Read through the One Medical S-1. Some takeaways:— Christina Farr (@chrissyfarr) January 3, 2020
– 10% of revenues come from Google, an investor & employer customer
– 60% of revenues are spent on the cost of providing care, including physician salaries.
– there are 77 offices now! https://t.co/B9wFElq9A4 with @levynews
A few thoughts on the @onemedical S-1 after digging through.— Dan O’Neill (@dp_oneill) January 4, 2020
I’m a big believer in rebuilding the care delivery stack, with an eye toward care continuity and the patient experience, but I think it’s fair to say I started and finished my perusal with a mixed read on ONEM. 1/n https://t.co/ek8yp0a7tS
To clarify, I see huge potential for better primary care, but the mechanism for hard dollar ROI in the commercial population is likely quite different than in Medicare & Medicaid. And, as a patient, I’ve found ONEM’s clinical quality and service delivery rather uneven.— Dan O’Neill (@dp_oneill) January 4, 2020
To the data! Membership growth is steady-ish (20-25% p.a.), but with a gradual fade.— Dan O’Neill (@dp_oneill) January 4, 2020
Looks like ONEM added ~7,600 members per month in 2017, which fell to ~6,200 in 2018 and then ~5,700 per month so far in 2019.
CAC is also ticking up. Sales & mktng spend rose from ~$200 per net new member in 2017, to $350 in 2018 and appears to have jumped to >$550 so far in 2019, though this spike could reflect contract implementation timing.— Dan O’Neill (@dp_oneill) January 4, 2020
Could be some headroom here, but it bears watching if the conversation is about SaaS multiples.— Dan O’Neill (@dp_oneill) January 4, 2020
In 2018, ONEM generated almost $700 in PMPY revenue, but only ~$250 in gross margin (i.e. after the cost of care delivery), and G&A is growing faster than revenue.
Worth pausing on that number. ONEM’s top-line suggests a (roughly) $60 PEPM cost of primary care (employer + patient OOP), which I would guess is $15 – 25 more than the overall average for commercial patients, depending on the service scope and demographics.— Dan O’Neill (@dp_oneill) January 4, 2020
Not super surprising. A better primary care experience for the patient (One Medical claims an NPS of 90), but at a material premium to baseline PCP spend.— Dan O’Neill (@dp_oneill) January 4, 2020
Employer savings depend on avoiding other utilization (ahem… ER visits), or steering patients to more cost-effective care
That’s certainly plausible, since one ER visit can offset the extra $150 – 300 annually in primary care costs.— Dan O’Neill (@dp_oneill) January 4, 2020
And ONEM does claim to have demonstrated a 41% decrease in ER utilization, and an 8% overall employer cost savings, though there is little detail on this.
Finally, there’s an interesting discussion of shifting revenue mix, which seems to imply that ONEM may be boosting revenue growth through a bit of pricing or contract arbitrage.— Dan O’Neill (@dp_oneill) January 4, 2020
The revenue mix is clearly shifting. Annual membership fees deliver a steady ~20% of revenue, but pure FFS revenue fell (% and absolute terms) in the first 9 months of 2019, replaced by what the company is calling “partnership revenue” with “health networks.”— Dan O’Neill (@dp_oneill) January 4, 2020
The S-1 suggests this is a partnership revenue is a mixture of FFS and capitated rates received from hospital systems (“health networks”). There’s a lot of talk about the “clinical integration” involved here, but there are hints of a rather different economic story.— Dan O’Neill (@dp_oneill) January 4, 2020
I can’t be sure of this interpretation, but the description suggests that One Medical is seeing patients in the office, but then billing a health plan for the visit under the hospital system’s contract. The hospital system and ONEM each then get a piece of the reimbursement. pic.twitter.com/fmtzWNLKqQ— Dan O’Neill (@dp_oneill) January 4, 2020
If that’s roughly right, this sounds a lot like the affiliation / clinical integration agreements that take advantage of higher rates paid to hospital systems, and tend to inflate costs for employers and ultimately patients, mostly via higher premiums.— Dan O’Neill (@dp_oneill) January 4, 2020
Last, it is hard to know what to make of the digital service layer, which combines telemedicine and in-app messaging. ONEM cites ~2.1M “digital interactions” in the first 9 mths of 2019 (vs. 0.7M in-office visits), but the digital metric is undefined.— Dan O’Neill (@dp_oneill) January 4, 2020
As the road show plays out, will be interesting to unpack:— Dan O’Neill (@dp_oneill) January 4, 2020
1) Details behind the employer/patient savings, to offset ONEM’s premium prices
2) Clarification on these “health network” contracting/billing dynamics
3) Plans to expand specialty services and/or take on risk
At the end of the day isn’t this just a new spin on traditional “care” w/ a shuffle on digital efficiencies & billing methods? Always seems “care” is focused on business models, not actually “care”. 82% of spending is on chronic care. 50% of treatment fails- nonadherence…— Anthony Dohrmann (@tdohrmann) January 4, 2020
One Medical was never intended to be profitable. It was a merger and acquisition target but was supposed to be acquired by Aetna or united by 2014.. for $4B and a nice return for Investors, which obviously didn’t happen, so now the big investor is trying to rescue it.— Paul Abramson MD (@paulabramsonmd) January 4, 2020
Many in SF now knows/say that “you’d only go to One Medical for simple things or wellness, but they’re often not competent to manage complex illness or anything serious.” And that patient experience has become highly variable, whereas in early days it was quite good. /3— Paul Abramson MD (@paulabramsonmd) January 4, 2020