Amazon’s healthcare ambitions hinge on small deals that survive FTC scrutiny

After its recent announcement of the One Medical deal, experts say Amazon is likely on the hunt for more healthcare targets as part of its growing ambition in the sector.
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If Inc. hopes to become a major player in the multi-trillion-dollar healthcare industry, the e-commerce company will have to buy into it, one medium-sized transaction at a time.

The Federal Trade Commission is revision Amazon’s shopping plans 1Life Healthcare Inc.the parent company of One Medical. O Approvalne A medical agreement would give Amazon control of a primary healthcare organization with over 180 clinics providing in-person care, as well as digital health and virtual care services. This makes the deal different from Amazon’s previous healthcare investments, as it would bring the company closer to relationships with hospitals and healthcare systems.

Analysts are optimistic that regulators will clear the deal due to its relatively modest valuation, at $4.30 billion, and the competitive nature of the healthcare market. Some expect One Medical to be the first of many small-to-midsize healthcare offerings for Amazon as it launches into a lucrative new vertical. National health expenditure should reach $6.2 trillion by 2028, according to the Centers for Medicare and Medicaid Services.

“They are clearly on the hunt,” said Paddy Padmanabhan, CEO of Damo Consulting, a growth strategy and digital transformation consulting firm that works with global healthcare and technology companies. “They are constantly evaluating multiple targets.”

‘Sweet spot’

Integration deals worth less than $10 billion are Amazon’s “sweet spot” as they are more likely to circumvent government scrutiny, said Tom Forte, chief executive of DA Davidson. The FTC is still reviewing all transactions valued at $101 million or more.

Forte pointed to other Amazon acquisitions of similar value that have won U.S. regulatory approval, including the company’s purchase of former film and television studio MGM Holdings Inc. as part of a a deal with a gross transaction value of $8.75 billion.

“Their behavior expresses great confidence that they can get smaller contracts through regulatory scrutiny,” Forte said.

Mark Shmulik, Managing Director at AB Bernstein, said there is little antitrust risk for One Medical deal. “I think we saw a similar conclusion on MGM Amazon was adding more competition to a very isolated Hollywood studio and distribution industry,” Chmulik said.

While the $4.30 billion gross deal value of Amazon’s One Medical deal is well above Amazon’s median deal value of $96.8 million, the size of the acquisitions of the healthcare company so far is tracking Amazon’s business in other industry categories. For example, Amazon bought grocery chain Whole Foods Market Inc. in 2017 for a gross transaction value of $13.61 billion.

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Patient access

The One Medical deal would give Amazon a competitive boost in a market crowded with new and established players such as Walgreens Boots Alliance Inc., CVS Health Corp. and Walmart Inc., as well as intermediaries and insurers.

“It puts Amazon front and center in the healthcare space, with its tentacles in several different areas,” said George Congdon, principal analyst at Third Bridge.

Damo Consulting’s Padmanabhan said the primary care business is attractive to Amazon because it serves as a “gateway” to manage patient relationships, as well as referrals for expensive specialist services and elective surgeries.

“If I have a relationship with the patient and can choose which hospital the patient goes to for hip or knee replacement surgery, then I wield a lot of market power,” Padmanabhan said. “They could bring economies of scale and cost-effectiveness to the operation of primary care services and reduce the cost of providing primary care and earn money with each visit.”

An Amazon spokesperson declined to disclose any future plans with One Medical, but said the company would be “part of a suite of healthcare offerings from Amazon.”

Amazon’s access to medical records is a major concern for some critics of the deal.

“It’s the most sensitive data there is,” said Alex Petros, policy adviser for Public Knowledge, a Washington, DC-based public nonprofit. Interest group. “I really think Amazon could do a lot of data mining with your health data – OK, I now know you’re pregnant, so I’m going to bombard you with pregnancy multivitamin ads.”

An Amazon spokesperson said the company “will never share One Medical customers’ personal health information outside of One Medical for the purposes of advertising or marketing other Amazon products and services without consent. ‘clear client authorization’.

Entry barriers

Amazon has yet to become a disruptive force in healthcare despite multiple attempts to break into the industry, including the 2018 purchase of PillPack, online pharmacy purchased by Amazon for $753 million and the 2019 acquisition of Health Navigators LLCa digital health solutions provider, for an undisclosed price.

“They wanted to be in healthcare, but they’re not sure where they want to position themselves,” said João Bocas, CEO of Digital Salutem, creator of a digital health platform that connects patients and clinicians. “They probably thought health care would be a lot easier to grasp and understand than it actually is.”

Amazon dissolved a healthcare business with Berkshire Hathaway Inc. and JPMorgan Chase & Co. in 2021 which sought to reduce healthcare costs for corporate employees.

Amazon also announced plans to shut down Amazon Care, an on-demand healthcare offering that enables virtual meetings between clinicians and users. Amazon declined to say whether One Medical’s virtual care services would replace virtual services formerly provided by Amazon Care.

Even with One Medical, however, Amazon’s physical footprint in healthcare services would be smaller than that of its competitors in an industry where people-to-people relationships make a strong physical presence paramount. “Consumers love a physical and digital experience when it comes to pharmacies; it’s unrealistic to expect categories to be fully online,” Strong said.

Amazon also faces competition from existing healthcare players looking to expand their market share. In 2022, Amazon lost a bid to buy Signify Health Inc., a home care services company that CVS plans to acquire for $8 billion. Insurer United Healthcare, meanwhile, in September announced plans to partner with Walmart Inc. to expand affordable healthcare services.

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