Amid the pandemic boom, Amazon agreed to buy One Medical for $3.9 billion, the internet giant's biggest bet ever on health care.
The deal has so far been rocky, with hundreds of millions of dollars in losses and questions about the strategic direction of key parts of the business.
Now, through a secret initiative called “Project Espresso,” Amazon is administering powerful drugs to put its healthcare business back on track.
Some of the projects include significant layoffs, office closures, significant reductions in marketing spending, changes to patient care, and even a possible spinoff of One Medical's senior healthcare business. This has led to tensions between Amazon and some One Medical employees, according to people familiar with the situation.
The history of Big Tech's involvement in health care includes grandiose visions that faded under medical rigor and the messy realities of busy hospitals, mazes of health insurance, and confusing sick patients. are scattered throughout.
Amazon's challenge to One Medical shows that the Internet giant is no different from other big technology companies that have stumbled down a similar path. However, the company has not given up. The firm has extensive experience integrating large acquisitions and making the difficult decisions necessary to successfully complete the transaction.That's already Shut down Amazon Care Telemedicine services will launch in 2022; Heaven disbandswill establish a joint healthcare venture in 2021.
“The most successful companies, those that serve customers, typically go through stages of restructuring and reorganization to put energy where it's needed most,” Amazon spokeswoman Samantha Kruse said. he told Business Insider. “Recently, we've seen healthy companies within and outside of Amazon reprioritize, reducing roles in some areas and adding roles in others.”
He said Amazon's healthcare business continues to grow and is receiving positive feedback from customers.
“Leaders at Amazon Health Services and One Medical are working together to achieve our shared mission of making it easier for customers to get and stay healthy.” Kruse added in a statement.
big losses and big cuts
Amazon CEO Andy Jassy Chelsea Jiafen/BI
One Medical released a damning internal forecast in October. The business had expected an operating loss of more than $500 million in 2024. Amazon executives balked and ordered One Medical to cut those losses by at least $100 million, according to people familiar with the matter.
Months later, One Medical updated its forecast for an operating loss of $341.7 million this year, excluding some amortization costs, people said. They asked to remain anonymous regarding private matters.
The move is part of a broader cost-cutting campaign known internally as “Project Espresso,” the people said. Part of this effort was revealed last week when Business Insider reported on it. Hundreds of people were laid off across One Medical and Amazon's pharmacy businesses.
money pit
One Medical was already cash-strapped by the time Amazon agreed to buy it. In his 2022, the last year for which One Medical published results. Reported operating loss of $420 millionan increase of 72% from the previous year.
This week's layoffs are just the first step in Amazon's plan to make its business financially healthy.
One Medical also closed some corporate offices across New York, Minneapolis and St. Petersburg, Fla., and downsized its San Francisco footprint. As previously reported by BI. The company reorganized its finance, legal and technology teams to more closely integrate with Amazon's other healthcare businesses while reducing marketing spending. The CFO has taken on a new role reporting directly to his SVP Neil Lindsay at Amazon Health Services. The company also Redesign your compensation package In line with Amazon's approach.
Big Savings Expected
In total, One Medical expects to save at least $115 million more through these changes, according to officials. Approximately $36 million of the savings will come from moving to Amazon's compensation structure, and $23 million will come from lower marketing costs, they added.
One Medical aims to reduce fixed operating costs from 41% of total revenue to just 20% by 2028, the people said. The company also aims to reduce the cost of a consultation per patient from $372 in 2023 to $322 in 2024. This will be achieved primarily by increasing the number of patients seen, one of the people said. Amazon recently rolled out New One Medical discount option For Prime members.
“Reducing costs and increasing efficiency helps companies deliver more value to their customers. This is true for all companies, including Amazon and other companies,” Amazon's Kruse said. told BI.
Attention to senior healthcare is waning
Another idea that One Medical recently explored was to focus less on the senior healthcare business.
One Medical expands its presence in senior healthcare with the acquisition of Iora Health, a Medicare-focused provider. $2.1 billion in 2021. But given the complexity of the market and high initial costs, One Medical is considering the possibility of spinning off that part of its business, one of the people said.
The company also identified an additional $52 million in potential savings this year, primarily by reducing senior health support roles and related efforts, officials said.
A-one clinic one medical
The challenges of entering the senior healthcare market are well documented In One Medical's last annual report.. One Medical said that under the risks associated with the Iola Health acquisition, it expects to “dedicate significant management attention and resources” to the integration process and “continue to incur significant costs.”
“We continue to invest in One Medical Seniors,” Amazon's Mr. Kruse said, citing the company by name. senior primary care servicesevolved from the Iora acquisition.
“We are shifting resources to increase efficiency across our business and provide our care teams with the resources they need to focus on relationship-driven, human-centered care. We will continue to invest further in,” she added. For all ages through One Medical and One Medical Senior. ”
rising tension
Other ideas One Medical has recently discussed include expanding clinic hours, using Prime Ambassador programs at local universities and increasing corporate customer engagement through provider open houses, one of the people said. It is said to include.
Lindsay, Amazon's head of health care, told employees this week that the layoffs are part of the company's normal business cycle and not a sign of poor performance. “Most successful companies typically go through these stages,” he wrote in an internal email, urging employees not to trust “experts” who make assumptions about their business. As previously reported by BI.
Still, Amazon's surveillance is frustrating for some One Medical employees.
Amazon initially kept One Medical independent, as it often does with newly acquired companies. But months after the deal, Amazon began issuing top-down mandates with little room for change and setting aggressive project schedules, three people said.
Some of the meetings were contentious, the people added, as One Medical executives pushed back against what they saw as Amazon's authoritative posture and unreasonable demands. Amir Dan Rubin, former CEO of One Medical I quit my job at the end of last year..
Amazon spokesperson Kruse told BI that it is “not true” that there is any tension between the two companies. “We work together to achieve a common mission for our customers, and healthy debate when making difficult decisions is expected in any business,” she said. .
remote work is here to stay
The wave of change has not affected remote work, which is an important perk for employees. During an all-hands meeting Thursday, One Medical CEO Trent Green told employees that remote work will continue even if parent company Amazon shuts down operations. Implementing strict return-to-office policiesaccording to people who attended the meeting.
“As Trent Green has communicated to employees, One Medical employees will not be returning to the physical office at this time. Of course, this is subject to change, but One Medical currently has We have no plans to change the way we do things,” an Amazon spokesperson told BI.
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