On Wednesday, e-commerce giant Amazon announced that its 167M US-based Prime members can now access One Medical primary care services for $9 per month, or $99 per year, which amounts to a 50 percent annual discount on One Medical membership. (Additional Prime family members can join for $6/month or $66/year.)
One Medical, which Amazon purchased for $3.9B last year, provides its 800K members with 24/7 virtual care as well as app-based provider communication and access to expedited in-person care, though clinic visits are either billed through insurance or incur additional charges. Amazon also recently started offering virtual care services through its Amazon Clinic platform, at cash prices ranging from $30 to $95 per visit.
The Gist:After teasing this type of bundle with a Prime Day sale earlier this year, Amazon has made the long-expected move to integrate One Medical into its suite of Prime add-ons, using a similar pricing model as its $5-per-month RxPass for generic prescription medications.
At such a low price, Amazon risks flooding One Medical’s patient population with demand it may struggle to meet. But if Amazon can scale One Medical, while maintaining its quality and convenience, it may be able to make the provider organization profitable.
Known for its willingness to take risks and absorb financial losses, Amazon is continuing to build a healthcare ecosystem focused on hybrid primary care and pharmacy services that delivers a strong consumer value proposition based on convenience and low cost.
Blue Shield of California announced a plan to diversify its pharmacy benefit management (PBM) contracts in a bid to improve transparency and reduce costs.
Instead of relying on Woonsocket, RI-based CVS Health’s Caremark as its sole PBM, the health plan and its 4.8M members will be served by five companies, including Amazon Pharmacy for at-home deliveries, Mark Cuban Cost Plus Drugs Company (MCCPDC) for a transparent pricing model, and Prime Therapeutics for negotiations with pharmaceutical companies.
Caremark will remain responsible for Blue Shield’s specialty pharmacy needs, which CVS noted in an investor filing represents over 50 percent of nationwide pharmacy benefit spending.
Blue Shield intends to implement this new system by 2025, and is targeting savings of $500M annually, which translates to 10 to 15 percent of its current spending.
The Gist: Whether Blue Shield saves money with this initiative depends on the whether the benefit of competition in its PBM contracts outweighs the costs of more complex coordination between vendors.
Keeping half of its business tied up with CVS through specialty pharmacy will further limit the potential impact. Nonetheless, it’s noteworthy that pharmacy disruptors like Amazon and MCCPDC have found a major health plan willing to work with them.
Consumers, employers, payers without PBMs, and members of Congress are increasingly dissatisfied with the current pharmacy benefit market structure, and Blue Shield’s move could serve as a catalyst for future shakeups.
Amazon announced that it has expanded its direct-to-consumer virtual care platform to all 50 states and the District of Columbia. Amazon Clinic, which the e-commerce giant launched in 32 states last November, connects consumers to third-party clinicians via Amazon’s website or mobile app. Through video call or message-based visits (the latter of which are only available in some states), it offers diagnosis and treatment for a range of low-acuity, common health conditions like pink eye and sinus infections. The clinic features flat, upfront cash pricing, and doesn’t currently accept insurance. On the provider side, Amazon is partnering with telehealth companies Wheel, SteadyMD, Curai Health, and Hello Alpha.
The Gist: This is the kind of venture at which Amazon excels: creating a marketplace convenient for buyers and sellers (patients and telemedicine providers, respectively), pricing it competitively to pursue scale over margins, and upselling customers by pairing care with Amazon’s other products or services (like Amazon Pharmacy).
We’ll be watching for how Amazon builds on this service, and whether it connects Amazon Clinic to its Prime membership and One Medical assets. In the meantime, in addition to its consumer-focused offerings,Amazon is also simultaneously expanding its enterprise workflow offerings through its AWS for Health division, recently launching HealthScribe and HealthImaging.
For decades, research studies and news stories have concluded the American system is ineffective,
too expensive and falling further behind its international peers in important measures of performance: life expectancy, chronic-disease management and incidence of medical error.
As patients and healthcare professionals search for viable alternatives to the status quo, a recent mega-merger is raising new questions about the future of medicine.
In April, Kaiser Permanente acquired Geisinger Health under the banner of newly formed Risant Health. With more than 185 years of combined care-delivery experience, Kaiser and Geisinger have long been held up as role models of the value-based care movement.
Eyeing the development, many speculated whether this deal will (a) ignite widespread healthcare transformation or (b) prove to be a desperate attempt at relevance (Kaiser) or survival (Geisinger).
Whether incumbents like Kaiser Permanente and Geisinger can lead a national healthcare transformation or are displaced by new entrants will depend largely on whether they can deliver value-based care on a national scale.
In Search Of Healthcare’s Holy Grail
Value-based care—the simultaneous provision of high quality, convenient and affordable medical care—has long been the aim of leading health systems like Kaiser, Geisinger, Mayo Clinic, Cleveland Clinic and dozens more.
But results to-date have often failed to match the vision.
The need for value-based care is urgent. That’s because U.S. health and economic problems are expected to get worse, not better, over the next decade. According to federal governmental actuaries, healthcare expenditures will rise from $4.2 trillion today to $7.2 trillion by 2031. At that time, these costs are predicted to consume an estimated 19.6% of the U.S. Gross Domestic Product.
Put simply: The U.S. will nearly double the cost of medical care without dramatically improving the health of the nation.
For decades, health policy experts have pointed out the inefficiencies in medical care delivery. Research has estimated that inappropriate tests and ineffective procedures account for more than 30% of all money spent on American medical care.
This combination of troubling economics and untapped opportunity explain why value-based care has become medicine’s holy grail. What’s uncertain is whether the transformation in healthcare delivery and financing will be led from inside or outside the healthcare system.
Where The Health-System Hopes Hang
For years, Kaiser Permanente has led the nation in clinical quality and patient outcomes based on independent, third-party research via the National Committee for Quality Assurance (NCQA) and Medicare Star ratings. Similarly, Geisinger was praised by President Obama for delivering high-quality care at a cost well below the national average.
And yet, these organizations, and many other highly regarded national and regional health systems, are extremely vulnerable to disruption, especially when their strategy and operational decisions fail to align.
Kaiser, for its part, has struggled with growth while Geisinger’s care-delivery strategy has proven unsuccessful in recent years. Failed expansion efforts forced KP to exit multiple U.S. markets, including New York, North Carolina, Kansas and Texas. More recently, several of its existing regions have failed to grow market share and weakened financially.
Meanwhile, Geisinger has fallen on hard times after decades of market domination. As Bob Herman reported in STAT News: “Failed acquisitions, antitrust scrutiny, leadership changes, growing competition from local players, and a pandemic that temporarily upended how patients got care have forced Geisinger to abandon its independence. The system is coming off a year in which it lost $240 million from its patient care and insurance operations.”
Putting the pieces together, I believe the Kaiser-Geisinger deal represents an industry undergoing massive change as health systems face intensifying pressure from insurers and a growing threat from retailers like Amazon, CVS and Walmart. This upcoming battle over the future of value-based care represents a classic conflict between incumbents and new entrants.
Can The World’s Largest Companies Disrupt U.S. Healthcare?
Retail giants, including Amazon, Walmart and CVS, are among the nation’s 10 largest companies based on annual revenue.
They have a broad geographic presence and strong relationships with almost all self-funded businesses. Nearly all have acquired the necessary healthcare pieces—including clinicians, home-health services, pharmacies, insurance arms and electronic medical record systems—to replace the current medical system.
And yet, while these companies expand into medical care and financing, their core businesses are struggling, resulting in announced store closures and layoffs. As newcomers to the healthcare market, they have been forced to pay premium dollars to acquire parts of the delivery system. All have a steep learning curve ahead of them.
The Challenge Of Healthcare Transformation
American medicine is a conglomerate of monopolies(insurers, hospitals, drug companies and private-equity-owned medical practices). Each works to maximize its own revenue and profit. All are unwilling to innovate in ways that benefit patients when doing so comes at the sacrifice of financial performance.
One problem stands at the center of America’s soaring healthcare costs: the way doctors, hospitals and drug companies are paid.
The dominant payment methodology in the United States, fee-for-service, rewards healthcare providers for charging higher prices and increasing the number (and complexity) of services offered—even when they provide no added value.
The message to doctors and hospitals is clear: The more you do, and the greater market control you have, the higher your income and profit. This is the antithesis of value-based care.
The alternative to fee-for-service payments, capitation, involves paying a single, up-front sum to the providers of care (doctors and hospitals) to cover the total annual cost for a population of patients. This model, unlike fee-for-service, rewards effectiveness and efficiency. Capitation creates incentives to prevent disease, reduce complications from chronic illness, and diminish the inefficiencies and redundancies present in care delivery. Capitated health systems that can prevent heart attacks, strokes and cancer better than others are more successful financially as a result.
However, it’s harder than it sounds to translate what’s best for patients into everyday decisions and actions. It’s one thing to accept a capitated payment with the intent to implement value-based care. It’s another to put in place the complex operational improvements needed for success. Here are the roadblocks that Kaiser-Geisinger will face, followed by those the retail giants will encounter.
3 Challenges For Kaiser-Geisinger:
Involving Clinical Experts. Kaiser Permanente is a two-part organization and when the insurance half (Kaiser) decided to acquire Geisinger, it did so without input or involvement from the half of the organization responsible for care-delivery (Permanente). This spells trouble for Geisinger, which must navigate a complex turnaround without the operational expertise or processes from Permanente that, in the past, helped Kaiser Permanente grow market share and lead the nation in clinical quality.
Going All In. To meet the healthcare needs of most its patients, Geisinger relies on community doctors who are paid on a fee-for-service basis. Generally, the fee-for-service model is predicated on the assumption that higher quality and greater convenience require higher prices and increased costs. With Geisinger’s distributed model, it’ll be very difficult to deliver consistent, value-based care.
Inspired Leadership. Major improvements in care delivery require skilled leadership with the authority to drive clinical change. In Kaiser Permanente, that comes through the medical group and its physician CEO. In Geisinger’s hybrid model, independent doctors have no direct oversight or central accountability structure. Although Risant Health could be an engine for value-based medical care, it’s more likely to serve the role of a “holding company,” capable of recommending operational improvements but incapable of driving meaningful change.
3 Challenges For The Retail Giants:
More Medical Offerings. Amazon, Walmart and CVS are successfully acquiring primary care (and associated telehealth) services. But competing with leading health systems will require a more wholistic, system-based approach to keep medical care affordable. This won’t be easy. To avoid ineffective, expensive specialty and hospital services, they will need to hire their own specialists to consult with their primary care doctors. And they will have to establish centers of excellence to provide heart surgery, cancer treatment, orthopedic care and more with industry-leading outcomes. But to meet the day-to-day and emergent needs of patients, they also will have to establish contracts with specialists and hospitals in every community they serve.
Capitalizing On Capitation. Already, the retail giants have acquired organizations well-versed in delivering patient care through Medicare Advantage, a capitated alternative to traditional (fee-for-service) Medicare plans. It’s a good start. But the retailers must do more than dip a toe in value-based care models. They must find ways to gain sufficient experience with capitation and translate that success into value-based contracts with self-funded businesses, which insure tens of millions of patients.
Defining Leadership. Without an effective and proven clinical leadership structure, the retail giants will be no more effective than their mainstream competitors when it comes to implementing improvements and shifting the culture of medicine to one that is customer- and service-focused.
Be they incumbents or new entrants, every contender will hit a wall if they cling to today’s failing care delivery model. The secret ingredient, which most lack and all will need to embrace in the future, is system-ness.
For all of the hype surrounding value-based care, fragmentation and fee-for-service are far more common in American healthcare today than integration and capitation.
Part two of this article will focus on how these different organizations—one set inside and one set outside of medicine—can make the leap forward with system-ness. And, in the end, you’ll see who is most likely to emerge victorious.
On Tuesday, Amazon unveiled its latest healthcare offering, RxPass, which will deliver generic prescription drugs to Prime members who pay an additional flat $5 monthly surcharge. The service, which currently covers 53 medications for common conditions, requires consumers to pay out-of-pocket rather than through insurance, but does not limit the number of drugs a subscriber can receive for the flat monthly fee.
RxPass is not yet able to ship medications to eight states, including (notably) California, Texas, and Pennsylvania.
The Gist:Paying $60 a year to avoid the hassle of going to a pharmacy or dealing with another mail-order delivery program will be a very attractive offer for many of the 168M US-based Amazon Prime subscribers, as much for the convenience as for the potential cost savings.
But the concept isn’t novel. Case in point: Walmart continues to offer its $4 generic drug program, launched in 2006. Given that the average Prime member is 37 years old, Amazon’s flat-fee service offering will target a younger demographic with fewer medication needs—and complement the service offered by PillPack, acquired in 2018, which is built for older customers on multiple medications. An evolutionary, not revolutionary, step in Amazon’s ongoing moves into healthcare.
Amazon rolled out the tools on Alexa in 2019, offering applications with a collection of hospitals, as well as telehealth company Teladoc Health and pharmacy benefits management company Express Scripts.
The application allowed users to check the status of prescription refills, ask about their last blood-sugar reading, or even book a telemedicine appointment. Amazon has said all data will be deleted by the end of next week, per Modern Healthcare.
Be smart: Amazon isn’t going anywhere when it comes to health care, but it is making some strategic cuts as it maneuvers the current economic environment, as evidenced by its acquisition of One Medical followed by its shuttering of Amazon Care.
On Tuesday, the e-commerce giant unveiled its latest healthcare endeavor, Amazon Clinic, a “virtual health storefront” that can asynchronously connect patients to third-party telemedicine providers. It offers diagnosis and treatment for roughly 20 low-acuity, elective health conditions—including acne, birth control, hair loss, and seasonal allergies—at flat, out-of-pocket rates. (The service does not currently accept insurance.) It also refills prescriptions, which customers can send to any pharmacy, including Amazon’s. At its launch, Amazon Clinic is available in 32 states.
The Gist: This is exactly the kind of venture at which Amazon excels: creating a marketplace that’s convenient for buyers and sellers (patients and telemedicine providers), pricing it competitively to pursue scale over margins, and upselling customers by pairing care with Amazon’s other products or services (like Amazon Pharmacy).
Its existing customer base and logistics expertise could position it to replace telemedicine storefront competitors, including Ro and Hims & Hers, as the leading direct-to-consumer healthcare platform, at least among those that don’t take insurance.
It bears watching to see how Amazon builds on this service, includingwhether it eventually incorporates insurance coverage, partners with health systems (similar to Hims & Hers), or connects Amazon Clinic to Prime in order to attract greater numbers of—generally young, healthy, and relatively wealthy—consumers.
Amazon announced it will shut down Amazon Care—its primary care service sold to employer health plans—by the end of the year. There’s one thing that Amazon’s decision will surely mean: It will continue to be fashionable to mock Amazon.
People may look at this, compare it to Amazon’s Haven misadventure, and say that everyone (including Advisory Board) who speculated that Amazon could succeed in health care is either naïve or delusional.
But there’s more to it.
In looking at what Amazon reportedly said about the challenges facing Amazon Care, we believe that the acquisition of One Medical is the clearest signal yet that Amazon intends to succeed at health care.
The problems with Amazon Care
Amazon Care appears to have struggled to understand the nuances and demands of care delivery, as detailed recently in the Washington Post. Clearly, the tension between expectations for growth and quality were real. This raised questions for us: Was Amazon going to truly “iterate” on its health care capabilities? When it came to care delivery, would Amazon get better, or would it do enough to get by?
Amazon concedes that its product was not comprehensive enough for its employer partners. It’s unclear whether that means it simply wasn’t saving them money, even if employees were using it. At the same time, we wonder how hard it was to persuade employees to embrace Amazon-branded health care or to attract employees to a product centered on virtual and home-based care—or some combination of the two.
Remember: Everyone had to try out telehealth in 2020 because, in many cases, they had no choice. There isn’t any similarly powerful and pervasive force pushing anyone to virtual-first care today. People tend to like virtual visits, but that doesn’t mean that they want to receive all adequately satisfy users or keep care from fragmenting with its mosaic of services, channels, and providers.
What shutting down Amazon Care suggests about Amazon’s health care ambition
Amazon’s willingness to jettison its homegrown but underperforming health care business suggests three things.
One Medical is the centerpiece of Amazon’s health care strategy, not simply one component among many. When viewed this way, the details of the acquisition make more sense than they did four weeks ago. Knowing that a virtual and home-based model wasn’t attractive for employers, we can understand more clearly why Amazon wanted a partner with both in-person and digital health capabilities. Knowing that its own product was struggling, we can see why it was willing to pay a huge premium for One Medical.
Amazon is iterating on its health care capabilities, but it is iterating at an enormous scale. “Fail fast” is axiomatic in technology. It’s usually applied to minimum viable products—applications and services that are quickly built, delivered, and assessed for their ability to meet customer demands and gain traction in the market. Products that don’t meet those demands are replaced as quickly as possible. Obviously, Amazon Care was not a minimum viable product. It was rolled out three years ago, and it offered telehealth services in all 50 states and in-home services in seven markets. But when you look at the pivot Amazon seems to be making from virtual and home-based care with Amazon Care to in-person and virtual with One Medical, it’s hard not to reach for the “fail fast” comparison.
Amazon is a different kind of competitor in health care. We can’t think of another organization that would spend years building out a care delivery enterprise, roll it out in 50 states, and then simply shut it down. We also can’t think of another organization whose alternative care delivery plan is to spend nearly $4 billion on another company. It’s not just the scale and the money—it’s the willingness to throw around those assets that makes Amazon a potentially potent competitor.
There are still enormous execution challenges for Amazon and One Medical. Massive disruption of the industry is not a given, no matter how much money is spent or how many companies are bought and/or fail.
It seems likely that the impact of Amazon on the market will be centered, at least for the immediate future, on the same direct-to-consumer approach that One Medical has taken and at which Amazon is expert in its other lines of business.
That does not mean Amazon can be dismissed as a dilettante or a dabbler in health care. Its mere presence in the market already seems to have sparked a bidding war for Signify Health. Amazon’s continued iteration of its approach to health care demands ongoing attention.
While Amazon has been amassing a range of healthcare assets in recent years, including an online pharmacy, virtual and in-home care capabilities, and even diagnostics, this marks the e-commerce giant’s first significant push into bricks-and-mortar healthcare delivery.
One Medical, which went public in 2020, operates 182 medical offices in 25 markets, and acquired Medicare-focused primary care provider Iora Health last year. It offers an access-forward, concierge-lite model to employer clients and individual consumers, and more recently has pursued a partnership strategy with anchor health systems in the markets where it operates.
The Gist:Amazon’s pricey purchase of One Medical, for which it will pay a 77 percent premium over market value, is sure to set the healthcare punditocracy afire—even more than its earlier, ill-fated arrangement with JPMorgan Chase and Berkshire Hathaway.
Clearly, Amazon is shifting from a build-and-tinker to a buy-and-scale approach to its Amazon Care business, which has been slow off the mark since the company first started selling its own employee clinic services to other employers. With One Medical, Amazon gets thousands more employer relationships, a much larger physical footprint, and a buzzy brand in primary care.
But the deal is less “disruptive” than it might first appear. There is still a missing piece—namely, a risk model that lets Amazon profit from managing patients in the primary care setting. One Medical’s model is expensive—it has yet to turn a profit—and despite the acquisition of Iora’s population health platform, it has doubled down on creating linkages with high-cost health systems rather than truly investing in care management.
Primary care on its own is not an attractive growth business, even in a hybrid virtual/in-person model, even at Amazon’s scale. To truly disrupt healthcare, Amazon will need to wade into the risk business, either by partnering with a health plan or creating its own risk arrangements with employer clients.
That’s going to be hard, for all the same reasons that Haven was hard—entrenched payer relationships, slow-moving benefits managers, and a murky and conflicted broker channel. We’d love to be proven wrong, but this deal feels less like true innovation and more like a frothy story for slide decks and conference panels.
Late last week, retail giant Walmart announced its plan to acquire national telemedicine provider MeMD, for an undisclosed sum. According to Dr. Cheryl Pegus, Walmart’s executive vice president for health, the acquisition “complements our brick-and-mortar Walmart Health locations”, allowing the company to “expand access and reach consumers where they are”.
MeMD, founded in 2010, provides primary care and mental health services to five million patients nationally. The acquisition extends Walmart’s health delivery capabilities beyond the handful of in-store and store-adjacent clinics it runs, and follows the launch of its own Medicare Advantage-focused broker business, and partnership with Medicare Advantage start-up Clover Health to offer a co-branded insurance product.
Walmart has been climbing the healthcare learning curve for several years, building on its sizeable retail pharmacy business, and seems to have hit on a successful formula in its latest in-person clinic model, which includes primary care, behavioral health, vision, and dental services. The retailer plans to add 22 new clinic locations by the end of this year, and its new telemedicine offering will allow it to expand its virtual reach even further.
The MeMD acquisition alsorepresents a new front in Walmart’s head-to-head competition with Amazon, which launched its own national telemedicine service earlier this year. That service, Amazon Care, is targeted at the employer market, and right on cue, Amazon announced its first customer sale last week—to Precor, a fitness equipment company.
Both retail giants are slowly circling the $3.6T healthcare industry, targeting inefficiencies by deploying their expertise in convenience and consumer engagement.Incumbents beware.
HENRY KOTULA 