Amazon Buys One Medical... It's In the News Everywhere!!

This video provides an in-depth analysis of Amazon's acquisition of One Medical, an advanced primary care company, for $3.9 billion. Dr. Eric Bricker, the speaker, dissects the financial performance and strategic implications of this deal, highlighting key observations about the evolving healthcare landscape. He begins by introducing One Medical as a digital health startup with 188 clinics across 17 major U.S. cities, detailing its IPO history and significant stock price decline prior to the Amazon acquisition. The core of his analysis revolves around One Medical's dual business model and the contrasting revenue generation from its "enterprise" clients (employer contracts and individual subscriptions, fee-for-service) versus its "Medicare Advantage risk" business (capitated payments, acquired through Iora Health).

Dr. Bricker meticulously breaks down the revenue disparities, revealing that One Medical's Medicare Advantage segment, despite having significantly fewer members (39,000 vs. 728,000 enterprise members), generated almost equal revenue in Q1 2022 ($120 million vs. $130 million). This translates to a staggering 17 times more revenue per member annually for the capitated Medicare Advantage beneficiaries ($12,300) compared to enterprise members ($714). He points out One Medical's struggles with organic member growth (only 28% year-over-year) and consistent quarterly losses, suggesting that its growth rate for a "money-losing business" was not steep enough to satisfy Wall Street or its board.

The analysis then shifts to Amazon Care, Amazon's own digital health and telemedicine service, which Dr. Bricker argues has also struggled due to an "undifferentiated offering" in a market already saturated with telemedicine incumbents. He emphasizes that Amazon's decision to acquire One Medical, a substantial $3.9 billion investment (seven times more than all AWS acquisitions combined), indicates a recognition that building a competitive healthcare solution internally was not proving successful. Dr. Bricker concludes by framing the acquisition as a "fantastic opportunity for a pivot" for Amazon. He suggests that Amazon should de-emphasize or sunset One Medical's less profitable enterprise business and focus heavily on the high-revenue, capitated Medicare Advantage risk model, emulating successful players like ChenMed and Oak Street Health. This strategic pivot, he argues, is where the "healthcare money is," particularly among older, sicker individuals who are high utilizers of healthcare services.

Key Takeaways:

• Amazon's Strategic Healthcare Entry: Amazon's acquisition of One Medical for $3.9 billion signifies a significant commitment to the healthcare sector, indicating a strategic shift and potentially a recognition of challenges with its internal Amazon Care initiative. This large investment suggests a long-term play in healthcare delivery.
• One Medical's Dual Business Model: One Medical operates two distinct business lines: an "enterprise" model (employer/individual subscriptions, fee-for-service) serving a large member base, and a "Medicare Advantage risk" model (capitated payments) serving a smaller, but significantly more lucrative, member base through its Iora Health acquisition.
• Revenue Disparity in Primary Care: The capitated Medicare Advantage business generates substantially more revenue per member (approximately $12,300 annually) than the enterprise fee-for-service model (approximately $714 annually), highlighting the financial attractiveness of value-based care for older, higher-utilizing populations.
• Challenges of Digital Health Utilization: One Medical's enterprise business struggles with only 40% "activation/utilization" among employees, a common "achilles heel" for many digital health programs. This low engagement rate makes it difficult to impact the 5% of employees who drive 50% of healthcare costs.
• Importance of High-Utilizer Focus: The video strongly advocates for monetizing advanced primary care through "high utilizers"—sicker, older individuals who are typically covered by Medicare Advantage plans. These individuals have significantly higher healthcare expenditures ($18,400+ per year for 65+ vs. $4,400 for 19-44).
• Amazon Care's Undifferentiated Offering: Amazon Care faced market challenges due to an "undifferentiated offering" compared to existing telemedicine incumbents. This lack of a "10x better value proposition" made it difficult to unseat established providers.
• Acquisition as a Pivot Opportunity: The One Medical acquisition presents an opportunity for Amazon to "pivot" its healthcare strategy. The speaker suggests de-emphasizing the struggling enterprise business and focusing on the more profitable Medicare Advantage risk model, leveraging One Medical's Iora Health experience.
• Benchmarking Against Successful Models: Companies like ChenMed and Oak Street Health are cited as successful examples of advanced primary care providers that exclusively focus on capitated Medicare Advantage risk, demonstrating the viability and revenue potential of this model. Oak Street Health, for instance, serves 114,000 people with $1.4 billion in annual revenue.
• Healthcare as a Viable Niche: Despite the complexities, healthcare is a massive industry (nearly 20% of the U.S. economy), offering significant opportunities for companies, including tech giants like Amazon, to carve out profitable and value-adding niches.
• Value-Based Care for Monetization: The most effective way to monetize advanced primary care is through capitated payments for Medicare Advantage beneficiaries, as this model aligns incentives with managing the health of high-cost patients and allows providers to retain savings from improved outcomes.

Key Concepts:

• Advanced Primary Care: A model of primary care that often integrates digital health tools, focuses on comprehensive patient management, and may involve different payment structures beyond traditional fee-for-service.
• Digital Health: The use of information and communication technologies to help improve human health and healthcare services.
• Capitated Payments: A payment arrangement for healthcare service providers where a fixed amount is paid per patient per unit of time, regardless of the number or type of services provided. This shifts financial risk to the provider.
• Fee-for-Service: A payment model where services are unbundled and paid for separately. In healthcare, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, not the quality.
• Medicare Advantage (MA): A type of private health insurance plan in the United States that provides Medicare benefits. These plans are offered by private companies approved by Medicare and often include additional benefits like vision, hearing, and dental.
• Utilization/Activation: Refers to the rate at which members or patients engage with or use a healthcare service or program. Low utilization is a common challenge for many digital health solutions.
• Organic Growth: The increase in revenue or membership that a company achieves through its own operations, without relying on acquisitions or mergers.

Examples/Case Studies:

• One Medical: An advanced primary care company with 188 clinics, acquired by Amazon. Its business model includes enterprise clients (fee-for-service) and Medicare Advantage risk (via Iora Health acquisition).
• Iora Health: An advanced primary care company acquired by One Medical, specializing in taking Medicare Advantage risk through capitated payments.
• Amazon Care: Amazon's internal digital health and telemedicine service, which struggled with market differentiation and adoption before the One Medical acquisition.
• ChenMed: A private company cited as a successful example of a primary care provider focused on capitated Medicare Advantage risk.
• Oak Street Health: An advanced primary care practice that exclusively focuses on capitated risk for Medicare Advantage beneficiaries, serving 114,000 people with $1.4 billion in annual revenue, demonstrating the financial viability of this model.