clout in health care to advance its business objectives.
What is Amazon's end game in health care? What if this acquisition is the endpoint? Based on Amazon's entry into other industries with acquisition such as Whole Foods, Pill Pack, Ring, etc., some might reasonably anticipate this won't lead to major gains and losses for the industry. Others can disagree, pointing to those acquisitions as a longer-term disruptive strategy.
In our next blog, we'll play out a few forward-looking scenarios and tell you which we think is most likely.