The Amazon + One Medical Post

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The M&A Announcement

On Thursday I woke up a little late. I’d like to pretend it’s because I was out having a great time the night before, but really it’s because I discovered this subreddit where people are working 2+ full time jobs simultaneously during the day and was up late understanding how they avoid overlapping meetings.

When I woke up, my phone was filled with tons of unread messages. I feared a catastrophe was happening in the world and people were reaching out to see if I was safe. I sprung up quickly out of bed and opened the first message:

“Broooooo Amazon One Medical??? Thoughts??”

Even worse. A big tech company had done something in healthcare, my own personal catastrophe. I knew my feed was going to be permanently disfigured with lukewarm takes and patient journeys that use only Amazon products for the next few months. It’s as if people were in a race to divide the deal size by the number of patients and draw a point from it.

What're Your Thoughts On The One Medical + Amazon Announcement?

Look I’m going to be completely real with you all, I don’t have a lot of hot takes here. All I know is that I’ve been a One Medical shareholder since they went public and have lost 1/3rd of my money in it, despite the acquisition being done at a 75%+ premium. I charge 2% fees to give that kind of stock picking advice. 

It seems like Amazon just wants to move into healthcare somehow and One Medical was a fast way to get contracts with employer/payers/hospitals for relatively cheap. Some general observations about the deal:

• Let’s start with the obvious. Amazon bought PillPack, they now own One Medical, they’re trying to build a health wearable, and through Amazon Care seem to have the infrastructure for home care delivery and lab testing. It’s much easier to guide patients to commodity services like a mail-order pharmacy or lab testing if you own the prescriber too. 
• My guess is the next logical steps are same day pharmacy delivery, durable medical equipment delivery, remote patient monitoring, and home labs. I could see the One Medical hubs end up being a way to expand their home health services footprint as well since Amazon Care seems to only offer it in certain locations today (and they’d need a national footprint for national contracts).

• It’s never been clear to me whether Amazon wants to be in the business of more traditional employer-based healthcare or create a new paradigm of consumer-targeted healthcare. That whole Haven debacle didn’t help. Even though One Medical technically works with a lot of employers for distribution, I don’t think this is Amazon’s beachhead into the employer healthcare world. I just think it’s easier to get distribution into consumers, and they’d rather focus on consumer healthcare. 
• Other than Amazon Care, Amazon also seems to have primary care relationships with Crossover Health and Teladoc. How will these different services interact? On the flipside, One Medical has a ton of Amazon competitors as clients (Google is ~10% of One Medical revenue, though decreasing). Will they care? Smarter people than me pointed out competitors use AWS and it would probably be an unpopular choice with employees. 
• The big question hanging over this deal is whether the company keeps Iora Health, the Medicare Advantage focused primary care chain. One Medical JUST bought the company a year ago, which is unfortunate for whatever second year consultant has been pulling all nighters to do the integration. Sure, Amazon theoretically has a lot of the infrastructure to home care, food delivery, etc. that would probably be relevant to this population. But my guess is Amazon divests because it’s already under enough scrutiny and headlines about how members died under Amazon’s watch (inevitable in a complex care population) or how Amazon rationed care (a core part of the MA business model) is not something they’d want to deal with. On top of that, while I’d love to believe that taking care of Medicare Advantage patients is about delivering care and goods to the home, it’s largely about being able to do risk adjustment properly to make the economics work (which One Medical + Iora had not quite figured out either). 
• To me, this is a story about Amazon Prime as much as it is about One Medical. Amazon Prime recently announced a price hike and growth for it has slowed. The value of the Prime bundle seems to get more questionable as prices go up, competitors close in, and people wonder whether getting an air fryer overnight was necessary. For me, One Medical has been a fantastic service when I’ve needed primary care. But ever since I left a company that pays the yearly $200 fee, I’ve waffled about whether it’s worth paying when I barely use primary care. It would make sense to bundle Prime - which I get a little value from pretty regularly -  with One Medical which I get a lot of value from very sporadically. That would make the whole bundle much more appealing and I could see them potentially offering different Prime tiers that include health services. Actually, I probably would never have tried One Medical if my employer hadn’t covered it - I only saw the value after using it. That might be the same for Prime members who get a visit included in their bundle, where Amazon can target the particularly valuable Prime customers for One Medical discounts/offers (since we know they have that data). 
• Another story is the struggle that tech-enabled services companies are going to face now. One Medical was founded in 2007 and has been building and iterating on its model since. It has lots of lucrative contracts, generated $623.3M revenue last year, and has actually made decent margins on care delivery prior to the Iora acquisition. And yet even still It dropped to 1/4th of its market cap before getting scooped up. If this is the fate of a company like One Medical, what does this mean for the other tech-enabled services companies currently in private markets? I sense this is the beginning of a fire sale of tech-enabled services. Either to private equity if they actually have a path to generating cash, to non-healthcare players that want to move quickly and buy contracts/patient lives for cheap, or to payers building out their primary and specialty care divisions.

• While probably not the main reason for acquisition, it seems likely that One Medical would be used to manage the health of Amazon’s 1.1M employees, especially considering their warehouses seem prone to injuries and musculoskeletal issues are a big problem that they call out wanting to solve. I wouldn’t be surprised if this was a tool they use in their ever growing fight against the unionization of employees by saying, “hey we’re already making big investments into your health benefits by bringing this awesome onsite/virtual care to you.” A few billion is likely cheaper to them than unionization would be.

Conclusion

Personally I’m actually pretty ambivalent about this purchase. I expected after the Whole Foods purchase that they were going to do lots of interesting experiments in retail, use the stores as micro fulfillment centers, etc. But the only thing that changed is now I can scan my app to get $3 off of a $150 grocery basket.

I’d love to post a futurist take with lots of retweets about how the primary care and grocery integration will work, or how Alexa will be used for voice-to-text dictation in the office and patient’s home, or how data from the One Medical EMR is going to train AWS natural language processing software to make it better. But honestly I think Amazon is just a big company, and doing risky things in healthcare is not what big companies do;  though I’d love to be wrong.

Once I see an interesting business model shift in One Medical post acquisition (e.g. bundled in Prime, launching an insurance plan around it, etc.), my interest will be piqued. But until then, I just see Amazon as owning a regular primary care clinic chain that operates independently with some additional marketing. 

Send me your thoughts and hot takes on this acquisition. I'll put the best ones in the next newsletter.

Thinkboi out,

Nikhil aka. “the worst public market investor you've ever met"

Twitter: @nikillinit

IG: @outofpockethealth

Other posts: outofpocket.health/posts

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