Last week, retail and technology giant Amazon (Nasdaq: AMZN) announced it is acquiring One Medical, a tech-enabled primary care provider, for $3.9 billion.
When I saw the news of Amazon’s latest acquisition, I was surprised by the staggering dollar amount, which is more than six times One Medical’s 2021 net revenue of $623.3 million. On the other hand, I was not shocked that Amazon would pay such a premium to expand its health care business.
While it was not hard to see the pieces falling into place before this acquisition, the One Medical deal confirms to me that Amazon will look to grow in senior care, representing a major potential disruption point for the senior living industry.
But how and why the company grows in the space is not set in stone — and senior living operators should be considering various scenarios for how the “Amazon effect” will affect them.
In this week’s exclusive, members-only SHN+ update, I analyze the implications of Amazon’s One Medical deal, including:
- The further acceleration of consumer-focused, value-based care
- Why Amazon is likely to target senior living
- What a future Amazon senior living push might look like
Industry implications
Since launching its first foray into the health care space only a few years ago, Amazon has assembled an array of health care services. Even before the deal with One Medical, the company’s reach included an online pharmacy and Amazon Care, an on-demand health care service.
With One Medical under its belt, Amazon not only gains access to a growing primary care network of about 767,000 members and 188 medical offices, but also Iora Health, a company acquired by One Medical that provides member-based, value-based care for older adults enrolled in Medicare Advantage (MA) and other reimbursement models. And it’s this detail that I think senior living operators should pay the most attention to, given the rise of MA plans in senior living in recent years.
Iora is part of the new generation of providers that are delivering more coordinated care to older adults by leveraging technology and value-based payment frameworks. Other companies in this space include Oak Street, Cano and CareMax. Oak Street already has a partnership with senior living providers in Illinois, while leaders with Cano and CareMax have expressed interest in such partnerships.
Particularly in lower-acuity senior living settings, such organizations could deliver health care services to both increase resident satisfaction and — by driving their wellness over time — increase length of stay. It’s a play that Welltower (NYSE: WELL) has made through its health system relationships, including by connecting Geisinger Health’s 65 Forward clinics with middle-market, “independent living light” provider Clover.
And Iora holds similar potential for senior living, Welltower SVP Business Strategy and Health Systems Initiatives Mark Shaver said at the 2020 Senior Housing News Active Adult Virtual Summit.
So for senior living operators, Amazon’s acquisition of One Medical is yet another road sign on the highway to value-based care. And it raises the prospect that an Amazon-owned primary care company could be delivering health care to residents of senior living communities and even partnering with senior living providers — perhaps even to provide services on-site in senior living communities, as Oak Street is doing in Illinois.
Amazon is not the only huge company with major disruptive potential to creep closer toward senior living in recent months.
Earlier this year, UnitedHealth Group (NYSE: UNH) announced it was acquiring home health care provider LHC Group (Nasdaq: LHCG) for $5.4 billion. The deal unites LHC Group, one of the largest home health providers in the U.S., and Optum Health, United’s health care services arm.
With the transaction, the payer is gaining increased access to senior living communities across the country — including in Brookdale communities that are partnered with LHC Group.
Insurance giant Humana (NYSE: HUM) is also building out its senior care footprint through a joint venture with the private equity firm Welsh, Carson, Anderson & Stowe (WCAS). On Wednesday, the company announced it has established a second JV with Welsh Carson meant to deploy as much as $1.2 billion for the development of up to 100 new CenterWell senior primary care clinics between 2023 and 2025.
With its acquisition of One Medical and Iora, Amazon is gaining similar access to older adults, some of whom live in senior living communities. And as with payers such as UnitedHealth, I see this as a chess move toward potentially directly serving that demographic down the road.
In other words, while the Uniteds and Amazons of the world are now serving the older adult demographic through home health and primary care services, they are no doubt considering how they can keep managing these populations as they transition into senior living communities.
And anyone tempted to think that Amazon won’t make a bold play in senior living needs to consider the scope of the company’s ambitions. Amazon leadership is more than eager to shake up old models; in the company’s announcement about the One Medical acquisition, Health Services Senior Vice President Neil Lindsay said the company is looking to bring about a “reinvention” of health care.
Senior living’s role in that “reinvention,” if any, is still not clear. But based on recent and past moves, senior living leaders should think big about Amazon’s potential to disrupt the industry.
Seniors a tantalizing target
It’s no surprise to me that large companies like Amazon are chasing the older adult demographic, given the size of the incoming baby boomer generation, which is thought to number around 65 million today. By 2030, all of the boomers will be 65 years old or older.
Although they are thought to have fewer savings, pensions and adult children than the generation before them, Boomers still control about half of the country’s wealth, representing tens of trillions of dollars.
For companies like Amazon, the senior living industry represents an obvious opportunity to keep driving revenue from the boomer population through their entire lifespans.
At the same time, senior living penetration rates are thought to be in the 10% to 11% range for many markets, meaning there are many more age- and income-qualified older adults who could move into senior living communities. As that penetration rate suggests, the senior living industry may be ripe for disruption from an outside company that can offer a product that holds more consumer appeal — a fact that some in the industry are urgently pointing out.
While I am unsure whether Amazon will ever have a direct hand in senior living operations or senior housing real estate, I don’t think the company necessarily has to in order to be disruptive in the space.
For example, Amazon might decide to go big on in-home care and more technology like Alexa that makes it easier for older adults to age in place. They wouldn’t be operating senior living communities directly in that scenario — instead, they would provide or arrange most or all of the care an older adult would receive, and through easy-to-access platforms like One Medical.
Many large senior living operators already use Amazon’s Alexa Smart Properties platform to use the service efficiently at scale. And Amazon last year hired industry veteran Ginna Baik as its senior business development manager for senior living, with a role leading business development for the platform.
It’s not hard for me to imagine a world where Alexa technology could act as a bigger hub for delivering care, either through Amazon or company partners. With Prime, Whole Foods and a bevy of other services, Amazon could offer on a piecemeal basis many of the services that senior living operators are offering today.
With companies like Atria already utilizing Alexa, and also striving to create a lower-acuity middle-market product on a more “do-it-yourself” lifestyle model, the idea of Amazon becoming an ever larger partner in the delivery of senior living seems plausible.
In the future, I think a company like Atria could offer the housing and care components of senior living, while a larger partner like Amazon could arrange other services inside the community, potentially in an unbundled cost structure. That way, residents would receive many of the on-demand services they say they currently want, such as groceries or telehealth services, without paying for it as part of their basic rates.
Of course, these are just a few of the ways I see this spinning out, and predicting the next moves of such a large company is never easy.
But my point is that I see the stars aligning for Amazon to play a much larger role in senior living.
The industry should now consider how Amazon might make an impact through ultimately acquiring a senior living provider as they have One Medical, becoming a dominant service and care provider for senior living residents, transforming the home care space to make this an even more accessible alternative to senior living, being a controlling player in the value-based care ecosystem, or any number of other moves that could make Amazon a serious threat to some companies while perhaps being a valuable partner to others.
Companies featured in this article:
