A Roundtable Discussion


Rob Fromberg: We’ve had a few days to digest last week’s announced acquisition by Amazon of One Medical, a chain of 180 primary care clinics in 28 markets. Amazon was already firmly in the healthcare business with its nationwide digital health services and online pharmacy, not to mention cloud-hosting contracts with health systems. With the One Medical acquisition, Amazon is in position to integrate its existing digital healthcare offerings with in-person care.

We’ve gathered three Kaufman Hall experts to break down what Amazon has in mind and how it might affect the nation’s existing health systems: our Founder and Chair, Ken Kaufman; Managing Director and Physician Enterprise Service Lead, Matthew Bates; and Managing Director and head of our consumerism services, Dan Clarin.

Ken, the media reaction to this transaction has the tone of surprise, but it’s not that big of a surprise, is it?

Ken Kaufman: It’s not. Everybody has been waiting for Amazon to get into the physical footprint. Waiting and waiting and waiting. And now they are.

Rob: What do you think Amazon will do with that physical footprint?

Ken: That’s the big question. Of course, the mantra of Amazon has always been to be Earth’s most customer-centric company. So what is that going to mean, exactly, for healthcare, both in-person and digitally? Historically, the logistical experience in healthcare has not in been what you might call a customer-service experience. How will Amazon conceptualize that experience, and what will they do with it? The answer is no slam dunk. When Amazon bought Whole Foods, did they transform the in-person experience of grocery shopping? Based on my experience, the answer is not particularly.

I believe what Amazon is aiming at is to create the definitive healthcare portal that makes your healthcare life easier in every respect, no matter what your problems are. And that portal can take you to whatever service you need in the most convenient fashion.

Matthew Bates: The customer has always been the most critical thing to the Amazon story. And everything Amazon has done has the direct connection back to customer service. Amazon Care has already figured out how to do pharmacy and medical care in 50 states, virtually and in person. At Amazon Care, if your virtual visit says, “We need to do a lab test,” Amazon Care sends somebody to your home to draw the lab. They don't tell you to go schedule an appointment. They send somebody to you, either to your house or you can say, "Meet me in my office.”

One of Amazon Care’s first and largest clients is Hilton hotels. If you work at a Hilton hotel as a cleaner of rooms, or as an attendant who delivers food to people's rooms, you now have access to Amazon Care 24/7/365, and they'll come to you. Think about the genius of that because what is a hotel business? It's a 365/24/7 business. It needs access to healthcare for its people that fits that reality. Primary care services from 9:00 to 5:00 Monday to Friday does not fit a business model where you have people who normally are not even awake at 3:00 in the afternoon.

Dan Clarin: This is only one step on Amazon’s part toward a much larger healthcare delivery transformation. The acquisition of One Medical is not in and of itself going to change healthcare. We’re still just talking about 180 out of tens of thousands of primary care sites around the country. But I think One Medical is also bigger than people realize in the wake of the Iora acquisition. And so they're not a pilot program anymore. They are a substantial business with a pretty large membership base. And One Medical already has changed the primary care experience with services like same-day or next-day appointments via an app, longer appointments, and 24/7 access to care via video chat.

Rob: So what’s Amazon’s business model for healthcare?

Ken: Amazon is a tech company, right? So they will do what tech companies do. It’s the platform/ecosystem model. The way tech companies like to make money is to do everything necessary for people to access products and services on their platform. And our perception is when Amazon does physical things, in-person things, those are there to support the tech environment. So what can Amazon do in healthcare that drives more individuals onto their very seamless platform and gives people the opportunity to interact with more goods and services?

Dan: I agree, Ken, and I think Amazon Prime is a built-in advantage here. Amazon already has 160 million people just in the U.S. spending $139 a year for Prime membership. And whether Amazon directly adds healthcare to Prime or has an additional fee, or whether they work with the employers to somehow weave in benefits for Prime subscribers, it seems inevitable that Amazon will leverage the subscriber model. There’s just the question of how they do it and whether it will be successful.

All in all, I think it's almost incidental that the industry Amazon is moving into is healthcare. Amazon has gotten so big and generated share of wallet in so many different categories of consumer spending that it was really just a matter of time until healthcare was part of that. They’ve gotten into healthcare with pharmacy. They've gotten their virtual care to the point where they’re working with employers. And so this acquisition gets them into the physical care delivery. Its strikes me that the strategy is pretty clear: How do we get share of wallet in the healthcare space? Because that's how Amazon approaches everything. We've got millions and millions of subscribers already. How do we take those subscribers and get greater share of their wallet?

Matthew: Amazon Care’s core model is based on reaching out to employers. One Medical’s core model is about reaching out to employers. In that sense, I think Amazon is looking at how to disrupt traditional health insurance. This goes all the way back to their learning from Haven. What was Haven trying to do? Disrupt health insurance. Although Haven failed, Amazon has a history of failing big, learning from it, and coming back a lot stronger.

Also note that the business model for Optum, VillageMD, CVS, ChenMed, and now Amazon Care and One Medical is a network-restriction play. The entire business model of every single one of these companies is to route you to the optimal place to get care and get as many expensive ancillary services as possible out of the mix. The business model of traditional fee-for-service healthcare is to feed the beast. The business model of the disruptors, especially those contracting directly with employers, is to starve the beast.

Rob: Still, some of those people are going to need additional services—lab, radiology, specialty services. How do we think all that is going to work?

Dan: I suspect that one of the goals here is to have a large enough subscriber base that Amazon can create a marketplace for referrals. A place where the organizations that provide more capital-intensive services and more expertise-driven healthcare services are essentially coming to bid on getting access to the Amazon subscriber base. Now, the really interesting question is how they get there.

Rob: How should legacy health systems be thinking about the Amazon-One Medical deal?

Matthew: This is not an isolated event. It’s just one of many large, national plays to reform primary care. Kaiser and Optum, of course. Walgreens has pledged a multi-billion dollar collaborative investment in VillageMD with the goal of developing an integrated primary care/pharmacy model and branching into other service lines. The CEO of CVS/Aetna said earlier this year in a high-profile interview that the company’s goal is to be THE primary care provider of the United States.

It's a classic disruptor story. Our traditional healthcare providers are on the lake trying to figure out how to cut better ice blocks, while these guys are on the shore trying to figure out how to build a factory to make ice blocks. And although the first few attempts have not worked, clearly with the investment and the number of players, and the deep pockets behind those players, one of them is going to crack the formula. And then the real challenge for traditional health systems is going to be how to manage the pivot.

Dan: The buyers of healthcare are getting more and more sophisticated, and bigger. Traditionally, the primary buyers of the services that hospital-based organizations have been selling to are somewhat traditional managed care companies. Although some of these companies are fairly sophisticated at a corporate level, on a state-by-state level, all of these organizations have been slower to advance in their data systems, analytics, and insights.

Now we are going to shift from the same old negotiation of payment for our services with pretty traditional organizations that lack sophistication to potentially the most sophisticated buyer of services in the world. Amazon has the best data and analytics, the largest base of consumers to work with, almost unlimited ways to arrange the economics given the number of different businesses that they’re in. So I believe health systems need to ask themselves, “Do we feel ready to sit across the table from Amazon and negotiate for the value of our services?”

Ken: Watchful waiting is really important because only Amazon knows what’s going to happen now. What we all are watching and concerned about is what impact this could have on the way healthcare is delivered in the United States.

We would love to hear your thoughts. You can reach Ken Kaufman at kkaufman@kaufmanhall.com. Matthew Bates is at mbates@kaufmanhall.com. And Dan Clarin is at dclarin@kaufmanhall.com.

Meet the Authors
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kenneth-kaufman

Kenneth Kaufman

Managing Director, Chair
Kenneth Kaufman offers deep insights on the economic, technological, and competitive forces undermining healthcare’s traditional business model.
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Matthew Bates Headshot

Matthew Bates

Managing Director, Physician Enterprise Service Line Lead
Matthew leads Kaufman Hall’s Physician Enterprise Service practice. He works with physician and administrative leaders to create financially sustainable great places for physicians to practice and patients to receive care.
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Dan-Clarin

Dan Clarin

Managing Director
Dan Clarin is a Managing Director in Kaufman Hall’s Strategic and Financial Planning practice, where he advises health systems, private equity firms and healthcare disruptors on growth, consumer engagement, pricing strategies, and transformative partnerships.
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Robert-Fromberg

Robert Fromberg

Chief Communications Officer
Robert Fromberg specializes in health system change and oversees development of in-depth research reports, articles, blogs, videos, podcasts, surveys, and conference programming.
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