Amazon’s secret resetting of its healthcare business, the inside story of “Project Espresso”

In October 2023, One Medical made a grim internal outlook, predicting operating losses in 2024 would exceed $500 million (approximately 75 billion yen). Amazon’s leaders were reluctant and ordered One Medical to cut its losses by at least $100 million, according to people familiar with the matter.

Months later, One Medical has revised its 2024 operating loss forecast to $341.7 million, excluding certain amortization costs, the people said.

The move was part of a broader cost-cutting initiative known internally as “Project Espresso.” The project came to light in part recently when Business Insider reported on hundreds of layoffs at One Medical and Amazon’s pharmacy businesses.

gold digger

One Medical was already a cash cow when Amazon agreed to buy it. In 2022, the last year in which One Medical reported financial results, it posted an operating loss of $420 million (approximately 63 billion yen), a 72% increase from the previous year.

The recent layoffs are just the first step in Amazon’s plan to make the business financially healthy.

One Medical has closed multiple offices in New York, Minneapolis and St. Petersburg, Fla., and downsized its San Francisco footprint, as Business Insider previously reported. The company also reorganized its finance, legal and technology teams to more closely integrate with Amazon’s other healthcare businesses while cutting marketing costs. The CFO will report directly to Neil Lindsay, senior vice president of Amazon Health Services. The company is also redesigning its compensation structure to align with Amazon’s approach.

Prospects for significant cost reductions

One Medical expects to save at least $115 million in additional costs from these efforts, the people said. Of this amount, approximately $36 million (approximately 5.4 billion yen) was due to the transition to Amazon’s compensation structure, and $23 million (approximately 3.4 billion yen) was due to reductions in marketing expenses.

Additionally, One Medical aims to reduce fixed costs from 41% to 20% of total revenue by 2028. The company also plans to reduce the cost of consultation per patient from $372 (approximately 56,000 yen) in 2023 to $322 (approximately 48,000 yen) in 2024. This will be achieved primarily by increasing the number of patients, one of the people said. Amazon recently announced a new One Medical discount option for Prime members.

“Reducing costs and finding efficiencies helps companies deliver more value to their customers, and that’s true for Amazon and any other company,” said Amazon’s Cruz.

Reduce focus on geriatric health care

On another note, One Medical recently considered reducing its focus on its senior health care business.

In 2021, One Medical acquired Medicare-specialized Iora Health for $2.1 billion (approximately 315 billion yen), expanding its position in the geriatric healthcare field. But given the complexity of the market and high initial costs, the company has been considering the possibility of spinning off parts of the business, one of the people said.

The company is also looking to cut costs by an additional $52 million in 2024, primarily by cutting initiatives related to senior health care support.

The difficulty of entering the geriatric healthcare market was noted in One Medical’s last annual report. Risks related to the Iola Health acquisition say the company expects to “expend significant management attention and resources” on the integration process and “will continue to incur significant costs.”

Amazon’s Cruz said the company “continues to invest in One Medical Seniors.” One Medical Senior is a primary care service for the elderly that was created from the acquisition of Iola.

“We are shifting resources to improve operational efficiency and provide care teams with the resources they need to focus on relationship-oriented, person-centered care.”

“Through One Medical and One Medical Seniors, we will continue to invest further to provide high quality care to people of all ages.”

increasing tension

One Medical is also considering expanding its clinic hours, partnering with local universities and increasing engagement with business customers through open houses, one of the people said.

Lindsay, who runs Amazon’s healthcare division, recently told employees that layoffs are part of the normal business cycle and not a sign of poor performance. “Most successful companies” typically go through such a phase, he wrote in an internal email, urging people not to believe “experts” who speculate about the company’s business.

But some One Medical employees are growing frustrated with Amazon’s involvement.

Amazon, like other companies it has acquired, initially distanced itself from One Medical. But a few months after the acquisition, Amazon began issuing unrelenting top-down orders and imposing project schedules, people familiar with the matter said.

One Medical’s leaders reportedly objected to Amazon’s high-handed stance and unreasonable demands, leading to confusion at the meeting. One Medical’s former CEO, Amir Dan Rubin, left the company at the end of 2023.

Cruz, the Amazon spokesperson, told Business Insider 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 tough decisions is an expectation in any business.”

Remote work continues

Waves of change aren’t impacting what’s important to employees. It’s remote work. At an all-hands meeting on Feb. 8, One Medical CEO Trent Green said the company will continue to work remotely even though its parent company, Amazon, has strict workplace attendance policies in place. This was then communicated to employees, said a person who attended the meeting.

Regarding this matter, an Amazon spokesperson said:

“As CEO Trent Green has communicated to employees, One Medical employees will not be returning to the office at this time. This is, of course, subject to change, but it is clear that One Medical will change its current policy. There are no plans”