Andrew L. Pecora, MD, CPE: The whole section we’re talking about now is the complexity—the nuances, the ownership. But change requires capital investment. There would be no drugs to give to people if there wasn’t people taking risk with capital investment. The same thing [goes] with this new information age. Google is a private company. It [was] started by venture capitalists, [and] venture capitalists have an expected rate of return in their investment. That’s how our whole system works.

How do we maintain the integrity of the patient’s right to their own information, which is absolute? Anyone disagreeing with that is crazy, but, at the same time, to have an environment where people are actually willing? Before, you said you support private industry. But private industry won’t go here, won’t make the investment if all of a sudden their trade secrets, their ability to monetize their creation and get the return on investment, evaporates. So how do we thread this needle?

Rena M. Conti, PhD: Private companies make money off of the opportunity to monetize investment. Usually, we think of monetizing their investment in a short period of time—5 years, 10 years, 20 years— if the invention is patentable. But business practices that are based on information may not enjoy the same protection that [is in place for business practices involved in] making a product, such as a pill. And that’s just the reality. So there are a lot of pathway-type programs that are getting investments and building infrastructure out right now. That’s a business practice.

We should expect those business practices to make some return on their investment, but others will enter the market and they will compete down to marginal cost. I don’t think that we’re going to see the government choosing winners and losers over pathways-type companies right now. I think that there’s a lot of move to let providers choose their own systems, but also for insurers to use their own systems. Nor should investors, insurers, or providers be thinking that their revenue stream for the next 20 years is going to be based on exploiting all the information that they have. A lot of that information is going to get old. They need investment to make it actionable, and they may not be able to exploit that revenue stream forever.

Andrew L. Pecora, MD, CPE: With all that being said, we know that most hospitals in America—not all, but most—work on an operating margin of under 2%. And we know that community oncology practices, because we’re talking about them, are now starting to approach going underwater and they’re closing their doors. This is reality. They’re closing their doors and they’re handing their keys over to the local hospitals, which are operating at a margin of 1%.

And now, money has to come in [from somewhere] to invest in all of this infrastructure to move this from fee-for-service to value. So it appears as if the logic flow is broken. There’s no ability to maintain and build on business practice margins, as you’ve articulated. And there is a growing divide based on regulation, which we didn’t bring up, between what pharmaceutical companies who have very large margins can do and can support—because they can’t do it anymore because of all of the conflicts of interest and everything else. [There’s also] the fact that the government, our national debt, is now at historic proportions. Where is this money going to come from to infuse into here if it’s not equity investment from the private market? Where’s the money going to come from?

Brenton Fargnoli, MD: So 2 things. One is the way a lot of the alternative payment models are being set up—for an upfront “per member, per month” [payment]—with the idea that a portion of that will be invested in a variety of activities required for success. So hiring more people, [making] some technology investments, training—other things like that. Albeit, as you mentioned, it’s still not a large sum and it’s coming, already, from a small pot. So what that does, secondarily, is it creates the need to provide very valuable technologies at affordable prices to the users. And so Google is a great example. Gmail—I don’t pay for my Gmail, I don’t pay for googling, but [Google is] providing a lot of value. Therefore, it is being used very widely. However, they also have alternative business models to supplement that and to provide those services at a cost that individual users can bear.

But the other piece is technologic innovation, in general—being able to bring that cost down. So previously, hospitals would have to buy servers, have a room for the servers, have someone to watch the servers, and have someone to watch the person watching the servers and all of these things. And now you have cloud-based technology, and that brings that unit cost for the individual down. So, those types of things, as well, are going to be very important in these confined resources that we have for healthcare.

Innovative Technology and Healthcare Costs

Rena M. Conti, PhD; Brenton Fargnoli, MD; and Andrew L. Pecora, MD, CPE, describe the financial variables that should be taken into consideration when investing in information technology resources for use in hospital and community healthcare settings.
Published Online: January 27, 2017


Andrew L. Pecora, MD, CPE: The whole section we’re talking about now is the complexity—the nuances, the ownership. But change requires capital investment. There would be no drugs to give to people if there wasn’t people taking risk with capital investment. The same thing [goes] with this new information age. Google is a private company. It [was] started by venture capitalists, [and] venture capitalists have an expected rate of return in their investment. That’s how our whole system works.

How do we maintain the integrity of the patient’s right to their own information, which is absolute? Anyone disagreeing with that is crazy, but, at the same time, to have an environment where people are actually willing? Before, you said you support private industry. But private industry won’t go here, won’t make the investment if all of a sudden their trade secrets, their ability to monetize their creation and get the return on investment, evaporates. So how do we thread this needle?

Rena M. Conti, PhD: Private companies make money off of the opportunity to monetize investment. Usually, we think of monetizing their investment in a short period of time—5 years, 10 years, 20 years— if the invention is patentable. But business practices that are based on information may not enjoy the same protection that [is in place for business practices involved in] making a product, such as a pill. And that’s just the reality. So there are a lot of pathway-type programs that are getting investments and building infrastructure out right now. That’s a business practice.

We should expect those business practices to make some return on their investment, but others will enter the market and they will compete down to marginal cost. I don’t think that we’re going to see the government choosing winners and losers over pathways-type companies right now. I think that there’s a lot of move to let providers choose their own systems, but also for insurers to use their own systems. Nor should investors, insurers, or providers be thinking that their revenue stream for the next 20 years is going to be based on exploiting all the information that they have. A lot of that information is going to get old. They need investment to make it actionable, and they may not be able to exploit that revenue stream forever.

Andrew L. Pecora, MD, CPE: With all that being said, we know that most hospitals in America—not all, but most—work on an operating margin of under 2%. And we know that community oncology practices, because we’re talking about them, are now starting to approach going underwater and they’re closing their doors. This is reality. They’re closing their doors and they’re handing their keys over to the local hospitals, which are operating at a margin of 1%.

And now, money has to come in [from somewhere] to invest in all of this infrastructure to move this from fee-for-service to value. So it appears as if the logic flow is broken. There’s no ability to maintain and build on business practice margins, as you’ve articulated. And there is a growing divide based on regulation, which we didn’t bring up, between what pharmaceutical companies who have very large margins can do and can support—because they can’t do it anymore because of all of the conflicts of interest and everything else. [There’s also] the fact that the government, our national debt, is now at historic proportions. Where is this money going to come from to infuse into here if it’s not equity investment from the private market? Where’s the money going to come from?

Brenton Fargnoli, MD: So 2 things. One is the way a lot of the alternative payment models are being set up—for an upfront “per member, per month” [payment]—with the idea that a portion of that will be invested in a variety of activities required for success. So hiring more people, [making] some technology investments, training—other things like that. Albeit, as you mentioned, it’s still not a large sum and it’s coming, already, from a small pot. So what that does, secondarily, is it creates the need to provide very valuable technologies at affordable prices to the users. And so Google is a great example. Gmail—I don’t pay for my Gmail, I don’t pay for googling, but [Google is] providing a lot of value. Therefore, it is being used very widely. However, they also have alternative business models to supplement that and to provide those services at a cost that individual users can bear.

But the other piece is technologic innovation, in general—being able to bring that cost down. So previously, hospitals would have to buy servers, have a room for the servers, have someone to watch the servers, and have someone to watch the person watching the servers and all of these things. And now you have cloud-based technology, and that brings that unit cost for the individual down. So, those types of things, as well, are going to be very important in these confined resources that we have for healthcare.
View More From This Discussion
Episode 1 Defining Alternative Payment Models
Episode 2 Adapting and Paying for Value-Based Care
Episode 3 Value-Based Care and APMs in Oncology: A Payer Perspective
Episode 4 Is the Oncology Care Model Patient Centered?
Episode 5 Population Health and APMs
Episode 6 Benefits of a Medical Home Model in Oncology
Episode 7 Risk-Based Contracting in Oncology
Episode 8 Site of Service and the Challenge of Value-Based Care
Episode 9 Who Shares the Maximum Risk With Innovative Treatments in Oncology?
Episode 10 Leveraging Health IT in Cancer Care
Episode 11 Importance of Data Sharing in Healthcare
Episode 12 Innovative Technology and Healthcare Costs
Episode 13 The Balancing Act of Healthcare Costs
Episode 14 Patient Centricity of Care Delivery and Payment Models
Episode 15 Do APMs Incorporate Survivorship Care in Oncology?
Episode 16 The Future of Value-Based Care and Payment Models in Cancer Care
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