Health Care

Bain Capital nabs majority stake in InnovaCare

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Bain Capital Private Equity invested an undisclosed sum in InnovaCare Health on Friday, making the private equity powerhouse a majority owner of the value-based primary care provider group.

The new investment ousts Summit Partners from its majority stake in the 23-year-old system. InnovaCare will continue to be led by CEO Dr. Richard Shinto and the current management team, who will also retain significant ownership in the business. The company’s primary care provider network currently treats more than 250,000 patients annually, including 27,000 Medicare Advantage members.

Bain’s cash infusion will help InnovaCare scale its primary care business nationally and compete with the likes of UnitedHealth Group’s Optum, Cano Health and VillageMD, Shinto said. The 30-clinic practice aims to grow nationwide beyond Florida, potentially tripling its footprint over the next few years, Shinto said. The company also aims to double its provider headcount to more than 200 clinicians within six months a year, he said.

“We have multiple opportunities already, we’re working through our pipeline of getting into other states, large provider groups that are out there that really want to understand how to do risk-based, value-based medicine differently,” Shinto said.

Unlike these competitors, however, InnovaCare will focus on transitioning fee-for-service physician practices that serve all types of patient populations into full-risk arrangements, Shinto said. Although the company’s “core focus” on the lucrative and growing Medicare Advantage population will inform its geographic growth, InnovaCare’s ability to transition providers who serve a mix of commercial, Medicaid, exchange and Medicare businesses into risk-based entities will sweeten its value proposition to providers, Shinto said.

By outfitting providers with tech to better capture safety and quality data under the Healthcare Effectiveness Data and Information Set and Medicare STARS programs, InnovaCare aims to increase their reimbursement from the government, Shinto said.

“We’re saying to them, ‘I know you have Medicaid, I know you have commercial, I know you have fee-for-service, we’re going to help you manage your practice across the board,'” Shinto said. “If you only have tools for MA, you’re going to lop them out of other opportunities.”

In addition to competing with startup clinic operators, InnovaCare will compete with a new class of physician enablement tech companies like Privia Health and Agilon Health that also aim to enroll fee-for-service providers in value-based contracts.

“InnovaCare is among a very select set of organizations that help the ecosystem deliver value-based care,” said Andrew Kaplan, a principal in Bain’s healthcare vertical. “There will be multiple winners. Our focus is on how you port from fee-for-service to value-based care, and that macrotrend, as opposed to any individual competitor.”

The deal builds on the rising tide of private equity deals in healthcare, which spiked in 2020 even as total private equity activity fell. Globally, healthcare private equity deal volume increased by 21% year-over-year to 380 deals last year, compared with 313 in 2019, according to a Bain & Co. report released earlier this year.

Bain, whose co-founder is Utah Republican Senator Mitt Romney, has been driving some of the growth.

The private equity behemoth has, or has held, investments in everything from mental health management to dialysis centers to methadone clinics. The firm’s cash infusion comes just a week after a separate investment arm of Bain dropped $150 million to launch a new health insurance brokerage committed to the Medicare Advantage market, named Enhance Health.

As the company’s reach in healthcare has grown, Bain learned from its past investments and industry fiascos, like the wave of investor-owned physician management companies that went bankrupt after their private equity owners exited in the 1990s, Kaplan said. Today’s environment and deals are different from this era thanks to new resources, technology and an ecosystem committed to growth in value-based care, he said.

“We enter this opportunity knowing the history but excited about the future because of the inflection that’s occurred in the industry,” Kaplan said.

Private equity’s push into healthcare has attracted its share of critics however, including those of Bain, who argue that firms’ need to achieve high returns over a relatively short period of time may conflict with the need for investments in quality and safety measures.

After Bain Capital partnered with J.H. Whitney Capital Partners LLC to manage children’s at-home nursing provider Aveanna Healthcare LLC, for example, a Bloomberg News investigation found a focus on corporate growth and cost-cutting over safety and quality led to the injury and death of some of the children entrusted in Aveanna’s care.

“If you think about any businesses, there’s the revenues, and there’s the cost, but the most important part of that is the ability to audit everything,” Shinto said. “The compliance set up by the state, by the feds, by each of the companies individually, has really, really put a lot of control and oversight in that, and that’s a good thing for healthcare because our goal is to take care of patients in the right way. Having those oversights has made a big difference.”

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