One Medical = Blockbuster. Sherpaa = Netflix.

One Medical announced today that they raised $65M bringing their total funding to roughly $180M over the course of 8 years. They are operating in 6 cities: 23 offices in the San Francisco area, 6 offices in NYC, 1 office in Boston, 2 offices in LA, 1 office in Chicago, 3 in Phoenix, and 4 in DC.

Sherpaa was founded in February 2012 selling directly to employers. One Medical started direct to consumer and then launched to employers in 2014 effectively becoming Sherpaa’s competition.

With $180M, One Medical has expanded to 6 cities and 150 companies in 8 years. With $8M of investment and 4 years of operation, Sherpaa has expanded to 150 companies and 23 states. We will be in roughly 48 states (roughly 20,000 cities) by the end of Q1 2016. When Sherpaa launches in a state, we turn the state on to all employees living in that state, not just the employees within convenient driving distance of a One Medical office. One Medical is following the Blockbuster model building out brick and mortar offices while Sherpaa is following a Netflix model, a service powered by technology rather than real estate.

One Medical’s business model is traditional fee-for-service primary care supplemented by a yearly membership fee paid for by either an individual or their employer. Traditional fee-for-service healthcare makes money by maximizing the number of visits they can bill insurance for. Primary Care is not lucrative. They barely scrape by. And really the only way for primary care practices to make money is by charging a membership fee. And with that membership fee, you can use that money to make your office look nice, which One Medical does very well, and build apps that enable their members to make appointments. But, by far, the primary source of revenue in traditional fee-for-service practices is billing for the maximum number of office visits. It’s that simple.

So, One Medical is in a dilemma— every time they prevent a visit via an email or video visit, they are eating into the profitability that comes from their yearly membership fee. Their “innovation” was the primary care membership fee enabling nice offices and an app, but that innovation also forces the same disincentive found in traditional primary care— the more you do in the office the more you get paid. And the more you prevent, the less you get paid. That’s the same tired model found everywhere in American healthcare. That disincentive is the same reason why One Medical economically can’t decrease enough claims within a company to see positive health savings.

At Sherpaa, we never see you in person. We communicate with you via our app, order blood or imaging tests to confirm the diagnosis, and treat. We don’t get paid by employers for each visit we do. We get a flat rate from our employer clients. No matter what we do, we get paid the same removing the incentive to do the most care to make the most money. After 4 years of Sherpaa, we’ve consistently seen that 70% of primary care cases can be diagnosed and treated without needing an in-person office visit. And since Sherpaa is paid for by the employer, we don’t bill insurance companies, which means 70% of a company’s primary care claims do not happen. This also means that 70% of traditional primary care and One Medical’s office visits are unnecessary, but they make you come into their offices because that’s how they get paid.

Since Sherpaa began, we’ve been able to sign bigger contracts with bigger companies. And as companies become larger, they have a higher tendency to have offices scattered all across the country in places like NYC, SF, Tennessee, Dallas, and West Virginia. We’ve also learned that the vast majority of large companies will not purchase an employee benefit if that benefit can’t be offered to all employees, no matter where they are geographically located. So the company that’s based in NYC but has an office in Virginia and Tennessee won’t sign up for a service that can’t do business in those three states. This puts a service like One Medical in another dilemma. Because they have to build brick and mortar practices in every city and every state, and those practices must be conveniently close to a potential patient, and patients must be willing to switch to One Medical from their primary care physician…it’s a long Blockbustery, expensive road ahead to satisfy the needs of large, important companies. Just because I live in “Chicago” doesn’t mean I’ll travel 30 miles downtown to a well-decorated primary care office. It’s like forcing all of your employees to rent all their movies from one Blockbuster.