How Amazon’s $3.9B purchase of One Medical could disrupt the healthcare market

Amazon’s agreement to buy One Medical in a $3.9 billion deal demonstrates how serious the retail giant is about the healthcare market.

The two companies announced the merger agreement Thursday. One Medical is a primary care organization which offers its members in-person care and 24/7 virtual care. Individual patients pay membership fees, and One Medical has partnered with large employers, including Google, Lyft and ING. One Medical has 767,000 members and operates 188 medical offices.

Amazon already operates an online pharmacy and its telehealth service, Amazon Care, but the purchase of One Medical is its biggest healthcare deal to date.

Amazon is clearly no longer a company providing tech solutions to healthcare, said Paddy Padmanabhan, CEO of Damo Consulting.

“Amazon is now undeniably in the healthcare business,” he told Chief Healthcare Executive.

“You have one of the largest companies on the planet with one of the deepest pockets on the planet getting into one of the largest sectors in the US economy,” Padmanabhan said.

• Related story: Fewer hospital mergers, but bigger deals, may be a growing trend

‘Reinvention’ of healthcare

Amazon touted the deal as a game-changer.

“We think health care is high on the list of experiences that need reinvention,” Neil Lindsay, senior vice president of Amazon Health Services, said in a news release announcing the deal.

Lindsay derided a system that makes patients wait for weeks to get appointments with doctors, only to get rushed appointments and still have to go to a pharmacy.

“We love inventing to make what should be easy easier and we want to be one of the companies that helps dramatically improve the healthcare experience over the next several years,” Lindsay said in the release.

Anu Singh, managing director of Kaufman Hall’s mergers and acquisitions practice, told Chief Healthcare Executive he was struck by Lindsay’s comments about revamping the consumer experience for patients. “To me, that’s a telling statement,” Singh said.

Hospitals and healthcare systems can improve in offering a consumer-friendly experience, and that’s where Amazon sees an opportunity in the health market, he said.

“There’s a segment of healthcare that doesn’t require cutting open a chest,” Singh said. “I don’t think Amazon Prime is going to be offering organ transplants anytime soon.”

In the hundreds of thousands of healthcare exchanges that are nothing like a trauma situation, Singh said, “There is now a focus on how do we minimize the amount of strife we are putting people through to get through the solutions.”

He said Amazon could be well-suited to offering a healthcare experience that’s easier for consumers to navigate. “I believe those outside of the traditional healthcare arena are saying, there’s a way to get better, cheaper, faster care,” he said.

‘The consumerism aspect’

While Amazon is positioning itself as a market disruptor, Singh also could foresee the company eventually becoming “long-term collaborators” with hospitals and health systems.

If Amazon is able to expand the reach of its new primary care network, it would be in an advantageous position in terms of choosing hospitals for referrals.

“Hospitals may want to collaborate with Amazon to get a steady stream of customers,” Padmanabhan said.

With the deal, Amazon would gain access to One Medical’s health clinics and “payer and hospital system relationships,” Evercore ISI analyst Elizabeth Anderson said in a note, CNN reported.

Hospitals and health systems are undoubtedly noting the competition, Padmanabhan said. While Amazon brings many advantages in terms of understanding consumers, hospitals possess their own unique strengths.

“Hospitals have deep, loyal patient populations,” he said. “Think of longtime providers and loyalty going back generations. Is that going to be disrupted by a cool app?”

Hospitals and health systems deliver acute care and long-term care very well, but they don’t compare as favorably in terms of customer service.

“What they’re missing is the consumerism aspect, which is what Amazon is very good at, and so are some digital health companies,” Padmanabhan said.

Amazon certainly has shown the ability to rapidly grow in new areas. But if it wants to dramatically expand the number of primary care patients it will serve, Amazon will likely encounter the same challenge hospitals and health systems are facing: a shortage of doctors and nurses.

“If they want 10 million patients, what will they need? People to serve them,” Padmanabhan said.

A changing industry

Tech companies are increasingly playing bigger roles in the healthcare industry. Oracle completed its $28 billion acquisition of Cerner, the nation’s second largest electronic health records company, in June. Microsoft acquired Nuance Communications, a voice technology firm, in a $20 billion deal that concluded earlier this year.

Now that Amazon has entered primary care, telemedicine, and pharma, will the company go farther in healthcare? While it’s unclear if Amazon would aim to acquire a health insurer or hospitals, Padmanabhan said no possibilities should be completely dismissed.

“Five years ago, who thought Amazon would be in primary care?” he said.

The deal is also something of a lifeline for One Medical, Padmanabhan said. Despites its growth, the company is not making money. Amir Dan Rubin, CEO of One Medical, will stay in his role, the companies said.

Amazon’s move into primary care continues the evolution of a company that transformed the sale of books, music and the retail industry.

With the deal, the company is saying, “Now we think we can do that for certain parts of healthcare,” Singh said. “That tells you how far we've come in the last 10 years, and how quick the industry is going to change.”

Aside from the impact on the industry, Padmanabhan said it’s important to remember that millions of Americans lack easy access to medical care.

“A new player that could create more access to people, more quickly, is generally good for the consumer,” Padmanabhan said.