Breaking News: Amazon To Acquire One Medical
We have been publishing a series on The Economics of Healthcare; however, this news is too big to delay our reaction.
This morning, July 21st around 9 am, an incredible alert popped up my computer screen from the Wall Street Journal – “Amazon to buy One Medical for $3.9 Billion.” Within the hour, One Medical (ONEM) stock was up 66%, as was Amazon’s stock (AMZN) increasing over 3%.
This news is a big deal and I decided to take the opportunity today to explain why. I have been following Amazon’s new path in dabbling into healthcare for a long-time now; however, what really put them on the map was joining forces with JPMorgan Chase and Berkshire Hathaway roughly four (4) years ago to create a partnership – they called it Haven, to “fix healthcare.” I’ve also been following that company like a hawk. I recall writing a series of blogs about what they had wrong, as well as what would continue to be wrong. Three (3) years after the deal was announced, the relationship was terminated. I have no idea what they spent however, from my perspective, it was doomed from the beginning.
I have followed One Medical from the beginning when they were still a private company opening offices and selling a form of added-on membership access to healthcare. They were just a way to access healthcare, not insurance or remotely anything that dramatic. The Silicon Valley companies that invested in ONEM continued to pay for the employees’ insurance, and in many cases, the VIP service. That did not turn out to be a great idea, and the financials proved it. ONEM, however, did something very unique and special. From scratch, they developed their own technology, a U.S. Certified Electronic Health Record or EMR. I know way too much about building an EMR, and even more how that EMR’s can be used to improve care and reduced the cost of care. That did not make much of a difference in ONEM cost-benefit, because in a Fee-For-Service (FFS) environment, they’re likely more interested in improving care not reducing cost.
However, that changed last year when ONEM announced they were buying Iora Health on June 7, 2021. Iora though was different; it was an actual provider group that provided care under a managed care contract to Medicare members, or those over 65 that chose Medicare Advantage under a Managed Care Organization (MCO). In that case, ONEM technology advantage could and should make a difference. Like 99% of many others in the industry, Iora is a primary care company that uses an off-the-shelf EMR. Now, for me, ONEM was becoming very important as I believe we must merge delivery of care with the use of technology in what we call “technology infused care™.”
Now, we can close the circle in one of the most advanced users of technology, logistics, and customer satisfaction behemoths that Amazon has become, and now they have access to real healthcare delivery. In my series of blogs on Haven, I stated that the ‘only way to change healthcare was from the inside and you had to get your hands in to operations.’
Now that Amazon has taken that step, it is still at an extremely early stage. I suspect three (3) things from here.
- Amazon does not understand what it has done, nor the work it will take and the vision it will need to succeed. Healthcare is the largest industry in the U.S., and it does not work like any others. Managed Care is the place to be for sure.
- Because of #1, they are going to need an amazing management team that is not on the table today, and because they will likely do what they did with Haven, we will see lots of management change, and,
- Because of #1 and #2, it is likely that Amazon will fail again. Yet, I suspect that many other huge technology and retail providers will continue to see growth in healthcare that is too irresistible, and they, too, will jump in like AMZN.
If my assumptions are too pessimistic and Amazon can figure it out, then watch-out, the center of gravity on healthcare would have been changed. Today, Amazon owns a most amazing set of cutting-edge companies: pharmacy, grocery, wearables, some diagnostic efforts, and now primary care and healthcare IT. What if they can get it right? We will just have to wait and see!
With their experience in purchasing, logistics, and delivery power, I have always wondered why they have not purchased a Pharmacy Benefit Administrator (PBM).
I expect one major HMO will be acquired by an unexpected buyer. I once made the point that Walmart could buy Humana and make even more money. It would not surprise me to see other companies in technology come in to play either. Late last year, Oracle®, one of the largest enterprises institutional healthcare technology companies (hospital and Veteran’s Administration), announced its purchase of Cerner® for $28.3 billion, into what the Washington Post called “expansion into healthcare.”
We look forward to watching how One Medical develops over time, and we will discuss updates as they arise.
-Noel J. Guillama, Chairman