Amazon will leverage One Medical’s ‘5-to-1 model,’ professor explains

Amazon (AMZN) continues to redefine its reach with its latest acquisition of health care provider One Medical (ONEM) for $3.9 billion.

The e-commerce giant’s latest expansion into the health care sector follows a pattern of purchasing companies that complement its existing digital services, from its acquisition of Whole Foods in 2017 and to its deal with MGM completed this year.

“What One Medical has — which I think Amazon likes and there’s a lot of synergy — is they have a subscription model,” Meghan Fitzgerald, health care policy professor at Columbia University, told Yahoo Finance Live (video above). “They have what’s called a 5-to-1 model. You get five virtual telehealth visits and one in-person visit, right? Now that fits the Amazon model for possibly having an online experience.”

FILE - In this Feb.  14, 2019 file photo, people stand in the lobby for Amazon offices in New York.  Amazon will add more than 1,500 package pickup locations in a partnership with the pharmacy chain Rite Aid.  Starting Thursday, June 27 customers will be able to pick up packages at more than 100 Rite Aid stores and that will jump to more than 1,500 by year's end.  (AP Photo/Mark Lennihan, File)

FILE – In this Feb. 14, 2019 file photo, people stand in the lobby for Amazon offices in New York. (AP Photo/Mark Lennihan, File)

Amazon entered the health care sector in 2018 when it acquired PillPack, which was subsequently rebranded as Amazon Pharmacy in late 2020. The platform is now a hub for ordering prescription medications at discounted rates.

The tech behemoth also found success when it created Amazon Care, a telehealth benefit that enabled Amazon workers to consult doctors through accelerated screening processes. The Amazon Care pilot program started in Seattle in 2019 and has since expanded to 20 other cities and other companies like Hilton (HLT), TrueBlue (TBI), and Sillicon Labs (SLAB). As of 2021, the program boasted coverage of up to 40,000 workers.

But not all of Amazon’s health initiatives have panned out. In 2019, Amazon, Berkshire Hathaway, and JP Morgan embarked on a joint venture known as Haven that was intended to disrupt the health care industry. Instead, it disbanded in 2021.

“Amazon has learned to be very resilient and fail fast,” Fitzgerald said. She added that the company’s success with PillPack and Amazon Care was “really what gave them the confidence to make this acquisition and try to aggregate physicians in 25 markets.”

Prime member benefits

It remains to be seen how Amazon’s One Medical deal will impact competitors such as UnitedHealth Group (UNH) and its subsidiary Optum Health or CVS Health’s Aetna.

Fitzgerald characterized One Medical’s membership-based coverage, which starts at around $200 a year, as an asset that “fits the Amazon model.”

“I would imagine they’ll either add it to Prime, or there will be an upcharge to be a Prime One Medical subscriber,” Fitzgerald explained. “In a lot of cases right now, commercial-pay employers are paying the One Medical fee for their employees, and it’s being used as a benefit.”

Tareco Timothy receives information after getting the monkeypox vaccination at the Northwell Health Immediate Care Center at Fire Island-Cherry Grove, in New York, US, July 15, 2022. REUTERS/Eduardo Munoz

Tareco Timothy receives information after getting the monkeypox vaccination at the Northwell Health Immediate Care Center at Fire Island-Cherry Grove, in New York, US, July 15, 2022. REUTERS/Eduardo Munoz

The move would add value for Amazon Prime members, who saw subscription fees increase by $20 to $140 per year in the US and up to 43% more in Europe, varying by region.

However, the deal, which “is more in the physician enablement model,” poses a challenge even for Amazon’s logistical prowess, Fitzgerald said. Practices opting for telehealth consultations are still having varied success in taking on issues of scale and availability for growing patient lists.

“I think aggregating primary care physicians has been the most difficult thing to do in the United States,” Fitzgerald said. “There was skepticism around how you can scale and still deliver quality, which is really all that matters in health care, especially if you’re on a value-based contract where you’re only being paid for quality. So Amazon is going to have to learn to put up those types of numbers.”

In other words, while the messiness of the health care industry represents a huge opportunity for Amazon and other investors that have tried to cash in, it’s also fraught with potential pitfalls.

“There’s a symbiotic benefit to help One Medical scale,” Fitzgerald noted. “But I don’t think the Amazon team should be the one running a clinical asset — they should leave that to the clinical experts.”

SAN RAFAEL, CALIFORNIA - JULY 21: A sign is posted in front of a One Medical office on July 21, 2022 in San Rafael, California.  Amazon announced plans to acquire health provider One Medical for an estimated $3.9 billion.  (Photo by Justin Sullivan/Getty Images)

SAN RAFAEL, CALIFORNIA – JULY 21: A sign is posted in front of a One Medical office on July 21, 2022 in San Rafael, California. Amazon announced plans to acquire health provider One Medical for an estimated $3.9 billion. (Photo by Justin Sullivan/Getty Images)

‘A river too dangerous’

There are also concerns about patients’ data privacy.

Some have speculated that Amazon could potentially use medical records to try and upsell products on its e-commerce platform, leading experts like Fitzgerald to ask: “What is the HIPAA constraint around that?”

Amazon stated that, as required by law, it would never share One Medical patients’ health data without their permission, a spokesperson told MarketWatch.

But that doesn’t mean Amazon’s foray into the medical space won’t fuel existing worries about how data is being used.

“It’s a fair question, I think, for consumers to ask Amazon how that relationship is going to be protected,” Fitzgerald said. She explained that even though HIPAA is enshrined in law, “it doesn’t mean that people aren’t worried at the fringes [about] what it can mean to have a total picture of you now as a consumer.”

“I think that would be crossing a river too dangerous for Amazon to start taking patient data, and then trying to monetize and use it,” Fitzgerald warned.

Luke is a producer for Yahoo Finance. You can follow him on Twitter @theLukeCM.

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