Understanding the Impact of Venture Capital and Private Equity in Oncology

Michael Kolodziej, MD, discusses the growing influence of venture capital and private equity in oncology care, highlighting the potential for these trends to reshape costs, partnerships, and innovation in the oncology landscape.

Transcript:

Michael Kolodziej, MD: My name is Michael Kolodziej. Many associated with this conference know that I've been around this conference for a very long time. I practiced oncology for many years. I was a physician at US Oncology and part of the leadership team there when we launched our US Oncology Clinical Pathways program. Subsequently, I went to work at Aetna, I worked at Flatiron, I worked with a DC consulting firm. Throughout that period of time, I have been fortunate to be able to rub elbows with some of the leaders in the value-based care space in oncology. This meeting is right at the heart of value-based care.

What were the primary motivations driving venture capital and private equity investments in the oncology sector?

Dr Kolodziej: I jokingly said at the beginning of the panel today that I was perhaps the worst person to moderate a panel on this topic because I don't really know much about it. That's a little bit of an exaggeration. I know a bit about it because I was at US Oncology when it was taken private by Welsh Carson, and I know quite a bit about what happened with OneOncology and TPG. The whole idea of how venture capital and private equity is going to shape how cancer care is developed, how advances occur in cancer care, is an area of some interest. I think most oncologists, most physicians, don't really think about how venture capital or private equity works, but they had better get up to speed pretty fast because it's going to change their world.

Can you elaborate on the phenomenon of retailer retrenchment in primary care investment?

Dr Kolodziej: A good place to start is where we started with our panel, which is the difference between venture capital and private equity. Venture capital, in general, is private investment in early-stage stuff, novel approaches to care delivery, for example. Private equity, on the other hand, is a mechanism to fund well-established businesses with the idea of making them into more efficient, productive, and lucrative clinical entities. I would say that private equity in healthcare has gotten a lot of attention lately because there have been some glaring examples of missteps where private equity came in and they did some things within that practice structure that was, looking at it from a physician perspective, bottom-line oriented.

The perspective I have on this is that anybody who's ever practiced in medicine, particularly those who had a leadership role in a private practice, for example, [knows that] private practices do not like firing staff. They hate it. In fact, firing a nurse is so hard for doctors; it's just really difficult. But I assure you that for private equity, it isn’t hard at all. One thing that came out in our panel today was that when private equity comes in and makes an investment in a practice, which usually involves a significant financial benefit to the members of the practice, they look at the structure, they look at the operations of the practice with a totally objective eye. One thing that they're not shy about doing is firing people. That’s what this retrenchment thing is about. It's just fancy term for eliminating staff, reducing overhead to improve profitability. It's hard for doctors. Doctors don't like having talented staff be let go. But that is, in fact, one of the primary mechanisms by which private equity can improve the efficiency of a practice.

During the session, what were the key insights shared about the differences between venture capital and private equity investments in oncology focused digital platforms?

Dr Kolodziej: We didn't go directly into the concept of digital platforms, but let's extend this a little bit further. I think the real key difference between venture capital and private equity is that venture capital takes a chance on ideas that sound good. They are willing to invest in very early-phase innovative approaches. Digital is just one of them. Digital is top of mind right now because there's so much innovation going on in that space, giving money to these fledgling companies so that they can grow. Private equity, on the other hand, is totally on the opposite end of the spectrum. It gives money to established practices to make them bigger and more profitable. There was an absolutely wonderful analogy made by one of my panelists talking about how you might think about how venture capital and private equity fit at different points in the lifespan of a big company like Google, for example, or Apple, where venture capital was there at the beginning, but at some point it became a much more appropriate place for private equity to play.

In light of these investment trends. How might the landscape for partnerships between pharmaceutical companies and health care providers change or digital health platforms change?

Dr Kolodziej: We did explore slightly in the panel what the downstream effect might be of venture capital and private equity investment. We talked primarily about the cost of cancer care and about payers. I opined that it is very hard for me to see how these investments, which are designed to increase the profitability of either an innovative product in the case of venture capital or an established organization like private equity, do not drive up the cost of care. Now, if you are a pharmaceutical company, clearly that's to your advantage since profitability in oncology is directly related to the use of pharmaceutical products, because that is where a lot of the profit is generated. But it's funny because we did have an attorney on our panel—an attorney who specializes in this work—and he pointed out that laws about the corporate practice of medicine are really undergoing a renaissance in terms of the degree of scrutiny that is being used in terms of that particular approach of private equity to increasing the profitability of practices. We’ll see how this all plays out. Like I said, insofar as this private equity-venture capital thing, it is all about increasing the profitability of whatever entity is receiving that investment. I would say that third parties tend to benefit from this, except, of course, those of us who are concerned about the cost of cancer care.