Chris Gordon joined Bain Capital in 1997. Bain Capital is one of the world’s leading alternative investment firms, with more than 1,200 employees and managing approximately $155 billion in assets. Chris is a Partner, Co-Head of Bain Capital’s North America Private Equity business and Global Head of the Healthcare Vertical. Since joining the firm, he has been actively involved in and served on the Board of Directors for a wide spectrum of prominent healthcare companies in which Bain Capital has made investments. Chris received an A.B. in Economics from Harvard College, graduating magna cum laude, and an M.B.A. from Harvard Business School where he was a Baker Scholar.

The Pulse: I’d love to first hear more about your background, and how you entered the healthcare space.

Chris Gordon: I’m a Partner at Bain Capital, and I’ve worked here for just over 25 years. When I originally came to Bain Capital back in 1997, I worked in various industry sectors, as we were structured as generalists at the time. Because of the first few deals I worked on and mentors I formed relationships with, I ended up doing a fair bit in the healthcare space in my first couple of years. I found healthcare interesting yet complicated, as I had to go up the learning curve around dynamics like regulation, payment systems, technology evolution and clinical practices. That complexity also meant there was real value in specialization, so even though we were still structured as generalists, I decided to focus on healthcare. About a decade later, Bain Capital shifted its organization to industry verticals, and I started leading the healthcare team – effectively I had accidentally found my way to specialization a little bit earlier than most others, but now our entire approach is built around this type of industry expertise. So, I’ve really spent the last 25 years investing in the healthcare space across a variety of different sub-sectors that I’m happy to share more on later.

The Pulse: Can you share more about how you determine where to invest in the healthcare space?

CG: As you think about where you want to spend time and where you want to invest, it’s helpful to have invested across the spectrum to understand how the dynamics intertwine with each other. Historically, we’ve made many investments in the service sector – hospitals, post-acute and home care, behavioral health, emergency services, and payer services. We’ve also been active in healthcare IT, MedTech, pharma, and biotech. Seeing how all those pieces fit together points you in a direction to build an interesting thesis.

We’re always trying to figure out how to be on the right side of the future of healthcare, because often you see companies make short-term profits within the system in a way that isn’t going to be long-term sustainable, especially with various payer strategies and government pay programs. We’ve shied away consistently from these types of investments and focused on the right way to deliver healthcare, create better patient outcomes, and improve system efficiency. Because we are backing companies that operate in the right way and bring value to the system, I don’t need to worry as much about precisely how payers and regulators will evolve, as long as they remain focused on efficiently and effectively delivering great patient outcomes.

The Pulse: What are healthcare trends that have impacted your recent investment theses?

CG: There has been excitement about population management and population-based care. Broadly, we like this thesis, but many of its pieces aren’t as interesting as others. The part we appreciate the most are organizations or programs that focus on intensive care for high-risk, high-cost populations. Those companies deliver interventions and outcomes to sick populations who not only drive large costs but benefit the most from higher levels of care.

Healthcare IT is another theme, and currently, it’s the biggest part of our healthcare portfolio. This hasn’t always been true, given the fragmented industry has historically made it hard to coalesce around a consistent technology platform. This dynamic was exacerbated by the legislation in the 2012 financial crisis because it provided incentives for hospitals and physicians to invest in electronic medical records, but the technology companies weren’t ready to accommodate all that demand. Providers ended up onboarding whatever technology solutions seemed to be the best at that time. Some of those have worked well but a lot haven’t, making it even tougher to invest with no clear winners but lots of capital. As time went by, all those initial tech investments that healthcare providers made were getting ready to transition to the next phase of technology evolution. There was not as much pressure to rush into anything so providers could focus on what the best technology was. Therefore, we’ve invested behind these technology winners over the past 5-6 years and helped consolidate this fragmented part of healthcare IT.

The last theme I’ll mention is biotech innovation. I use biotech here loosely to include life sciences tools and broader biopharma platforms. I think that we’re still in the early stage of a huge wave of technology advancement within biotech. In the last 10 to 20 years, computing power has been catching up with biology, allowing for a new wave of breakthroughs in pharmaceuticals. It takes a long time, though, to commercialize the lab innovation, and that’s why I believe we’re still in the early innings of investing in personalized medicine and targeted therapeutics. This trend will benefit the whole human population tremendously over the coming decades, but it will also take large investments to make the innovation happen and a deep understanding of the relevant science to successfully invest behind it. Therefore, Bain Capital built out a dedicated Life Sciences team that consists of subject experts and commercial and investing professionals to invest in that space at scale in a way that others in the investing world aren’t really doing.

The Pulse: How do you feel the role of the health care consumer has evolved lately?

CG: I would broaden my answer beyond the last couple of years because I think there’s been an important longer-term evolution. If you rewind 15 years or so, people had little economic incentive to behave in one way versus another in healthcare choices because they didn’t have much responsibility in terms of copays, and the concept of deductibles didn’t really exist. People would basically consume healthcare within the rules set up by any given payer program.

Consumer incentives started to ramp up around 2006-2007 when payers began to introduce different structures to generally incentivize consumers to think about their wallets as they decide what healthcare to consume, like tiered formularies from PBMs (Pharmacy Benefit Managers), where, for example, you might have a $40 copay if you’re using a branded drug, but only a $5 or even zero copay for using a generic drug. Other examples are in- versus out-of-network providers and high deductible plans. This structure might seem to be anti-consumer, but employers often handled it by providing a set of health plan choices. Patients were actually okay with this approach and generally understood the tradeoffs. The result has been consumers playing a much more active role in when and how they’re going to consume healthcare.

The Pulse: Is there a specific subgroup that has experienced the consumer trend more than the others? For example, the Medicare population has seen a lot of policy changes.

CG: I think you named a good one. The over-65 population consumes a lot more healthcare than everybody else, so they have more reasons to care. We think about this group a lot in our investing, not just because of the large spending but because of the way the market is set up with Medicare Fee-For-Service (FFS) and Medicare Advantage. Anyone can opt into Medicare FFS, but almost anywhere you live right now, there are payers offering you at least one type of Medicare Advantage plan. Medicare Advantage is a very competitive market. Providers have found that they can reduce cost by managing care delivery around different healthcare services, and by having a physician and hospital network with whom they negotiate rates. This cost reduction allows the plans to offer additional member benefits, like free dental or free optical care, while still managing to make a reasonable margin. This program has been a real win-win for the payers, consumers, and the government, because it does lower system cost and consumers have generally been quite satisfied with these plans.

You now see many different primary care physician models that take on that risk from the payer. The providers go to a Managed Care or a Medicare Advantage payer and suggest, if you give me 85 cents of that dollar from the government, I’ll take the risk for all care delivered, and I believe that I can manage it closely enough to deliver great care and make a small margin on those 85 cents. This model can work because the primary care physician group is best positioned to efficiently deliver great patient outcomes, given that people who see their primary care providers more will generally experience reduced need for hospitalization and specialty care.

The Pulse: I’ve noticed you made a secondary investment in InnovaCare. What do you think of the future of secondary investing versus primary?

CG: To me, it doesn’t really matter which source an investment came from – whether it is secondary from another private equity firm or primary from a founder or a carveout. It’s much more important that we have a thesis of what we’re going to do with the business. If you look at InnovaCare, Summit was already an owner of the company. It was largely a local business in Florida, and our goal is to expand it into a national platform, both through organic growth and other acquisitions.  Now we’re pursuing that objective in partnership with the management team and Summit who remains as an investor.

The Pulse: Thank you for interviewing with us. Do you have any last remarks?

CG: I think this was a great discussion. We covered a lot of ground, and I could go on for hours on this topic, but I appreciate the opportunity to do this.

Interviewed by Yuntian Han, December 2022.

—

On Feb 16-17, 2023, Wharton is excited to feature more expert perspectives at our annual Wharton Health Care Business Conference. This year’s theme is ‘The Empowered Health Care Consumer’. Conference details and tickets are available here.