How does One Medical make money?

Read time: 5 mins

It’s difficult to comprehend how large organizations, especially in healthcare, operate and make money.

My aim here is to answer this question - How does One Medical make money? - in a way that lands regardless of your background.

You should care because primary care is changing a lot and One Medical just got acquired by Amazon for almost $4B.

Also, you can’t really understand a business until you understand how it generates revenue. Or so I’m told.

Do you even ‘have’ a primary care provider? I don’t, for now. (sorry, ma.) Half of adults under 30 don’t either.

Okay, let’s get into it.

Real quick: What is mOney Medical?

One Medical is a corporate group of primary care clinics.

You’ve probably seen them, especially if you live in a city.

They now have 188 primary care offices in 29 markets. And by “market” I mean major city.

Amazon recently acquired One Medical for $3.9B. As of this writing, it’s still awaiting for approval from the FTC.

One Medical receives revenue in four ways.

Let’s go through them in order of increasingly difficult to wrap your brain around:

First up: membership fees

Relatively straight-forward.

Your classic recurring revenue stream - especially common in software land. I think of it less like buying something and more like renting it.

One Medical charges a $199/year membership fee.

It’s really no different than your local gym membership, for example.

You rent access to the weights, space, etc. It’s simply for the right to access - the opportunity to show up at - One Medical.

There are two options for who actually fronts this membership bill.

Option 1: I pay One Medical. (meh, but alright)

Option 2: My employer pays it for me. (tight)

One Medical started as a direct-to-consumer business so there was no option two.

As they expanded over time, they secured more partnerships with large employers - e.g. convinced them of the benefits of paying for a better primary care experience for their employees. Those (at least pitched) benefits likely consist of:

• reduced overall healthcare costs (debatable)

• better experience

• more convenient

• help you attract & retain your employees

• employers will be healthier and happier and, you guessed it, more productive!

On the experience point, I mean the bar is pretty damn low.

Think “primary care office” and close your eyes.

I don’t know about you but an antiseptic smell begins to tickle my nose, an awkward hallway scale flashes before my eyes, and the crinkling of the exam table’s sandpaper covering makes my skin crawl. gOoD tiMeS.

Oh, also, on the convenience point, One Medical places physical offices on-site at large employers headquarters (e.g. Google offices). That’s been a huge part of their strategy and pitch.

Side-note: competitor primary care start-ups have followed suit. For example, on-site clinic contracts with Facebook and Apple have been a huge part of Crossover Health’s growth. By the way, Crossover Health should get Allen Iverson to be a sponsor. The original “AI”; you know, before all this artificial stuff.

Second up: insurance claims 

By definition, a direct primary care provider doesn't submit insurance claims and relies solely on membership fees.

One Medical does NOT fit in that bucket.

They, instead, fall into the concierge primary care bucket because they do still bill your insurance for services.

So when you go see a One Medical provider, they also bill your insurance company. That bill is paid by a combination of you and your insurance company, depending on your health plan’s design.

These days, most of us are in high-deductible plans, which means we have to pay a certain amount of money out-of-pocket before our insurance coverage kicks in. Plus, you may have to pay co-pays for visits as well. More on that at the end.

Third up: $ from the government 

Okay, so in late 2021, One Medical acquired Iora Health for over $2B stacks.

Iora Health was - well, is - a primary care provider that serves ~65,000 patients enrolled in Medicare Advantage (MA) insurance plans. At first glance, I thought Iora was an Iowa-based clinic that they maybe misspelled. Turns out, not so.

Real quick primer on Medicare Advantage:

MA plans are an alternative health plan for Medicare patients.

(Remember: Medicare is the government-sponsored insurance you’re eligible to receive when you turn 65.)

MA plans are still funded by the government, but they’re run privately by companies like Humana, United, Blue Cross Blue Shield, etc.

For now, what you need to know is MA plans are booming because:

(a) lots of people turn 65 every year (“aging population”)

(b) these MA plans typically offer additional benefits compared to traditional Medicare (vision, etc.)

(c) the government, for now, wants this approach to be the main one

They’re also not fee-for-service payment models so companies see them as potentially strong sources of profits (welcome to US healthcare, plz enjoy your stay!!)

With traditional Medicare, the government pays providers for visits / services. That means the government is at the whim of however many visits and services patients receive.

In the MA world, however, the government instead pays these private insurers a set $ amount per patient per year (~$12,000). So the government’s costs are fixed and then these insurers become "at-risk" (e.g. they need to figure out - and are responsible for - how to keep costs down for patients or else they lose money).

Okay, back to One Medical/Iora.

Like I said, Iora has a bunch of primary care clinics focused solely on the 65+ Medicare Advantage population.

Iora says to these insurers who run MA plans, “Hey, we noticed y’all are at full risk for your patients. We believe in our care model so strongly that, should you contract with us, we'll take over that risk from you.”

When these health plans say “sure, sounds good”, they basically funnel the money they receive from the government - that ~$12K per patient - over to Iora. (well, now to One Medical).

So, One Medical receives that $12k/yr for every patient that Iora contracted with on behalf of its health insurer partners. The money flow is:

• government $ → private MA insurance company → Iora

Obviously, this revenue stream wasn't a part of One Medical's business prior to their acquisition of Iora.

Fourth up: payments from health systems 

One Medical holds partnerships with at least 16 major health systems.

I hold 0.

Partnerships, shpartnerships, am I right? Let’s see what’s actually good here.

Once One Medical builds up significant enough physical scale in a metro area, it aims to partner with health systems.

The flow of funds with these partnerships is tricky to conceptualize:

• One Medical sees a patient and bills the patient’s insurer at the health system-insurance negotiated rate

• One Medical collects that payment - essentially on behalf of the health system - and passes it right on to the health system

• In exchange, the health system sends One Medical a set per-member-per-month amount (e.g. the health system sends that $ to One Medical regardless of the length / severity of the visit)

The health system benefits because One Medical provides them:

(a) an extension of their primary care network to meet increasing demand

(b) an additional source for their ultimate revenue generator: high-priced downstream specialty referrals (welcome to US healthcare, plz enjoy your stay!!)

One Medical benefits from an additional revenue source where, in this instance, they’re likely able to bill patients at those higher hospital rates and then split that revenue with the health system.

Admittedly, I don’t really know much about how these contracts are structured, how exactly the revenue is split, the structure of provider employment vs affiliation, etc.

One day maybe, just maybe, I’ll understand. If you have insight, please share!

Let’s put it all together. 

Interestingly, that Iora population makes up only 5% of their total membership base. (see: “companies see MA as a potentially strong source of profit”). Iora Hawkeyes, let’s go!

Lastly, the Insurance claims bucket at 14% equates to $35.8M in revenue. Of that, $4M was paid by patients (co-pays, deductibles, etc.), equating to patients paying, on average, 11% of total claim payments.

While there's certainly much more to pay attention with respect to the future of primary care in this country., hopefully this overview serves as a solid foundation to better understand how the dollaz flow.

Best question I came across in the last week:

“What did you used to spend time on that you now see as unhelpful or not valuable?”

After some reflection, my own answers are:

• worrying about things that are out of my control (e.g. most things)

• side-stepping potential conflict

• taking ‘rejection’ personally - or even viewing it as ‘rejection’ in the first place

• trying too hard to “be right”

• responding to every email

What I’m still working on and hope one day my answer will include:

• caring what other people think

• feeling like I haven’t “done enough”

You?

If you're new here or were forwarded this newsletter from either someone you trust or from a complete stranger with candy, sign up below to receive future editions!