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Amazon's Latest Deal Marks $3.9 Billion Bet on Brick-and-Mortar Healthcare

Purchase of One Medical Puts Tech Giant in Control of 188 Facilities

CoStar: Amazon is acquiring 1Life Healthcare, parent company of One Medical, which set up COVID-19 testing stations in San Francisco in 2020. (One Medical)

By Thomas James CoStar News July 21, 2022 | 3:25 P.M.

The world’s largest online retailer is adding healthcare to its shopping cart. Amazon agreed to buy 1Life Healthcare, parent company of One Medical, in a $3.9 billion deal that establishes the Seattle-based tech giant firmly in a brick-and-mortar healthcare industry that company executives say they plan to disrupt.

San Francisco-based One Medical operates a network of 188 primary care facilities that offer in-office and virtual medical services, and competes with a similar but smaller experiment started by Amazon itself. While the deal would give Amazon a turnkey entry into part of the healthcare market valued at upwards of $300 billion, it also opens the tech giant to risk as it acquires a not-yet-profitable firm in a highly competitive industry.

“We think health care is high on the list of experiences that need reinvention,” Neil Lindsay, senior vice president of Amazon Health Services, said in a statement Thursday. Lindsay described scheduling, exam and pharmacy services as disjointed and ripe for streamlining.

The move is not the company’s first into healthcare. It acquired online pharmacy PillPack in 2018 and the following year bought healthcare startup HealthNavigator. The company last year expanded its in-house Amazon Care program to its employees nationwide.

The move immediately drew comparisons to Amazon's 2017 purchase of Whole Foods, its $13 billion entry into customer-facing brick-and-mortar operations. which similarly saw the company buy an up-and-running brand with hopes that its tech and management expertise could disrupt a new sector.

The looming question for Amazon is whether it can do more in the healthcare industry than it did with its grocery experiment, which has not seen Whole Foods break out beyond boutique status.

“Amazon will need to work extremely hard and be extremely innovative if it is to do more than shake things up a little at the margins,” Neil Saunders, managing director of retail intelligence firm GlobalData, said in an email to CoStar News. Recent EntrantA recent entrant into the healthcare industry, One Medical went public in January 2020, just before the pandemic caused shutdowns in the United States. With a hybrid service model that it describes in federal filings and promotional materials as blending telemedicine offerings with in-person doctor visits, the company expanded as COVID-19 spread, adding more than 100 leased locations since its initial public offering. One Medical has operations in 25 markets across the country and in federal filings described its physical locations as “well-appointed.” The company claims 767,000 members, a number it conceded in its most recent quarterly report would need to grow to achieve profitability. It recorded a $254.6 million loss in 2021.

Dan Stanek, who heads the healthcare practice at WD Partners, a retail industry consulting firm, said in an interview with CoStar News that One Medical is one of many companies racing to transition primary care out of cloistered corporate campuses and into storefronts and other retail environments.

A July report from consulting firm McKinsey put the combined 2021 earnings of the service-provision portion of the U.S. healthcare market at $299 billion, with pharmacy-related services making up an additional $55 billion.

The competition in the space will probably shape Amazon’s approach and appetite for real estate, said Stanek, who noted that many of the firms within his own client base are charging hard in the same direction.

“My gut tells me that they’re going to be very aggressive,” Stanek said, noting that companies like Walmart and CVS have displayed keen interest in bringing primary care into their own operations nationwide, and that private equity investors have likewise been interested in backing promising startups in the industry.

“I think if they don’t expand rapidly, they’re going to risk giving an advantage to some of these other players.”

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