Amazon is once again in the headlines with a high-value acquisition: This time, it’s reaching a tentacle into the health care space by acquiring boutique primary care provider One Medical for roughly $3.9 billion in cash.
The planned acquisition creates many questions. Some, like “Why health care?” are fairly self-explanatory. Annual U.S. health care spending is measured in trillions of dollars, so it’s no surprise when a business wants a bigger slice of that pie. Amazon has been making direct inroads into health care since acquiring mail-order pharmacy PillPack in 2018, which have only grown as it launched products such as Amazon Pharmacy.
Other questions are slightly more complicated, such as “Is Amazon going to be allowed to do that?” The short answer is almost certainly going to be “yes.” And while that definitely feels weird to some, the long answer has far more to do with how U.S. law handles competition than it does with Amazon.
Isn’t Amazon already under antitrust investigation?
It sure is! The FTC has been probing Amazon since June 2019 at least, and the investigations are reportedly still going strong.
Amazon is also in trouble with Congress. A House committee probing Big Tech issued a blockbuster report in late 2020 accusing Amazon of abusing its “monopoly power,” and saying the company should be split. (Apple, Alphabet and the company now known as Meta also got dinged in that report.) The House Judiciary Committee also recently asked the Justice Department to probe if Amazon had been truthful during the course of the investigation leading to that report.
One of the House staffers who authored that report was Lina Khan, who is now pushing an aggressive antitrust enforcement agenda as the FTC’s chair. Although Amazon is not the only company on the agency’s radar by a long shot, Khan came to national prominence with a 2017 Yale Law Journal article arguing for stronger antitrust enforcement against Amazon. Although the FTC hasn’t filed a suit against Amazon yet, most observers expect the commission to tackle Amazon’s retail practices. The European Commission is likewise investigating if Amazon’s behavior with third-party vendors breaks competition law in the EU.
Amazon’s AWS business, which controls at least a third of the cloud services market, is also reportedly under antitrust scrutiny, and there are lawsuits underway in both Washington state and D.C. alleging Amazon’s behavior around its third-party marketplace vendors violates antitrust law.
So are antitrust regulators going to investigate this deal?
Amazon definitely has to file paperwork about the deal with the FTC, there’s no way around that. Companies planning a merger or acquisition above a certain threshold — $101 million for 2022 — must file their plans with the FTC before completing the transaction. That filing kicks off a 30-day waiting period that regulators can resolve one of three ways: They can grant early termination, meaning they have no issues with the transaction; they can file a second request for information, kicking off an actual probe; or they can do nothing at all, and simply let the waiting period expire.
That “second request” is basically where a formality turns into an investigation. There’s no guarantee the FTC would open one, but for a transaction that both involves Amazon and is valued at more than $1 billion, there’s definitely a non-zero chance it would.
We saw something similar last year when Amazon acquired MGM Studios. The transaction kicked off a flurry of investigation and calls for stronger antitrust enforcement — but when you get right down to it, “film studio” is not Amazon’s core business, nor is it anything like the largest player in the space, and so regulators worldwide more or less said, “ugh, OK, fine,” and Amazon moved forward as if the FTC had, too.
It’s worth noting, though, that even if the waiting period closes uneventfully, that doesn’t mean the FTC is done with Amazon. Even though the MGM transaction closed uneventfully in the spring, media reports from late May and early June suggest the commission is still deeply probing the transaction.
What would regulators be looking for?
Historically, U.S. antitrust regulators are concerned with intense concentration in a specific, tightly defined market. As an example, let’s say four companies manufacture widgets, and each of those companies has 25% market share. If Widgets Inc. purchases two of its competitors and achieves 75% market share, it gains outsized power and can distort the market around it. The remaining company, holding 25% market share, will have a harder time competing and new competitors will be extremely hard to spin up.
But Amazon, despite its prior efforts in health care, is not a major competitor in the present landscape. Even an extremely determined Amazon foe with an axe to grind would have a hard time making a case that Amazon is dominant in or controls the U.S. health care market, because it doesn’t.
What Amazon does do is put tentacles out into a hundred market segments at once: It’s the biggest U.S. cloud services provider. It’s the biggest U.S. ecommerce site. It’s an Emmy- and Oscar-nominated streaming video service. It’s a surprisingly competitive music streaming service. It’s a high-end supermarket chain. It’s a shipping and logistics company. It’s even a pharmacy.
In short, if antitrust enforcement is usually concerned with the whales that move through the world hoovering up all the food (i.e. smaller companies) in their sight, Amazon is in comparison a giant squid, extending its reach farther away and grasping tightly. And while that might still be deadly if you’re metaphorically swimming nearby, there just isn’t as much of a playbook around for dealing with it.
Where regulators are starting to get concerned, though, is the way Amazon ties its various offerings together. Sometimes bundles can be hugely beneficial to consumers, but depending on how they’re shaped and enforced, they can also be harmful to would-be competitors. In the retail space, for example, the Fulfillment by Amazon program allows shoppers to buy from several disparate third-party merchants easily and at once, but merchants complain Amazon’s terms harm their business financially.
One Medical’s model is membership-based: For a fee of about $200 per year, participants get access to the entire One Medical system and all its features. Basically, it’s streamlined medical care as a service. That business model may sound awfully familiar to Amazon’s more than 160 million U.S. Prime subscribers, who pay $139 per year for access to the full array of Amazon goods and free shipping on those goods.
But when the Prime parent acquires a company that already has a fan base, things change. Amazon has “Amazonified” Whole Foods since acquiring the grocer, for example, and now ties some of its products and benefits to a Prime subscription. Whole Foods customers have not always been happy with the way those services have been integrated, and neither have employees. Some vendors have also had a harder time getting their products onto store shelves and out to consumers than before the acquisition, thanks to Amazon changing Whole Foods’ purchasing structure and leveraging its size to make vendors charge less for their products and cover more costs.
Perhaps more critically, Amazon also ties all the data from its various services and offerings together. And while grocery data is personal, a preference for organic avocados or fresh chocolate chip cookies is not anywhere near as sensitive as the kind of data a primary care practice has available about its patients. While some of that information is explicitly covered by HIPAA, other health care data that technology companies can glean from individuals is not. Several One Medical members immediately aired their concerns about data on Twitter as soon as the transaction was announced.
Although consumer data has not traditionally been something the FTC considers when reviewing a merger, user data is one of the concerns the agency has expressed about Microsoft’s pending acquisition of video game publisher Activision Blizzard. If the agency does dig into the One Medical deal at all, there’s a good chance it would start there.