If Amazon.com Inc. hopes to become a big player in the multitrillion-dollar healthcare industry, the e-commerce company will have to buy its way in, one midsize deal at a time.

The Federal Trade Commission is reviewing Amazon's plans to purchase 1Life Healthcare Inc., the parent company of One Medical. Approval of the One Medical deal would give Amazon control of a national primary healthcare organization with more than 180 clinics providing in-person care, as well as digital health and virtual care services. That makes the deal different than Amazon's previous healthcare-related investments, as it would bring the company into closer relationships with hospitals and health systems.

Analysts are optimistic that regulators will allow the deal because of its relatively modest value, 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 deals for Amazon as it pushes into a lucrative new vertical. National healthcare spending is projected to 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 advisory firm that works with healthcare enterprises and global technology companies. "They are constantly evaluating multiple targets."

'Sweet spot'

Tuck-in deals valued below $10 billion are Amazon's "sweet spot" in that they are more likely to bypass intense government scrutiny, said Tom Forte, managing director with D.A. Davidson. The FTC still reviews all deals valued at $101 million or more.

Forte pointed to other similarly valued Amazon acquisitions that cleared U.S. regulatory approval, including the company's purchase of legacy movie and television studio MGM Holdings Inc. in a deal with a gross transaction value of $8.75 billion.

"Their behavior is expressing a lot of confidence that they can get smaller deals through regulatory scrutiny," Forte said.

Mark Shmulik, a managing director with AB Bernstein, said there is little antitrust risk for the One Medical deal. "I think we saw a similar conclusion on MGM — Amazon was adding more competition to a very secluded Hollywood studio and distribution industry," Shmulik said.

While the $4.30 billion gross transaction value of Amazon's One Medical deal is far larger than Amazon's median deal value of $96.8 million, the size of the company's acquisitions in healthcare thus far trail pursuits by Amazon in other industry categories. For instance, Amazon purchased grocery chain Whole Foods Market Inc. in 2017 for a gross transaction value of $13.61 billion.

Patient access

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

"It puts Amazon at the front and center of the healthcare space, with their tentacles in several different areas," said George Congdon, senior analyst at Third Bridge.

Damo Consulting's Padmanabhan said the primary care business is appealing to Amazon because it serves as a "gateway" to managing patient relationships, as well referrals for expensive specialty services and elective surgeries.

"If I have a relationship with the patient and I get to choose which hospital the patient goes to for a hip or knee replacement, then I exercise a lot of power in the market," Padmanabhan said. "They could bring scale and cost efficiencies to the primary care services operation and lower the cost of delivering primary care and make money on every 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.

"This is the most sensitive data out there," said Alex Petros, policy counsel for Public Knowledge, a Washington, D.C.-based nonprofit public interest group. "I really think Amazon could do a lot of data exploitation with your health data — OK, I now know that 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 advertising or marketing purposes of other Amazon products and services without clear permission from the customer."

Barriers to entry

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

"They wanted to be in healthcare, but they're not quite sure where they want to position themselves," said João Bocas, CEO of Digital Salutem, maker of a digital health platform that connects patients and clinicians. "They probably thought that healthcare would be much easier to enter and understand than it actually is."

Amazon disbanded a healthcare venture with Berkshire Hathaway Inc. and JPMorgan Chase & Co. in 2021 that sought to reduce healthcare costs for the companies' employees.

Amazon also said it plans to shut down Amazon Care, an on-demand health offering that enables virtual meetings between clinicians and users. Amazon declined to comment on whether One Medical's virtual care services would replace the virtual services once provided by Amazon Care.

Even with One Medical, however, Amazon's physical footprint in healthcare services would be smaller than its competitors in an industry where interpersonal relationships make a strong physical presence paramount. "Consumers like a physical and digital experience when it comes to pharmacies; it's unrealistic to expect categories to go wholly online," Forte said.

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