Amazon Makes Moves In Healthcare With Plans To Acquire One Medical

Key takeaways

• Amazon plans to acquire healthcare provider One Medical for $18 per share in a deal valued at $3.9 billion
• One Medical, which went public in 2020, operates a network of healthcare clinics and telemedicine services
• The Amazon One Medical buyout allows the retailer to penetrate deeper into the healthcare market than its previous ventures
• One Medical’s parent company, 1Life Healthcare, Inc., closed Thursday at $17.25, just below Amazon’s offered price

On Thursday, online retail giant Amazon announced its intention to buy primary care clinic and telehealth operator One Medical. The all-cash offer values One Medical at $18 per share, or roughly $3.9 billion.

Amazon hopes that this latest acquisition – one of its largest – will help the retailer push deeper into healthcare. Capitalizing on One Medical’s reach will allow it to expand services to employers and consumers alike. Together, the companies hope to provide more affordable, convenient services virtually and in person.

Following news of the acquisition, shares of 1Life Healthcare, One Medical’s parent company, surged over 70% in trading. Thursday night saw shares close at $17.25 compared to Wednesday’s $10.18 apiece.

The deal remains subject to approval from regulators and One Medical’s shareholders.

A One Medical Checkup

San Francisco-based One Medical got its start in 2007 as an early adopter of telemedicine practices. The company, which went public in January 2020, describes itself as a “human-centered, technology-powered national primary care organization.”

One Medical operates as a subscription-based healthcare service that offers “24/7 access to virtual care.” For $199 per year, patients can access same-day doctor visits, patient-to-doctor texting and online appointment bookings. One Medical also boasts its own health record software that it claims is more convenient for providers and patients.

In addition to working with individual patients, One Medical also partners with over 8,000 companies to offer employer health benefits. Unsurprisingly, the firm saw demand surge amid the Covid-19 pandemic. In its most recent quarterly report, One Medical claimed total membership of 767,000, up 28% year-over-year, across 188 medical offices in 25 markets.

Amazon’s interest in Medical One

Amazon has been pushing into the healthcare industry for years now, including acquiring an online pharmacy and offering in-house healthcare to lower costs. Until now, the retailer’s efforts have largely stalled out.

But the Amazon One Medical buyout could allow Amazon to boost its reach.

To start, One Medical operates an extensive network of established clinics and comes with a built-in patient base. And because One Medical sees around five times as many virtual patients to in-person visits, it could offer the convenience Amazon needs to capitalize on the acquisition further. (Not to mention access to physical clinics and an existing network of payer-hospital system relationships.)

The Amazon One Medical deal also offers the online retailer something it values deeply: data. If the firm acquires One Medical’s in-house records system, it could tap information that will allow it to predict healthcare costs, target interventions and guide treatment development for years to come.

What’s in the package

Neil Lindsay, the senior VP of Amazon Health Services, said in a statement that Amazon hopes to use the acquisition to reinvent the healthcare experience. He listed booking appointments, long waits, rushed exams and pharmacy trips as areas lacking efficiency and customer convenience.

Noted Lindsay: “We love inventing to make what should be easy easier and we want to be one of the companies that helps dramatically improve the health care experience over the next several years…. We see lots of opportunity to improve the quality of the experience and give people back valuable time in their days.”

On the other side of the equation, One Medical CEO Amir Dan Rubin expressed excitement for the acquisition. Said Rubin: “The opportunity to transform health care and improve outcomes by One Medical’s human-centered and technology-powered model and exceptional team with Amazon’s customer obsession, history of invention and willingness to invest in the long-term is so exciting.”

Under the current terms of the agreement, Dan Rubin will remain CEO of One Medical. However, Amazon has not commented further on how One Medical will fold into its existing healthcare operations.

Antitrust and competitive concerns

In recent years, several government officials have expressed concern over lax enforcement of anticompetition laws (particularly in Big Tech). Some lawmakers have even discussed new bills that would prevent firms from leveraging their expansive reach as a “force multiplier” across multiple verticals.

Due to the price tag on the One Medical deal, the companies must report to the antitrust regulators at the Federal Trade Commission and Justice Department. (The FTC is currently conducting investigations into whether Amazon has violated antitrust laws.) If either department aggressively pursues the case, the deal could fall apart.

Watchdog’s hackles raised

Already, several consumer watchdogs have pushed for regulators to oppose the deal.

One, the American Economic Liberties Project, expressed concern that Amazon wouldn’t protect patients’ medical records. The group’s senior policy analyst said Thursday: “Allowing Amazon to control the health care data for another 700,000 plus individuals is terrifying. Amazon has no business being a major player in the healthcare space, and regulators should block this $4 billion deal to ensure it does not become one.”

Sacha Haworth of the Tech Oversight Project advocacy group agrees. She noted in a media statement that: “Amazon having back door access to private health care data is frankly a terrifying thought and calls into focus how desperately Congress needs to pass antitrust reform to prevent these tech giants from abusing their monopoly power.”

But Nicholas Economides, professor of economics at the Stern School of Business, said he’s skeptical of formal antitrust scrutiny. He compared the acquisition to Amazon’s 2017 purchase of Whole Foods, where antitrust regulators let the acquisition slide due to Amazon shopping outside its primary market.

Wrapping up the competition

Amazon’s proposed acquisition also stands to make buying physician practices more expensive. Several potential rivals, including Walgreens, Walmart and CVS health have spent billions opening clinics to serve patients and snap up market share.

As these retailers enter a rapidly-evolving, highly competitive space, they’re going to need the latest technology to meet patient demands. Amazon and One Medical could combine to meet the challenge – or beat out the competition.

Amazon in healthcare

The Amazon One Medical deal is the latest iteration of Amazon’s healthcare ambitions. For many Amazon executives, healthcare provides the next profitable frontier, a market rife with inefficiencies and poor customer service just waiting to be fixed.

In the last decade, Amazon has attempted to enter the healthcare market in myriad ways with limited success. In 2018, Amazon worked with JPMorgan and Berkshire Hathaway to form Haven. The partnership intended to explore new ways to deliver healthcare to their own workers before fizzling out last year.

Also in 2018, Amazon entered the prescription drug industry with a $763 million bid to buy PillPack, an online pharmacy startup. Amazon used the leverage to form the Amazon Pharmacy medication delivery service. However, the service has yet to gain much traction.

Then, in 2019, Amazon started Amazon Care, a primary and urgent care service for its employees. It offers both virtual and limited home and physical office visits. While Amazon did attempt to branch deeper into the market with its Amazon Care offering, it found only limited success.

But the One Medical acquisition offers Amazon an easy “in” into the market. With an established network, in-house medical software and existing partnerships, Amazon can swoop in and capitalize on One Medical’s inroads – without building them itself. (Notably, Google is a major customer of One Medical, meaning that a successful acquisition would position Amazon clinics inside Google facilities.)

Is Amazon One Medical a Prime day deal for investors?

The Amazon One Medical deal holds potentially major implications for the healthcare industry at large, as well as the two firms’ investors.

To start, by buying a firm with an “in,” Amazon can more easily expand its medical services to a larger clientele pool. The combination of brick-and-mortar locations and telemedicine is particularly beneficial, as is the in-house recordkeeping system.

But it’s not just about what One Medical offers – it’s about what it doesn’t, too: a high purchase price.

One Medical initially went public in 2020 at $22.07 per share before peaking at $58.70 last year. But as of Wednesday night, the company was trundling along at $10.18 per share. (Note: prices rose to $17.15 by Thursday’s close after Amazon announced the merger. Meanwhile, Amazon closed up 1.5% on the day.)

Not only that, but One Medical has proven largely unprofitable amid a broader downturn for healthcare startups. In its most recent quarterly filing, the healthcare firm posted a net loss of $90.9 million against $254.1 million in revenue.

The low share price and relatively poor performance allowed Amazon to offer a mere $18 apiece to buy One Medical. If the online retailer can capitalize on the company’s reach and expand its offerings, that’s a hefty discount compared to its long-term earnings potential.

As an investor, this combination of factors and future earnings potential could spell good news for your holdings.

Amazon and One Medical: A gamble you don’t have to take alone

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