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The Last Amazon-One Medical Post You'll Ever Read...Until the Next One!
Plus, The Case for Amazon in MSK
In case you haven’t heard, Amazon’s acquisition of primary care “startup” One Medical finally closed this Wednesday (February 22, 2023) in an ending nearly as anticlimactic as this year’s Super Bowl. While the FTC threw a flag, Amazon was able to run out the clock as the deadline to challenge the deal (first announced in July) expired. Seven months and $3.5 billion later, Amazon has a solid brick-and-mortar presence in frontline healthcare delivery. (As an aside, it’s almost exactly two years since Haven Health, Amazon’s failed venture with Berkshire Hathaway and JP Morgan, shut down).
While Warren Buffet seems to have had enough of the healthcare “tapeworm,” the other Haven partners continue to make good on their promises to continue on. JP Morgan launched Morgan Health — a venture arm investing in “promising” healthcare companies with a focus on employers. One Medical acquisition notwithstanding, Amazon has also been busy. Amazon Care (it’s original attempt at B&M) closed down shortly after the One Medical deal was announced and has since been replaced (in a sense) by Amazon Clinic, an online marketplace for virtual care. With PillPack already in its pharma portfolio, Amazon launched RxPass, a medication subscription service that offers free delivery of generic medications for $5. Lest we forget, the One Medical acquisition also comes with Iora Health and its Medicare/Medicare Advantage-focused Advanced Primary Care model.
There’s no shortage of takes on this deal, what it means for healthcare in general, and the further inroads of Big Tech/Big Retail into medicine. I shared my own initial thoughts during an MDisrupt webinar over the summer when the deal was first announced. If you’re looking for a great breakdown, you can’t beat Blake Madden’s excellent Hospitalogy newsletter. Depending on your point of view, this deal is an exciting development in healthcare delivery innovation or more evidence of the erosion of the American medical system (and further intrusion of Amazon into our personal lives). I skew more toward the former. Even skeptics of Big Tech/Big Retail’s interest and motives in healthcare must concede that incumbents are solidly entrenched — protected by an almost impenetrable wall of obfuscation and unassailable market power (increasingly strengthened by consolidation). At the very least, Amazon’s continued healthcare push represents a growing existential threat to the status quo. There are few companies with the size and resources to make incumbents uncomfortable, and Amazon is one of them. Healthcare change may need to come from the lesser of two evils. Moving incumbents off their spot may open opportunities for others in the future.
As part of the deal closure, Amazon is offering discounted ($144/yr) One Medical memberships for a limited time. It’s a compelling offer for relatively healthy individuals looking for an alternative to traditional primary care. One Medical still bills insurance — and gets paid pretty favorable rates as detailed last year by Matthew Holt. With patients increasingly frustrated by the lack of engagement and poor experience provided by the current system, $12/mo. may be a small price to pay for improved access and a more patient-centric approach (assuming One Medical can deliver). Amazon is famous for its obsession with customer service (it’s Number One of Jeff Bezos’ 14 Leadership Principles) and could be successful on this differentiator alone.
Primary Care appears to be the entry point favored by Big Retail. CVS, perhaps reacting to the Amazon-One Medical deal, recently announced plans to buy another APC company, Oak Street Health, for the eye-watering price of $10.6 billion. Walgreens has a partnership with value-based primary care company VillageMD. Despite its fits and starts, Walmart remains committed to providing transparent, affordable screenings, wellness, and low acuity healthcare services at its Walmart Health locations. The focus on primary care makes sense in the context of need — access to primary care remains a barrier for too many. Better upstream prevention and management of disease is more effective and economically sound than downstream specialist treatment — ounce of prevention > pound of cure. However, the sustainability of these primary care-focused business models remains to be seen. Parsing the financials of startups is tricky business, even more so in healthcare. Still, none of these alternative healthcare companies has proven to be particularly profitable. Even One Medical, with its concierge-like subscription model is still losing money. Looking slightly below the surface, it’s obvious Medicare Advantage figures heavily in Big Retail-APC partnerships (including the Amazon-One Medical deal that includes Iora Health). Walmart Health makes this point pretty clear on their website:
Medicare Advantage (MA), touted as a value-based program for seniors, been a boon for both insurance companies and providers through use (or abuse) of its risk-adjusted payment system. Criticism of the MA program is growing with a recent high-profile New York Times article detailing widespread exploitation of the system through overbilling and outright fraud. Betting on Medicare Advantage as a path to profitability seems a lot riskier than it did a year or two ago as increased scrutiny may well kill the Golden Goose (and any business model that relies heavily on the revenue it generates). Absent inflated Medicare Advantage payments, new entrants may find achieving their financial goals in primary care difficult. Hospitals and health systems are able to successfully leverage primary care as a gatekeeper to other care verticals including specialist referrals, facility fees, imaging services, lab testing, and hospital-based care. Almost all of the current APC models lack clear ability to provide similar services. Instead, they rely on referral relationships with incumbents — a setup that not only fails to capture downstream revenue but also increases fragmentation without necessarily improving quality or costs. Which brings me to the second part of this post: imagining where Amazon might go next in healthcare.
Making the Case for Amazon in MSK
As an Orthopedic Surgeon, I could rightly be accused of seeing healthcare technology and innovation through bone-colored glasses. Despite that bias, I believe the case for MSK as Amazon’s next area of focus in healthcare is strong. MSK conditions are prevalent — with back pain and arthritis amongst the top 10 reasons for primary care visits. Not surprisingly, MSK conditions are one of the biggest cost drivers in the US healthcare system with one study estimating the total aggregate cost of MSK condition treatment to be nearly $1 trillion/yr. Our population is aging, demand for MSK services is expected to increase, and the ability of the system to meet this demand has been questioned. Primary care is critically important, and it makes perfect sense to focus innovation there. However, chronic back pain and the arthritis epidemic will have a profound societal impact and challenge the American healthcare system from both a financial and resource perspective. The need to innovate in MSK is clear.
Like it or not, treatment of musculoskeletal conditions is lucrative. Orthopedic inpatient procedures remain a significant revenue driver for hospitals and health systems, the Orthopedic device industry is robust, and — despite growing downward pressure on reimbursement — Orthopedic Surgeons are well compensated. Due to its prevalence and cost, musculoskeletal treatment has been a focal point of value-based care through programs such as CJR, BPCI, and BPCI Advanced. Similarly, the virtual PT and Digital MSK markets have become increasingly saturated as companies vie to reduce employer MSK spend. Not to be forgotten, navigation services and Center of Excellence models aim to drive patients to cost-effective, high-quality joint replacement and spinal fusion surgeons (particularly those who know when not to cut).
MSK care is undergoing a period of change. Procedures are increasingly shifting to the more cost-effective outpatient setting. Although the aforementioned VBC programs have produced underwhelming results, the expectation is that more programs are coming. Such programs will likely focus on condition management rather than surgical episodes of care, creating more widespread opportunities to drive and capture value. CMS appears committed to Remote Patient Monitoring (RPM) and Remote Therapeutic Monitoring (RTM) as a way to better manage patients. Musculoskeletal conditions are tailor-made for RPM/RTM which, when thoughtfully integrated, can improve engagement and optimize outcomes. Finally, there is a growing understanding and acceptance that MSK conditions cannot be treated in a vacuum. Even Orthopedic Surgeons are recognizing the importance of the mind-body connection and how whole person care and patient optimization leads to more effective treatment and better outcomes. All of these factors represent significant opportunities. Yet despite growing demand, favorable economics, and changing landscape, Big Retail has not shown a significant interest in MSK as yet.
Enter Amazon. The company loves leveraging its verticals to create synergies amongst its various business units. As Amazon continues to add pieces to its healthcare puzzle, choosing MSK as its next area of focus seems like a natural fit. Here’s how the company could leverage its existing offerings to capitalize on the shifting MSK market and grow its healthcare business in a sustainable way.
Amazon Clinic, announced in November, is a virtual, asynchronous health service providing diagnosis and treatment of about 20 low acuity conditions like acne, hair loss, and reflux. Insurance isn’t accepted although HSA and FSA funds can be used for payment. In its current iteration, the Amazon Clinic functions as a frontend connecting patients to existing virtual care providers (SteadyMD and HealthTap). Amazon’s goal with this offering isn’t abundantly clear although it’s a low-risk gamble, offering convenience while serving as a gateway to Amazon Pharmacy, data collection, and other such benefits. Amazon Clinic allows the company to test the concept of a healthcare marketplace (much like its existing consumer goods marketplace). Digital health and virtual care platforms suffer from fragmentation and high customer acquisition costs — issues that could be addressed by participating with Amazon Clinic. On the downside, joining such a marketplace risks race-to-the-bottom commoditization or (perhaps worse) having Amazon eventually bring the same services in-house (Amazon Basics for Healthcare).
How does MSK treatment factor in? As discussed earlier, MSK conditions are common reasons for primary care, urgent care, and ER visits. Currently, there is no shortage of virtual MSK offerings. While most were initially aimed at employers, some are starting to realize they’re missing out on a significant portion of the market. Recently, both Sword Health and Hinge Health launched products aimed at attracting customers outside of employer benefits programs. Given how common Orthopedic conditions are, it stands to reason that, if Amazon Clinic offered virtual MSK treatment, patients would come. Would an established, heavily funded digital MSK provider or virtual PT company see value in joining Amazon Clinic’s marketplace? Or would doing so risk de-valuing their platform? Even if the big players aren’t interested, there are plenty of smaller companies who might be. Though Amazon hasn’t shown much interest in being more than a convener at this point, the current digital health climate favors acquisition of an existing company. The bottom line is, musculoskeletal conditions are common, many are chronic/low acuity, and patients are simply looking for a diagnosis, reassurance, and conservative treatments that allow them to stay active. Just a guess, but I’d bet evaluation and management of bone, muscle, back, and joint problems would be at the top of the “most wanted” list of conditions Amazon Clinic treats.
Verticals, Verticals, Verticals
Vertical integration is one of Amazon’s biggest strengths and a reason its business model is so successful. In healthcare, few areas offer more opportunities for verticalization than MSK care. When it comes to vertical integration, Amazon + MSK = chocolate + peanut butter. Consider the following scenario: a patient with a few weeks’ worth of knee pain navigates their browser to Amazon Clinic. A “Muscle and Joint Health” section guides them to a Digital MSK provider who diagnoses early arthritis and recommends a course of virtual PT, a brace, and a short course of NSAIDs. At the end of the visit, a list of brace options is provided with an Amazon Basics knee brace being the least expensive (and most prominent) option. After purchasing the brace, the patient sees that similar customers have also purchased an ice machine, massage gun, reusable heat wrap, and the joint supplement glucosamine/chondroitin. One-click, and they’re all in the cart. Similarly, pharmacy options for the prescription NSAID are provided with Amazon Pharmacy offering the cheapest price and fastest delivery. (And, by the way, have you considered RxPass for all your medication needs?) Amazon sends out a Fire tablet or Echo Show loaded with exercises and the ability to communicate with a health coach/physical therapist asynchronously. An Amazon Halo device is provided to track movement metrics. With one interaction, you’ve verticalized your online clinic, DME, pharmacy, nutritional supplements, and wellness products. Now imagine it’s six weeks later, the patient is only marginally better, and an in-person evaluation is indicated. To close the loop and achieve near maximal integration, Amazon is able to suggest high-quality, cost-effective brick-and-mortar MSK care — with their newly launched One Medical+ MSK clinics at the top of the list.
It’s curious that few (including Big Retail) seem to have the appetite for tackling in-person MSK care. While the complexities and liabilities of surgical care are often cited as a reason, the reality is that the economics of MSK care are shifting. Reimbursement for joint replacements is declining and RVUs for E&M services are increasing. Some are predicting a future where seeing patients is more lucrative than operating. Along the same lines, some form of VBC in Orthopedics is still in the cards as we shift away from surgical episodes towards condition-specific bundles. Put simply, surgical management of MSK conditions is likely to be de-emphasized in the future (for better or worse). It’s worth noting that others see value in Orthopedics, and we are just at the beginning of a consolidation movement.
As mentioned above, MSK treatment provides several opportunities for vertical integration through ancillary services such as physical therapy, imaging (x-rays, MRI), DME (braces), injectables, office-based procedures, and now RPM/RTM. Adding these capabilities to existing One Medical clinics or launching new non-surgical MSK-focused clinics is a great way to capitalize on these opportunities. Amazon might even consider acquiring a company such as SpineZone/Livara and re-branding it under the One Medical umbrella much like Iora Health.
Speaking of Iora, the Medicare Advantage crowd is no stranger to MSK conditions — likely a significant cost driver for this population. Taking ownership of MSK condition-specific bundles is a great way to capture value, both clinical and economic. Most medical schools provide precious little instruction on the evaluation and management of Orthopedic conditions. As a result, primary care docs are often uncomfortable treating these conditions leading to over-imaging and over-referring. Bringing this capability in-house by hiring Sports Medicine-trained Primary Care docs or (gasp) non-surgical Orthopedic Surgeons would provide the expertise necessary to save money while delivering high-quality, evidence-based care. Proactively embracing MSK condition-specific bundles opens the door to growth and sustainability.
Outside the Box
While the above ideas may not come to fruition, they are at least plausible. Here are some moonshots that, while possible, are a bit outside the box:
Amazon Basics Orthopedic Devices — It reportedly costs an Orthopedic device manufacturer $1 billion to launch a new hip or knee replacement platform. And, while we all enjoy new toys, the reality is that we may have reached the asymptote of implant innovation. One might argue that newer devices have created as many problems as they have solved. Older implants have a great track record of success and longevity with one flaw — their patents are expiring. Current robot wars aside, Amazon could offer “generic” versions of tried-and-true hip and knee replacement parts no longer protected by patents at a cost that’s hard for ASCs to refuse.
Amazon Orthopedic MSO — Consolidation has come to Orthopedics. Ironically, MSK care is one area where consolidation, executed properly, could drive down costs and improve care. Shifting procedures to ASCs often leads to significant cost savings, on the order of tens of thousands of dollars for joint replacements and spine surgeries done in outpatient centers. There is increasing evidence that doing so is safe for most patients. Meaningful care integration, platform-wide protocolization, and thoughtfully designed VBC programs can deliver value while rewarding those who provide the care. Would Amazon consider purchasing an existing Orthopedic MSO or a company like Commons Clinic to expand this model? Doing so would fully close the loop and provide complete verticalization of MSK treatment.
Amazon Surgical Affiliates — Similar to purchasing or launching an MSO, Amazon could acquire an existing MSK-focused ASC company. Outpatient Orthopedic Surgery is expected to continue its growth trajectory with up to 50% of joint replacements being performed on a same day basis by 2026. Operational efficiency, supply chain management, and “customer” experience are critical components of successful migration of surgery to the outpatient setting. They’re also areas where Amazon excels.
So, there you have it. While it’s too early to tell if Amazon will be successful in healthcare, it’s a interesting mental exercise to speculate what might come next. Is Amazon bad for healthcare? Maybe. Are we otherwise on an unsustainable trajectory with no clear solution in sight? Almost certainly. Love ‘em or hate ‘em, acquiring One Medical/Iora only cements Amazon’s position as a healthcare company. Musculoskeletal condition treatment, with its prevalence and favorable economics represents a natural next step in the company's journey into medicine. This sawbones is skeptical of the motives, curious about the future, both excited and frightened by the potential.