Good morning! Today's essay dives deep into the Amazon-One Medical acquisition. I have a lot of thoughts, fun predictions, and open ended questions for you guys to explore. Healthcare is insane, isn't it? | Was this email forwarded to you? | | | HHHHH (AKA, the Healthcare Huddle Hospitalogy Happy Hour) | If you're in the NYC area, I'd love to see you at the first Hospitalogy x Healthcare Huddle happy hour hosted by Jared and me. Let's hang out. Fun fact - it'll be the first time I've met Jared in person! It'll be in the Big Apple on August 31. Here are the details and I'm looking forward to seeing you guys! RSVP here or below. | | | Amazon buys One Medical: Key Takeaways | Although the acquisition of One Medical is the largest, splashiest entrance into tech-enabled healthcare services companies by Big Tech, it's a drop in the bucket compared to the larger primary care market. Anyone who thinks that Big Tech is anywhere close to disrupting healthcare is out of their mind. | Amazon has yet to define a clear strategy in healthcare and instead has a number of discombobulated (I just really wanted to use that word) assets that haven't made any sort of real impact. Buying One Medical, the O.G. tech enabled primary care platform, is an attempt to capitalize on the growing consumerization trend in healthcare. One Medical has always targeted higher income clientele and you can see this strategy based on where One Medical facilities choose to locate. With the transaction, Amazon gets access to 8,000 clinicians, a 180+ clinic footprint, custom-built EMR, 8,500 employer relationships, 16+ health system partnerships, and a tap into the growing senior market with Iora Health. Amazon will find a way to pivot healthcare - a traditional cost center - into a cash-flowing profit center by leveraging One Medical, existing Amazon Care assets, and future healthcare related acquisitions. Iora, One Medical's value-based care segment focused on the Medicare Advantage and Direct Contracting beneficiaries, is a wedge into the fast growing senior care market as Boomers age into Medicare and Medicare Advantage. Questions remain as to whether or not Amazon wants to fully dive into Iora's segment. Finally, the transaction has huge implications for investment into primary care. Big tech involvement creates another exit option and the One Medical transaction provides immediate credibility and a fantastic comp (~3.6x forward revenue) for tech-enabled clinical assets as the macro environment sours. | Announced on July 21, 2022, Amazon is acquiring One Medical, a tech-enabled primary care platform, for $18 / share. The all-cash offer amounted to a 77% premium to the previous day's closing price of just over $10. Year to date, the transaction price amounts to just a 2.4% premium. Yeesh. Founded in San Francisco in 2007, One Medical originally began as a cash-pay subscription model. Each member paid an annual subscription fee to access primary care services. One Medical found early success by targeting higher-end clientele, even at one point being labeled the 'Starbucks' of primary care and selling its services to large employers like Google (who now apparently comprises 10% of One Medical's total revenue). Tom Lee, One Medical's founder, wanted to completely transform the healthcare delivery experience for patients. One Medical did so by offering a differentiated primary care product that now includes 24/7 access to virtual care services (One Medical Now), chronic care management (One Medical Healthy Heart & others), timely access to in-office primary care and specialty care coordination, behavioral healthcare (One Medical Healthy Mind), and even at-home care (One Medical At-Home). The model was successful enough to draw venture funding from major sourced like the Carlyle Group and Alphabet. One Medical reached a $1.5 billion valuation and had raised $400 million. In January 2020, One Medical closed a successful IPO, raising another $245 million at a $1.7 billion valuation. | One Medical peaked during Covid, right around when other 'Rona trades (like Teladoc) ran out of steam in Q1 2021. As One Medical's original growth engine stalled, the firm looked to acquisitions to find its next avenue and acquired Iora Health, a value-based care player, in September 2021. From Q1 2021 to today, we saw a steady decline of most digital health assets (even the good ones). One Medical hit an intraday all-time low of $5.94 in April 2022 and was subsequently bought out for $18/share in July. I imagine the talks with bankers began close to that point in April. | What Amazon gets with One Medical: Breaking down the Model | As far as tech-enables primary care goes, One Medical operates one of the best platforms for digital health and patient experience out there and is one of the OG pioneers when it comes to digital health. Since its early days as a subscription based model, One Medical has evolved to encompass not only its business with enterprise customers and consumers but also its fee-for-service partnerships with health systems and most recently, its Medicare book of business with Iora. In fact, One Medical has pretty diverse revenue streams as far as primary care platforms are concerned: | One Medical generates its revenue through three primary segments: Health System Partnerships & Fee-for-Service: One Medical holds at least 16 partnerships with some of the best run health system players including the following: - Emory Healthcare Network - Atlanta
- Ascension Seton - Austin
- Mass General Brigham - Boston
- Advocate Aurora (and now Atrium) Health Care - Chicago and likely Milwaukee next
- HartFord HealthCare - Hartford, Connecticut
- The Ohio State University & Wexner Medical Center - Columbus
- MedStar Health - Washington DC
- Baylor Scott & White - Dallas Fort Worth (Dallas!!!)
- Houston Methodist - Houston
- Providence - Los Angeles, Orange County, Portland,
- Mount Sinai - New York
- Dignity Health (AKA, CommonSpirit) - Phoenix
- Duke Health - Raleigh
- UC San Diego Health Physician Network (a clinically integrated network) - San Diego
- Swedish Health - Seattle
- UCSF Health - San Francisco
The firm clinically and digitally integrates with these players and benefits from higher fee for service rates for services rendered while the health system benefits from the primary care integration and downstream referrals to specialists and other care provision. In most health system and certain health network or employer relationships, One Medical charges fee-for-service rates based on contractual arrangements. | Enterprise and Consumer Revenue: Its original bread and butter, One Medical receives membership revenue from consumers and depending on the employer/enterprise contract, either a per-member-per-month fee from employers or annual membership fees charged to enterprise clients. One Medical's book of business is over 8,500 enterprise customers and the firm guided to total membership of around 800,000 members by year-end. Medicare Revenue: This is mostly Iora-generated revenue through capitated Medicare Advantage and Direct Contracting - AKA, all risk-based contracting targeting senior populations. One Medical also generates a small portion of fee-for-service Medicare revenue. For 2022, One Medical expected Iora to generate $530 million in Medicare revenue on a membership base of 42,000 beneficiaries between MA and DCE. | Financially speaking, Amazon is getting a clinical asset expected to generate just under $1.1 billion in revenue. After the Iora acquisition, One Medical isn't currently profitable and really hasn't been…ever: | Financials aside, One Medical is one of the best when it comes to outcomes data and consumer experience, two key factors that I'm sure played a role in Amazon's due diligence. The firm retains 9 out of every 10 consumer members, 90% of its enterprise contract values, and 8 out of 10 at-risk members. The membership growth numbers speak for themselves, growing over 300% during a five year period from December 2016 to December 2021. People like getting care at One Medical. On the employers and payor side of things, according to investor decks and case studies, the One Medical model saves 8% per client on average on healthcare costs despite more patient touch points, and reduces ER costs by 33%. In addition to the One Medical experience, existing partnerships and agreements with employers, One Medical has some other assets that piqued Amazon's interest: Geographic Footprint: One Medical holds a presence in 25 major markets, soon to be 29 after expanding into Dallas, Miami, Milwaukee, and Connecticut. It operates around 180+ clinics in those markets. | Source: One Medical-Iora Health investor presentation Clinical Employee Base: One Medical has an employee base of at least 8,000 clinicians. One Medical continues to hire well and the firm attributes this success to its clinical model that prevents burnout. Although it's not clear how many primary care physicians vs. APPs (NPs and PAs) One Medical employs, the expansion gives Amazon immediate access to clinical scale. Custom EHR: While I'm not sure how big of a deal One Medical's custom EHR is (given that Iora also has an EHR and so does Amazon Care), it's still likely a strategically useful asset and can be leveraged in some way. TL;DR: Amazon chose a 'Buy' strategy. My guess is that they wanted to roll out a clinical footprint for Amazon Care much faster than they could initially with Crossover Health (which was expected to start with 20 medical clinics), and buying One Medical supercharged that expansion, including access to 8,000 clinical staff. Okay, One Medical sounds pretty great…Why'd they sell? It all boils down to one word in healthcare…Money. Given the current macro environment, One Medical saw its share price plummeting and its cash pile falling. Investors started to note some concern over One Medical's growth and cash spend given that value-based care models and growing facility footprints require significant capital outlays. On top of capital and investment needs, One Medical was likely getting close to having to write down some portion of the Iora acquisition. The deal - an all-stock transaction - closed for $1.4 billion. One Medical had to be getting dangerously close with how low its stock dropped in April. Likely having to raise capital in THIS economy within the next 12 months + potentially having a huge write-down…it could've gotten ugly. Obviously my speculation here could be wrong, but just some data points. | Amazon's Current Healthcare Footprint | Okay, so we've covered One Medical's operating model and footprint! What about Amazon? Amazon has been all over the place in healthcare. If I had to describe its strategy using one word I'd say…disjointed. Here's a quick timeline to get you caught up to speed... | | | To keep reading the rest of the essay, click "continue reading online" above! Thanks for your readership, this was a fun one. — Blake | | | Want your message in front of 5,700 executives and healthcare decision-makers? | Workweek Media Inc.
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