Could Amazon Become America’s Top Employer of MHA Graduates?
In a surprise move in July 2022, Amazon bought trendy clinic startup One Medical for $3.9 billion. As we go to press, this acquisition is now the hottest topic in healthcare.
After Amazon already ranked as the world’s largest MBA recruiter, the takeover could very well position Amazon to hire large numbers of MHA graduates during the coming months as well. Here’s why.
Based in San Francisco, One Medical operates a chain of primary care medical clinics in 25 major markets across the United States. Launched as 1Life Healthcare with a single San Francisco clinic in 2007, the firm received early financial backing from Alphabet, the parent company of Google, and $350 million from the Carlyle Group. The company went public on the NASDAQ exchange in January 2020, and today operates 163 clinics across America, with 36 of those in the San Francisco Bay Area.
What’s innovative about One Medical is the firm’s blending of a value proposition that emphasizes customer service with a membership pricing strategy.
As most of our MHAOnline readers already know from their experience, primary care practices don’t exactly have a reputation for offering outstanding “customer service.” For example, except in urgent care clinics within large hospital systems, same-day or next-day appointments are often not available. Also typically unavailable is around-the-clock virtual care via video appointments on computers or mobile devices. Upon arrival at the clinic, even in the digital world of 2023 America, a patient is usually greeted by a receptionist who hands them a clipboard loaded with forms to fill out in the waiting room.
Appointments rarely start on time, but once they begin they’re typically rushed affairs that last no more than only 20 minutes. After their appointments, many patients then need to drive to two destinations: first, to a clinical laboratory, and second, to a pharmacy.
As a result, for many patients, primary care visits can often feel like unpleasant experiences that they fear, and even dread. This primary care “hassle factor” can prompt many patients to defer or skip regular routine checkups, even though they run the risk that a lack of preventative care can result in needlessly compounded medical issues later on.
Instead, One Medical strives to give patients a completely different experience that’s easier, faster, and more efficient—as Amazon Founder Jeff Bezos would say, an experience that’s “frictionless.”
What Makes One Medical Unique?
First, it offers 24/7 virtual care via computers and mobile devices that can, in many cases, obviate the need for a car trip to see a physician. The clinic not only offers same- or next-day appointments, but even makes the astonishing claim that its visits to see physicians actually start on time.
What’s more, appointments aren’t limited to only 20 minutes, so doctors and patients aren’t rushed and can talk about symptoms and treatment options in more depth. And every clinic has its own, on-site laboratory, which saves patients from having to drive to a separate facility for lab services.
One Medical requires patients to pay for this higher level of care through a membership pricing model, similar in some ways to Costco’s. For an annual membership subscription of $199, patients receive a package consisting of one office visit and five virtual visits, followed by discounts on subsequent services. However, the typical One Medical patient doesn’t pay that charge because the firm has aggressively signed up 8,000 corporate clients who offer that subscription within their employee benefit plans.
The firm makes money by appealing to working-age adults between ages 18 and 65 who rarely develop serious illnesses. Among that group, it specifically targets Millennials who tend to be not only healthy but computer-savvy as well. Those skills make it more likely that Millennial patients will want to schedule less costly virtual visits online.
One Medical’s Disappointing Financials
So by blending enhanced customer service with membership pricing, has this value proposition delivered a clear path to profit for One Medical? No, it hasn’t so far.
The firm was losing money in all ten quarters as a public company preceding the Amazon buyout. Moreover, it went public at a share price of $60, but the stock price continuously slid during the subsequent 30 months.
By spring 2022, the stock price was clearly in trouble, closing at only $6.24 in May. It quickly climbed back to $17 per share and a market capitalization of $3.35 billion upon the buyout announcement by its new parent company. Similarly, that firm’s previous care delivery businesses also only achieved mixed success.
Amazon’s Previous Healthcare Initiatives
During the firm’s first healthcare acquisition in June 2018, Amazon bought the online pharmacy PillPack for $753 million, which successfully continues as a wholly-owned subsidiary. However, Amazon subsequently pursued two other attempts where it entered the care delivery marketplace. It exited the market rapidly in both cases because those initiatives were not successful.
The first of those attempts was a misguided joint venture between Amazon, Berkshire Hathaway, and JPMorgan Chase. Called Haven and designed to reduce healthcare costs for large enterprise employers, the three-year-old venture shut down in January 2021.
In 2019, the firm introduced its second care delivery offering, Amazon Care. Unlike Haven, Amazon Care was a primary care service the firm developed for its own employees. The initiative was innovative in that it was based around an early telehealth platform, which the Mayo Clinic defines this way:
Telehealth is the use of digital information and communication technologies to access health care services remotely and manage your health care.
So Amazon Care’s value proposition blended two elements: it combined a telehealth mobile device app for virtual physician visits with a house call service, where a clinician traveled to a patient’s home or office to perform diagnosis and treatment in person.
Although Amazon tried to sell Amazon Care to other enterprise employers, it could only close deals with two other companies, Hilton Hotels and Precor. In August 2022, four weeks after buying One Medical, Amazon shut down Amazon Care. Nevertheless, the initiative may have given the company enough familiarity with the care delivery business and enough confidence to operate a multi-region chain of clinics as a profitable firm.
Why Did Amazon Buy One Medical?
If Amazon had already experienced two failures in rapid succession with forays into the wellness sector, why did it buy One Medical?
For one thing, healthcare is 20 percent of America’s economy—a sector so gargantuan that virtually all players within the economy want a piece of that action. Even a relatively small proportion of that market could result in billions of dollars worth of earnings.
Beyond that fact, Amazon bought One Medical for two main reasons: data acquisition and marketing synergy.
Amazon is amazing at monetizing data. After a member loads a product page on Amazon, they’ll see countless email messages that try to cross-sell them by displaying similar products, up-sell the prospect by showing them more expensive products, or sometimes up-sell them in a different way by offering the product within a group of three related products at a discount price when they purchase the entire group.
But at the rate it was going, it would take many years before Amazon could build a business with enough healthcare customers who would give it sufficient data that the parent Amazon sales platform could then monetize.
By analogy, a comparable industry with similarly outstanding players at monetizing data is the digital wallet industry, including PayPal’s Venmo and Cash App from Block. These firms are so good at using big data to cross-sell and up-sell their customers that they’re threatening the survival of banks, which are unable to monetize the dramatically smaller data sets that their own customers provide.
Make or buy analysis is the classic outsourcing decision approach taught in all financial management courses in MHA and MBA degree programs. But Amazon didn’t need a textbook discounted cash flow analysis of its make or buy options to recognize that it needed to buy a clinic startup like One Medical. That’s because such a clinic would quickly provide it with the big data Amazon needs to build sales of wellness-related products and services. The clinic would additionally give it a first-mover advantage against competitors like Walgreens, which happens to be gearing up to introduce primary care clinics in some of its 9,000 stores.
Clearly, data privacy advocates are troubled by Amazon’s purchase of One Medical. Keep in mind, however, that HIPAA legislation strictly forbids Amazon from using the One Medical physicians’ notes in a patient’s confidential chart for any purpose besides that doctor’s diagnosis and treatment. Because the HIPAA legislation’s penalties are so severe, Amazon would be unlikely to risk those violations.
However, it doesn’t need to run that risk. Artificial intelligence software is so good these days that it should be able to accurately draw inferences about a One Medical customer’s medical history from their browsing and purchase behavior on Amazon’s platform that has nothing to do with the confidential data stored within their chart.
For example, it’s not exactly clairvoyant for Amazon’s software to conclude that a customer who buys insulin syringes and needles probably suffers from diabetes. Suppose the software knows they’re also a One Medical patient. In that case, the system might then send them emails urging them to visit their One Medical physician more frequently than only once a year, while also emphasizing the benefit that the clinic’s lab is conveniently available within the same building.
The second reason Amazon bought One Medical is that it has a secret weapon against competitors—a powerful marketing incentive that will entice customers to purchase its bundled One Medical offering within a package deal.
Amazon Prime is the company’s subscription delivery service. For $14.99 billed monthly (or $7.49 for university students after a six-month free trial), a Prime customer gets free two-day delivery—and in many cases, free one-day and sometimes even free same-day delivery—on every single product they buy among most of the products available through Amazon’s vast catalog.
Moreover, Prime customers also receive a variety of additional products and services at little or no additional charge, including unlimited music streaming and photo storage, films and TV shows on demand, Prime Reading magazine and book downloads, plus discounts and delivery from Amazon’s grocery subsidiary Whole Foods Market.
Prime is one of the most successful subscription services in history. In 2022, three-quarters of the population age 18 and older in the United States, or about 157 million Americans, are Prime members. And the average Prime customer buys $1,400 worth of products from Amazon every year, about 233 percent of what non-Prime customers purchase on the platform.
There’s no doubt that Amazon will bundle One Medical with Prime. “I would imagine they’re going to make that a Prime benefit as they did with the PillPack acquisition,” says Dr. Meghan Fitzgerald, a health policy and management professor with the Mailman School of Public Health at Columbia University. In this video report, she told Yahoo Finance:
I think right now, what One Medical has, which I think Amazon likes—and there’s a lot of synergy—is they have a subscription model. You pay up to $200 a year, and they have what’s called a “five-to-one 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. So I would imagine they’ll either add it to Prime, or there’ll be an up-charge to be a “Prime/One Medical Subscriber.” That’s what I think they’ll do.
Amazon essentially offers the PillPack service and shipping for free, since for each prescription most subscribers only pay their standard insurance copay. If Amazon were to bundle One Medical with Prime for free or for a nominal up-charge as Dr. Fitzgerald suggests, that pricing strategy could kick off an explosion in demand.
How Demand Would Drive MHA and MBA Hiring
Remember that if only 20 percent of the existing Prime customers opt in to the Prime/One Medical bundle, that’s a customer base of 31.4 million Americans.
To put that huge market size in perspective, One Medical’s membership as of June 2022 was 790,000, so its average clinic treats 4,847 patients. To satisfy the demand while maintaining the same patient/clinic ratio, Amazon would need 6,396 clinics, 39 times the number of clinics One Medical currently operates.
That level of demand would be extraordinarily disruptive for One Medical’s competitors in the primary care industry. But a highly disruptive outcome is exactly what two healthcare industry analysts for the Advisory Board predict. They say it’s the most likely result that Amazon’s One Medical acquisition will bring about, both in this article and in their commentary on this podcast.
The most likely result is that this disruptive demand shift will drive hiring for MHA and healthcare MBA graduates throughout the industry. In part, One Medical clinics are complex operations by primary care standards. Each includes its own clinical laboratory, and its emphasis on efficient customer service introduces practice management challenges not found among typical primary care medical groups.
Amazon probably won’t be comfortable staffing all the new One Medical clinics they build with typical practice administrators who only offer bachelor’s degrees and a few years of experience supervising smaller medical groups.
To deliver quality treatment at scale, One Medical clinics under Amazon will need capable managers with advanced degrees and track records with extensive experience. If Amazon can’t find them by recruiting out of MHA and MBA programs, they’re going to need to poach these managers from health systems, hospitals, and large practice groups—and all those empty jobs are going to, in turn, drive demand for MHA and MBA graduates to fill those roles.
In short, it’s likely that Amazon, through One Medical, could, in only a few years, transform into the top employer of MHA graduates and care delivery managers with equivalent experience in the United States. And all that disruption will drive unprecedented hiring demand for MHA and healthcare MBA graduates throughout the rest of the industry.