#32 - Is One Medical Worth The Hype?

One Medical's strategy, Facebook's MRI play, and more.

Oh what a week it has been! Here’s your dispatch from the world of healthcare. 

Things That Happened

Aleve your cash at home. Anthem’s Medicare Advantage population will be able to use insurance to cover the cost of some over-the-counter medications starting this January, as long as they’re shopping at Walmart. The program obviously makes sense for the policyholders, but it’s also interesting to see Walmart accessing another MA population in addition to their current co-branded MA drug plan with Humana. 

There’s little doubt at this point that Walmart is poised to make big moves in healthcare, particularly in delivering services. Don’t take my word for it: Marcus Osborne, head of health transformation at Walmart, has been making the podcast rounds with revealing appearances on Tech Tonics and A Healthy Dose. I’ll also be keeping track of any developments right here. Stay tuned. 

Sleep a bit easier. Fitbit’s newly announced Charge 3 will sport the ability to track blood oxygenation levels with a new sensor. They’re still developing the software to help users make sense of these readings, but the sensor’s inclusion shows Fitbit’s determination to make their devices more medically relevant beyond basic fitness tracking. Potential applications: sleep apnea and atrial fibrillation detection. 

Dr. Majmudar goes to Washington (state). Amazon has hired Dr. Maulik Majmudar to join their ranks. In an interview with STAT, Majmudar was circumspect about the specific nature of the work ahead of him, but offered this: “There is an incredible amount of opportunity to bring into practice existing technology and digital tools that actually improve the experience and health and wellness of patients.” 

Prior to Amazon, Dr. Majmudar was a practicing cardiologist and the associate director of the health transformation lab at Mass. General, essentially an incubator for health tech concepts. Perhaps Amazon is looking for another physician to help realize the clinical applications of the secretive Grand Challenge team, which has reportedly been working on cancer research, EHR technologies, and much more in the world of health. 

Facebook wants to be in your head. In another coast to coast health-tech mashup, Facebook announced they would be working with NYU Medical School on a project to speed up the process of taking MRI scans. Specifically, Facebook’s AI researchers will be helping develop novel deep learning solutions for reading the images produced by MRIs.

Facebook doesn’t appear to have any near term plans to get into healthcare. Christina Farr argues that much of Facebook’s interest in the project stems from their need to develop and retain talent. Top AI talent is expensive and scarce, and Facebook can use projects like this to give AI engineers more altruistic reasons to join them, as well as giving engineers being trained by Facebook in AI techniques some real-world challenges.

Things Worth Understanding

This past Wednesday The Carlyle Group officially announced their investment of up to $350 million in One Medical, the tech-enabled concierge primary care company. 

The investment plays into two notable current trends: private equity firms making large investments in healthcare delivery companies, as well as the recent spate of VC investments into large-scale primary care firms. 

This particular investment has refreshed the question of One Medical’s model. Are they really just, as David Shaywitz phrased it on the Tech Tonics podcast, “yuppie-care for the well,” or are they presenting an innovative path forward for primary care? And why does Carlyle want such a big piece of the action? 

If you’re unfamiliar with One Medical, it’s most effectively described as what you wish visiting your primary care physician was like. The waiting room feels like the lobby of a swanky hotel, you don’t wait more than five minutes for your appointment to begin, you can see your preferred doctor every time, and you can stay in touch with your doctor via email between visits. There’s a modern web portal where you can view your records, fill out your health history, and schedule same-or-next-day appointments. Oh, and if you factor in the included telemedicine service, it’s open 24/7. 

One Medical walks and talks like a concierge primary care practice, and it comes with a concierge fee of around $200 per year. This membership doesn’t cover visits and services, which are still charged to the patient’s health plan like a traditional fee-for-service practice. 

While it started as a direct-to-consumer company, One Medical also began offering packages for employers. These are essentially the same as the standard memberships, except the employer covers the annual fee. Large enough employers can even have One Medical operate their on-site clinic. 

Employers are promised an overall reduction in the cost of care when they offer One Medical to their employees. One Medical claims this is because they make it so easy for members to get care whenever they need it, utilization of more costly urgent care and emergency room care declines. Their website boasts a 4.5% reduction in overall cost of care, while CEO Amir Dan Rubin cites an even higher 8% reduction in overall cost of care. 

In a sense, this is exactly what primary care is supposed to be. It should be easy to access, and should help patients manage their health on an ongoing basis to avoid grave illness and trips to the ER. It should be welcoming and consumer friendly, and should operate in such a way that patients don’t dread a trip to the doctor, especially to the point of deferring necessary care. When primary care operates this way, it’s not surprising that employers see overall cost of care reductions. It’s the desired effect. 

At the same time, can One Medical really be considered innovative? Their care delivery model, while draped in an in-house tech stack and a consumer-grade web application (their CTO Kimber Lockhart was formerly the web applications guru at Box), is merely a tech-enabled version of the care model that’s been used for decades. It’s heavily centered around in-office visits with a physician in a traditional clinic setting, albeit one with plush midcentury modern furniture. 

While they’re charging a concierge fee, they still participate in the classic fee-for-service revenue model. The fee enables them to have physicians spend time communicating with patients outside of visits in non-billable interactions, but their core revenue is still driven by standard billing activities. 

It could be argued that One Medical’s ability to achieve savings with such minor alterations to the basic model is an indication of how bad things have actualy  gotten. 

It’s also worth noting that One Medical’s results were achieved by building a service that appeals predominantly to younger people in higher income brackets (Shaywitz’s healthy yuppies). These are the people for whom a tech-enabled, on-demand primary care service is appealing enough to spend the annual fee, and for whom the annual fee is a reasonable expense in relation to their income. 

As Eli Adashi and his colleagues from the Warren Alpert Medical School at Brown University note in their timely opinion piece on Direct Primary Care and alternative primary care models, “limited existing data suggest that concierge practices…  are less likely than nonretainer practices to serve Medicaid, Hispanic, and African American populations, as well as people with diabetes.” 

When compared with companies like Iora Health, which is reorganizing primary care into a team activity and focusing on providing value-based care to elderly patients, Sherpaa, which provides 100% remote primary care via a membership model using a variety of synchronous and asynchronous communications, and Aledade, which is using technology to enable primary care-led accountable care organizations, One Medical seems decidedly traditional in their approach. Iora, Aledade, and Sherpaa are the disruptive players exploring new frontiers in primary care, while One Medical is a sustaining innovation that improves incrementally on the existing model, but doesn’t change the core value proposition. 

Why, then, is Carlyle interested enough to invest $220 million directly into the company, and then spend another $130 million buying existing shares? 

Ram Jagannath, a Managing Director at Carlyle, quoted in the deal announcement: “We are excited to partner with Amir Dan Rubin and the One Medical team to continue growing and building out the platform… We look forward to working with the company to bring the One Medical brand and experience to more patients across the country.”

There is a battle being waged over the front door to healthcare. CVS and Walgreens are building clinics and mobile apps, new entrants like K Health are offering consumer focused machine-learning powered triage for free, WebMD is bulking up through acquisitions, Walmart is talking about getting more directly into healthcare services, and Amazon is going to do… something. All of this is about controlling where the patient enters the system. This grants the winner leverage over all the downstream healthcare spending of that patient, which as we know is a lot of spending. 

Extracting some insight from Jagannath’s above quote, Carlyle believes that One Medical is poised, via their strong consumer-friendly brand and workable product, to become a serious contender in this battle. It doesn’t matter if they’re inventing the future of primary care, as long as they can continue to grow their brand, and perhaps lay the groundwork for building a true healthcare platform (an Amazon for healthcare). Carlyle’s investment dollars will be put to work doubling the number of One Medical clinics throughout the country. In the event that One Medical can’t execute on their vision, there’s always the profitable plan B of flipping the whole enterprise to one of the above companies who wouldn’t mind owning a widespread upmarket chain of primary care practices. 

One Medical is building a business that is improving healthcare and growing in value, but at the same time failing to attack the problems that really need solving. There is always the chance they could pivot to a more transformative model of care, but as they’re currently configured I’ll be looking elsewhere to see what the future of primary care looks like. 

Things To Read

“They go around with their false nobility and their big donations and their wine tastings. And then, in the evenings, they kill guys and shove rats in their mouths.” That’s one man’s opinion on private equity raiders like Paul Singer, Founder and Co-CEO of hedge fund Elliott Management. Elliott recently amassed a sizable stake in Athenahealth and made an offer to take the firm private, but was rebuffed by CEO Jonathan Bush. Not long after, Bush was forced to resign after unseemly details of his divorce were leaked to the press by an unknown party. Sheelah Kolhatkar recounts what happened, and delves into Singer’s questionable and controversial business practices, in this exemplary piece in The New Yorker

“As the average number of Apple products per user increases, thanks to wearables, these services will prove essential in delivering personalized and proactive solutions to the Apple community,” Neil Cybart writes on Above Avalon. He argues wearables will become a key revenue driver for Apple in coming years, especially as revenue growth for the iPhone slows. Coupled with the news that Apple is hiring engineers to improve their health sensor chips (which I wrote about last week) it makes it all the more likely health-related wearables are in the pipeline for Apple. 

The data gathered on Apple’s wearables will, of course, be routed through the Apple Health app, making it available via Apple’s Health Record API to providers and developers who can derive use it to derive further insights. Apple’s wearables could end up as the foundational layer of a health data ecosystem that they control entirely.  

“It’s an important design element for us to interact with AI so it doesn’t feel like a complete black box; so that we have some understanding [and] can marry the AI with the human process,” Sanji Fernando, vice president and head of OptumLabs’ Center for Applied Data Science, said at a talk in Boston. The way in which deep learning applications arrive at their conclusions is generally a mystery, even to the software engineers who create them. For doctors using them for decision support, this can be problematic, as it’s understandably challenging for a physician to blindly trust an algorithm. Read more about how Fernando and his team are considering the “explainable AI.” 

Startup(s) of the Week

Today I’m profiling all 122 startups that presented at Y Combinator’s recent demo day. Well, I’m going to let TechCrunch do the heavy lifting. 

If you’re unfamiliar with Y Combinator, it’s likely the most prestigious and highly-regarded startup incubator and has helped companies like Airbnb, Reddit, Dropbox, and Twitch get started. Demo day is when the companies selected to participate in the program present their pitches a room full of press, investors, and their peers. 

What’s interesting about this most recent batch: 28% of the firms are in the healthcare space. That’s the second best represented industry. These startups include at-home UTI test maker Scanwell Health, used medical equipment marketplace Medinas Health, and Curebase, a startup aiming to make clinical trials cheaper and faster through the creation of a clinical trial marketplace. 

It’s impossible to tell which, if any, of these companies will end up big winners, but it’s always fun to scroll through the lists and see the many creative ways smart and driven people are trying to solve problems via business. 

Here’s all the companies from day one, and here’s day two

Things I Listened To 

This week I wrote the newsletter while listening to the new album Re:member from Icelandic instrumentalist Ólafur Arnalds. It’s gorgeous and serene. If you like Max Richter and Nils Frahm, this is a solid addition to the rotation. (spotify)

Thanks for reading The Healthcare Handout, a weekly update on the business of healthcare from healthcare analyst & strategist Isaac Krasny. You can find him at isaac@healthcarehandout.com, or on twitter @isaackrasny