Will Amazon’s $3.9B Acquisition of One Medical Finally Disrupt Healthcare and Break Down Barriers to the Interstate Practice of Medicine?

Since the onset of the pandemic, and with the expansion of coverage outside of Virginia in 2021, the Trust has been focused on developments in healthcare which may impact the ability of clinicians to legally practice across state lines. Liability exposure significantly increases outside of Virginia, and any potential changes to the interstate practice of healthcare may ultimately impact jury verdicts, liability risks and malpractice premiums.  Nothing is imminent or certain, but a recent commercial acquisition got our attention for its impact as a potential disruptor to the interstate practice of medicine in the United States.

Amazon just recently announced its acquisition of One Medical, a subscription-based primary care company with services provided throughout the United States, for $3.9 billion. The deal will be the third largest acquisition in Amazon’s history, behind only its purchase of Whole Foods and MGM Studios. The acquisition underscores Amazon’s significant and ambitious designs for the future of healthcare, which could impact how care is delivered across state lines in the United States.

One Medical has 188 primary care clinics throughout most of the Unites States and offers both virtual primary care services as well as same-day in-person appointments. According to Fierce Healthcare, in March of 2022 One Medical had 767,000 individual subscriptions and 8,000 company memberships. Annual subscriptions for individuals cost $199.

The purchase of One Medical is not Amazon’s first foray into the healthcare industry. Three years ago, Amazon, Berkshire Hathaway and J.P. Morgan Chase set out to transform the industry with its joint venture, Haven. The goal for Haven was to use technology to solve healthcare’s complex and financially strained infrastructure. However, due to an assortment of barriers, such as state licensing regulations, data-privacy laws, and relatively low leverage with commercial and government payors, Haven never gained traction beyond its board room. While it is still an incubator of ideas between the three companies, Haven has more or less dissolved into an informal after-thought.

In parallel with the Haven initiative, Amazon also created Amazon Care in 2019, a telehealth venture targeted at primary care services. Unlike Haven, which was rolled out exclusively to employees of the three entities, Amazon Care was made available to third-party companies as an employee benefit and marked the first time Amazon targeted direct patient care. Similar to Haven, though, Amazon Care never attained the momentum many thought it would.

Enter One Medical. Michael Abrams, managing partner at Numeroff and Associates, a global medical consulting firm, provided this blunt observation: “I think [Amazon] was having some difficulty in penetrating the employer market with Amazon Care. With One Medical, it’s a huge shortcut to accelerated growth. They are planning to make a business in primary care so this is just a real reinforcement of their commitment to the primary care space.” Later in the interview Mr. Abrams noted that the acquisition also allows Amazon to grow its online pharmacy and diagnostic businesses. Other industry insiders are speculating that Amazon will eventually acquire an insurance company and wrap its overall healthcare offering into Amazon Prime, the subscription service with 172 million U.S. subscribers (and counting).

While it’s easy to imagine this collision between Big Tech and medicine having a profound influence on the future delivery of healthcare, let’s not forget the very real federal and state rules and regulations that have previously hampered innovation; namely, state licensing regulations, federal and state patient privacy laws, and state tort liability. After all, if pooling together the resources of the country’s largest bank (J.P. Morgan), conglomerate (Berkshire Hathaway) and retailer (Amazon) can’t crack the code for efficient and sustainable healthcare, why should the One Medical acquisition be any different?

One potential reason could be the realization from state legislatures that healthcare trends, technology, and constituent desires are outpacing the current legal framework for an efficient healthcare ecosystem. In response, legislatures have recently begun enacting new laws to address these barriers. The 2022 Virginia General Assembly passed legislation that now permits a non-Virginia physician to provide continuity of care through telemedicine services to Virginia patients with whom the physician has an established relationship. Texas and West Virginia both offer easy-to-obtain telemedicine licenses to outside clinicians in an effort to promote telehealth for specialty services. While historically state boards of medicine have been territorial so as to control competition from outside clinicians, that stance appears to be softening.

Nevertheless, healthcare remains one of the most regulated industries in America. In order to “practice medicine,” (while each state defines “practicing medicine” differently, the commonly understood definition is the treatment or prevention of a disease or injury and includes diagnosing and prescribing) a clinician must be licensed in the jurisdiction in which the patient is physically located at the time of the consultation. The Interstate Medical Licensure Compact currently includes 29 states and helps streamline the licensing process for clinicians who want to practice in multiple states; however, that still leaves 21 states who essentially operate on an island with their own unique rules and requirements. Imagine if Amazon could only ship goods to 29 states – does the business model still work? Probably so.

In addition to licensure inefficiencies, medical malpractice premiums and risk, along with recoverable damages for medical malpractice liability vary wildly among states. Some states, like Virginia, have a cap on economic and/or non-economic damages a plaintiff can recover in a lawsuit (as of September 2022, the Virginia global cap is $2.55 million). The cap provides predictability and reduces risk, thus keeping malpractice premiums lower in Virginia. Some states, however, consider such caps either unconstitutional or against public policy. In those jurisdictions, between 2016 and 2019, the average “nuclear” (over $10M) medical malpractice verdict rose 50% to $23 million.

So not only will Amazon have to contend with state licensure issues, but it will also have to properly assess its malpractice risk, insurance costs and overall risk profile in each jurisdiction where a subscriber is located. Perhaps that means subscription fees vary state-by-state? Given its financial clout Amazon may have the ability to shape and re-shape state laws to break down barriers to the interstate practice of medicine, which could impact all healthcare providers in the United States.

Looking forward, many healthcare insiders point to similar recent partnerships such as this collaboration between Walmart and UnitedHealth Group, as well as this $8 billion acquisition by CVS, as further evidence that the regulatory environment is slowly being eroded as a result of new industry disruptors. While it’s still too early to tell, the legislative trends suggest disruption may finally be at our door step. Until that time, liability risks, licensure issues and malpractice insurance premiums will continue to vary state to state.