Daily Briefing

Amazon is buying One Medical for $3.9B. Here's our take.

Amazon on Thursday announced plans to buy primary care company One Medical for roughly $3.9 billion, marking the technology giant's latest move to expand into the health care industry.

Amazon Care is doubling down—will that be enough? Watch these 3 factors.

Amazon expands into primary care with One Medical deal

Although primary care has been considered one of the least-profitable areas of medicine, it has been attracting major investments from retailers, health insurers, and drugstore chains in recent years. For example, Walgreens Boots Alliance last year paid $5.2 billion for a controlling stake in clinic chain VillageMD.

Following in these steps, Amazon on Thursday announced plans to expand its own primary care offerings by acquiring One Medical, which is owned by 1Life Healthcare. According to the Wall Street Journal, the deal is valued at approximately $3.9 billion, including the company's net debt.

One Medical, which is a membership-based service that offers both in-person and virtual care, operates 182 medical offices in 25 U.S. markets and works with more than 8,000 companies to provide health benefits to their employees. During the Covid-19 pandemic, One Medical's membership increased significantly, CNN reports, with its latest quarterly earnings report showing a 28% increase year-over-year to 767,000 total members.

"We think health care is high on the list of experiences that need reinvention," said Neil Lindsey, SVP of Amazon Health Services, adding that Amazon sees "lots of opportunity to both improve the quality of the experience and give people back valuable time in their days."

"Together with One Medical’s human-centered and technology-powered approach to health care, we believe we can and will help more people get better care, when and how they need it," he added. "We look forward to delivering on that long-term mission."

Once the deal closes, One Medical CEO Amir Dan Rubin is expected to continue leading the company, the Journal reports.

"The opportunity to transform health care and improve outcomes by combining One Medical’s human-centered and technology-powered model and exceptional team with Amazon’s customer obsession, history of invention, and willingness to invest in the long-term is so exciting," Rubin said. "There is an immense opportunity to make the health care experience more accessible, affordable, and even enjoyable for patients, providers, and payers. We look forward to innovating and expanding access to quality healthcare services, together." (Day/Tozzi, Bloomberg, 7/21; Evans/Herrera, Wall Street Journal, 7/21; Kokalitcheva, Axios, 7/21; Thorbecke, CNN, 7/21; Amazon press release, 7/21)

Advisory Board's take

Our take: What the Amazon-One Medical deal means now—and in 5 years

We've been wondering for a long time whether Amazon would make a move like this—and if it did, what that would mean for the industry.

Now that the moment is upon us, it's important to separate immediate impacts from the potential long-term implications.

Why does the One Medical deal matter for health care right now?

Let's start with what we think matters immediately:

  1. This is among the biggest investments ever in care delivery by a non-health care entity. While the past 30 years of health care have seen plenty of new entrants who pledged to remake care delivery but ultimately failed, none have demonstrated this level of seriousness or financial investment in a delivery organization.

  2. Amazon paid a big premium. According to the Wall Street Journal, Amazon's price represents about a 77% premium from the company's prior closing price.  This is a clear stake in the ground showing that Amazon is willing to pay up to land their target of choice. Remember, this all comes as digital health funding has dipped across the first half of 2022, and One Medical was not profitable. All things considered, digital health companies should be celebrating. This provides a market benchmark that is higher than many would have suggested even a week ago.

  3. The competition for care delivery just heated up. Now the care delivery competition has moved beyond health care mega-enterprises like UnitedHealth Group (UHG) and CVS. Amazon is a behemoth that arrives without an attachment to—some could reasonably say "baggage from"— existing health care business models. That could turn out to be an asset or a liability, but if offers Amazon real flexibility. (Editor's note: Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UHG.)

  4. Other players are going to respond, at least with internal investment. The cash-rich mega organizations that Amazon threatens with this acquisition, including Optum, CVS, and Walmart, all have the means to respond. While those responses may look different than Amazon's, we expect these organizations will evaluate the competitive advantages that Amazon is seeking from One Medical.

  5. Data privacy concerns are only growing bigger. It's unclear how regulators will view an organization like Amazon as it expands its reach into both health care and consumer data, or how One Medical will fit into Amazon's larger corporate structure. But it's clear Amazon now has the capability to aggregate consumer and health care data in an almost unmatched way.

What isn't changing today … but could be in five years?

Our heads are spinning at all of the potential possibilities available to Amazon, but it is important to remain grounded and realize that there are plenty of unknowns. Some of the biggest possibilities:

  1. Amazon could bundle to appeal to purchasers. Amazon now own assets across the care journey. You could draw a line from Prime membership to virtual visits through Amazon Care to in-person visits with One Medical to prescriptions from PillPack to wearables and home monitoring with Halo and Alexa. That journey could sound appealing to a payer or self-funded employer, creating a potentially powerful, differentiated bundle. But for right now, those are disparate businesses and platforms, siloed in different Amazon divisions, and it will likely take years to turn them into a coherent offering.

  2. Amazon could make a run at the Medicare Advantage (MA) market. Remember, Iora is coming as part of this deal: It was acquired by One Medical last year for $2.1 billion. One Medical's existing effort to expand into the MA market, then, is now Amazon's effort. It's not hard to envision a scenario this acquisition serves as the launching point for Amazon's emergence as a major MA player.

  3. The care delivery market could face much bigger shifts to come. For now, only a fraction of a fraction of a fraction of patients will be served by the Amazon-One Medical ecosystem—especially among patients who aren't Amazon employees. That said, this acquisition signals that Amazon has big ambitions beyond an offering limited to its staff and first-mover employers. If it realizes those ambitions, the care delivery market may never look the same.







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