Bain Capital bets big on value-based care, drug development and healthcare IT

'We're looking for businesses where there's some type of inflection point, not businesses that are aiming to maintain the status quo,' says Bain Capital’s Devin O'Reilly.

Devin O’Reilly, managing director of private equity and North America head of healthcare at Bain Capital, says private investment can go a long way toward giving the industry a sorely needed tech upgrade.

“To put things in perspective, healthcare is 20 percent of gross domestic product, and tech spend in healthcare is around 6 percent,” says O’Reilly. “This is a significant mismatch, which we believe will result in continued investment in technology solutions by healthcare companies.”

As part of our ongoing series profiling private equity firms that invest in healthcare, PE Hub interviewed O’Reilly about the firm’s strategy for investing in the sector.

O’Reilly joined Bain Capital private equity in 2005. Previously, he was with Bain & Company, where he consulted for private equity and healthcare industry clients. Before that, he spent several years in the software industry in corporate development and general management roles.

“We take a very thematic approach to healthcare investing,” O’Reilly says. “Every year, we map out the six or seven themes we are going to be investing behind for the next six to 18 months. We then seek to develop relationships with, and perspectives on, companies that are relevant to those themes.”

Current themes include: value-based care; helping pharmaceutical companies accelerate the development of innovative therapeutics; and the evolution of healthcare IT, “which includes the nexus of payments and healthcare, and areas like electronic medical records and provider operations,” according to O’Reilly.

Value-based care

“Value-based care is a really interesting trend that we’re seeing manifest more, including within our portfolio in companies like Surgery Partners, where we’re developing partnerships with our physicians and payers and putting together packages that are bundling care in a very compelling manner for physicians and payers,” he said.

The firm also made an investment last year in Innovacare, a value-based care provider focused on Medicare Advantage patient population.

Pharmaceutical development

“As we saw through the pandemic, one of the enablers of rapid pharmaceutical development is better leveraging of data and analytics,” says O’Reilly. “We’ve previously helped build IQVIA by combining a clinical research organization, Quintiles, with IMS health, a pharma data and information services company. IQVIA has become a successful public company that helps pharmaceutical companies accelerate [research and development] by leveraging analytics, technology and clinical research services to develop innovative therapeutics for unmet needs faster.”

He notes that the benefit here comes from collaboration with Bain Capital Life Sciences, which the firm founded six years ago to invest in early and growth-stage biotech companies.

“BCLS is now investing its third fund, a $2 billion fund led by a team that is largely comprised of investors with deep scientific backgrounds,” he says. “Our life sciences team has a distinct ability to invest throughout the entire pharmaceutical development lifecycle – everything from Phase I to Phase III. We have done several transactions in partnership with BCLS to provide scale private equity capital to a life sciences company.”

“We’re starting to see Big Pharma consolidate their focus to a smaller number of therapeutic areas where they can have a leadership position,” he says. “That leads to interesting carveout opportunities in partnership with these large pharmaceutical companies – a good example is our partnership with Pfizer.”

Together with BCLS, the firm identified a central nervous system franchise within Pfizer that had 11 different development stage drugs. Bain proposed the carveout of this CNS portfolio to form a new neuroscience company where Pfizer could retain an interest as an investor.

“Pfizer retained a 25 percent stake, and we created a new company called Cerevel in 2018 and were able to take the company public in 2020,” says O’Reilly. “It has been phenomenally successful and really accelerated development of therapeutics to treat a variety of neurological disorders including Parkinson’s disease, schizophrenia, epilepsy and anxiety. It has been great for Pfizer, as well, because they’ve remained an investor behind the core neuro research they started many years ago, which has now resulted in a platform that has become both financially successful and delivers against unmet clinical needs.”

Healthcare IT

In 2009, meaningful use legislation was introduced that encouraged healthcare providers to adopt electronic medical record (EMR) systems.

“That was a real catalyst for innovation, and as a result, many companies sprang up during that period of time to develop associated software platforms because providers realized the power of being able to capture clinical data in an organized way to enhance clinical care and deliver healthcare more efficiently,” O’Reilly says.

One example of a recent investment in the space from Bain is Zelis, a healthcare payments company.

Devin O’Reilly, Bain Capital

“The company is helping payers figure out how to price a claim in the first place, then they digitize the payment from a payer to a provider,” says O’Reilly. “I remember sitting at a board meeting of one of our provider healthcare provider companies, and they mentioned how they process all their payments, which at the time included many paper checks. It was extraordinary to think that in the healthcare system today there are trillions of dollars of payments in the form of paper checks. Digitizing the whole effort saves tons of time, waste and inefficiency, and it helps payers and providers understand the source and detail of the payment.”

“Last year, Zelis took a step further with an acquisition to help patients better understand where they could get care, but then also understand their copay,” he says. “Similar to with BCLS, we gained a lot of insights on our Zelis investment from our partners at Bain Capital Ventures, including Matt Harris.”

O’Reilly adds that Harris said that “‘payments in the healthcare space were at an early stage relative to many other industries,’ so this is another example of how we can leverage different pockets of expertise within the Bain Capital platform.”

Another healthcare IT example is Athenahealth, which is a provider of EMR software for outpatient physician groups that Bain acquired last year.

“Athenahealth now touches about 25 percent of the US patient population, and we think the business is going to see continued growth as providers see a real benefit of adopting new technology,” says O’Reilly. “You’ll see consolidation around winners like Athenahealth because of the power of the data they can capture and analyze to help providers and payers understand key trends in care protocols and patient behavior.”

He notes that these types of platforms are also helpful to value-based care providers because they help physician groups manage clinical data, identify gaps in care, and help manage the payment landscape which is “getting even more complex in value-based care arrangements.”

“We’re also finding opportunities to back companies that help hospitals and health systems run more efficiently, leverage their assets, and build better supply chains,” says O’Reilly.

The firm invested last year in a company called PartsSource, which is a B2B marketplace and SaaS software solution to help hospitals source replacement parts for medical devices.

“For example, if a part of a radiology machine goes down, traditionally, hospitals would need to scramble around to find a replacement part,” he explains. “PartsSource runs a marketplace to help the health technology management group within a hospital system source that replacement part, which may come from the OEM, a generic provider, or a provider of refurbished parts. This is a huge saver of time and expense, but more importantly, reduces the downtime. When a radiology machine goes down, fixing it could take hours or days, and patient access is restricted, and care can’t be provided during this downtime.”

The company recently expanded, as it now offers technician repair services for these critical parts and systems.

Bain is also looking at other healthcare IT investment opportunities to help providers optimize their labor force, which is really “the backbone of healthcare across the country.”

“Nurses, LPMs, clinicians, and technicians are really talented healthcare workers who have lots of opportunities and places they can work,” he says. “We’re looking at a variety of companies that help credential, train, recruit, and manage this talented workforce.”

Hold on

“We have a longer-term orientation than many of our peers with an average hold period over six years,” says O’Reilly. “This is because we’re looking for businesses where there’s some type of inflection point, not businesses that are aiming to maintain the status quo.”

Bain is “not in the market to quickly flip businesses.”

“We are looking to partner with companies and accelerate their growth journeys at points of inflection. Our hold periods tend to be longer, and we’re very patient in that regard,” says O’Reilly.

The firm keeps its options open on exits, selling to other sponsors and strategics, as appropriate, and often going the public route.

“We’re really proud of our IPO track record,” he says. “We’ve generated that kind of reputation and trust with public market investors that we’re not in the business of merely optimizing performance during our hold period. We’re in the business of building companies that are going to be great for decades.”

Firm facts

Founded in 1984, Bain Capital is a private investment firm based in Boston, specializing in private equity, venture capital, credit, public equity, impact investing, life sciences and real estate. The firm currently has an AUM of $160 billion.

Recent exits

Bain Capital partially exited Cerevel in 2020 after an initial investment in 2018. The company went public and debuted on the Nasdaq, with the PE firm continuing to hold a stake in the company that treats neuroscience diseases.

Bain partially exited Waystar in 2019 after an initial investment in 2017, as the firm sold a majority stake of Waystar to the Canada Pension Plan Investment Board. The firm retained a minority stake in the provider of revenue cycle management software for healthcare systems and providers.

Bain exited Beacon Health Options in 2019 after an initial investment in 2015. The behavioral health company went public.

Recent investments

Earlier in 2022, Bain acquired a majority stake in LeanTaaS Holdings, a provider of software for optimizing hospital operations and capacity management.

In 2021, Bain partnered alongside Vivo Capital to invest in Avistone; Bain partnered with Hellman & Friedman to acquire Athenahealth; Bain also acquired InnovaCare Health and PartsSource, as well as making a $300 million investment in Cardurion. (See below for more information.)

Bain’s healthcare portfolio highlights

(Dates refer to initial investments)

Athenahealth: A provider of cloud-based enterprise software solutions for medical groups and health systems nationwide, partnered with Hellman & Friedman to acquire the company. (November 2021)

Aveanna Health: A diversified home care platform focused on providing care to medically complex, high-cost patient populations. (March 2017)

Avistone: A clinical-stage biotechnology company focused on precision oncology therapeutics, partnered alongside Vivo Capital for the investment. (December 2021)

Cardurion: A clinical-stage biotechnology company focused on the discovery and development of novel, next-generation therapeutics for the treatment of heart failure and other cardiovascular diseases. (October 2021)

InnovaCare Health: A regional, integrated and value-based healthcare services. (November 2021)

IQVIA: A global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry. (Dec. 2007)

LeanTaas: A provider of cloud software solutions for optimizing hospital operations and capacity management. (June 2022)

Surgery Partners: A healthcare services company with a differentiated outpatient delivery model focused on providing high-quality, cost-effective solutions for surgical and related ancillary care in support of both patients and physicians. (Aug. 2017)

PartsSource: A online marketplace for medical equipment maintenance parts and services. (July 2021)

US Renal Care: A leading provider of dialysis services for patients suffering from end-stage renal disease. (February 2019)

Zelis: A healthcare and financial technology growth company and provider of claims cost management and payment optimization solutions. (July 2019)