Darren Black is a Managing Director at Summit Partners and focuses primarily on the healthcare & life sciences sector. His current board directorships include InnovaCare Partners, Leon Medical Centers, LifeStance Health (NASDAQ: LFST) and Paradigm Outcomes, among others. Prior to Summit, Darren was a Managing Partner with SV Life Sciences. He also co-founded two companies – ClinCare and PharmaStar. Darren holds an AB in government from Harvard College and an MBA from the Wharton School of the University of Pennsylvania.

Summit Partners was founded in 1984 with a commitment to find and partner with exceptional entrepreneurs and help them accelerate their growth and achieve dramatic results. Over the course of nearly four decades, Summit has invested in more than 550 companies in technology, healthcare, life sciences and other growth industries. These companies have completed more than 175 public equity offerings, and more than 200 have been acquired through strategic mergers and sales. Summit is currently managing more than $35 billion in capital dedicated to growth equity, fixed income and public equity opportunities, and has a team of more than 100 investment professionals worldwide.

The Pulse: Can you share how you got into the healthcare field and what kept you here?

Darren Black: I’ve been in the healthcare industry my entire career. I started as a consultant at Accenture in healthcare strategy back in the mid-1990s, after I graduated college. I’ve been an entrepreneur for a period of time, involved in starting a few businesses. I’ve spent the past 20 years investing in healthcare services and healthcare technology. What keeps me in this business is the opportunity to positively impact the industry. I’m fortunate to be part of this incredible business with leaders who want to change the dynamics in the healthcare industry and try to bring enhanced care to consumers, further the efficiency of physicians, and improve access, quality, and cost of healthcare services. I feel grateful to have a front seat to the exciting changes in the industry in the past 30 years and continue to drive the industry forward today.

The Pulse: You’ve worn many hats in healthcare. Do you view the industry differently in those positions?

DB: I’ve worked in different areas of the healthcare industry as a consultant, an operator, and an investor, but have always believed that your role should be driven by your skillset and by where you want to interact with the healthcare ecosystem. When I think about the healthcare industry, I think about it less in terms of function and more in terms of different industry segments or perspectives. I’ve always liked the care delivery perspective – payer, provider, technology, etc. Over time, I’ve built a deep understanding of and an interest in investing in this segment by working with entrepreneurs and picking companies. I try to work alongside those businesses to help provide the best environment to serve the patients, make the right choices, and/or reduce the overall expense of care delivery.

The Pulse: How do you think the healthcare trends are changing as we come out of the pandemic?

DB: COVID created many discontinuous changes in the healthcare industry. Everyone had to figure out what could be done virtually. Nationwide, we had a surge in demand for mental health services but, luckily, those services were already offered virtually. Other specialties had to transition to a virtual delivery model nearly overnight. I think the industry is now starting to settle back down and figure out what should truly remain in the virtual realm, and what should go back to being done in-person first.

Up until recently, we saw a lot of capital pouring into businesses that had proven revenue growth but were not driving profitability in ways that were sustainable over time. We’ve already observed this trend changing, as the current economic climate necessitates a move to profitable growth, a notion that has long underpinned our investment strategy at Summit Partners. As we emerge from this period and this shift continues, businesses – especially those formed during COVID – will need to find new ways to engage with consumers and demonstrate positive cash flows. A company’s ability to do this successfully will determine whether some of the changes driven by COVID are truly sustainable in the healthcare system or if they were built only to serve the short term.

Against this backdrop, an even bigger trend is impacting the industry today: the provider shortage. The healthcare industry is, obviously, still heavily dependent on specialized labor, and that labor is both scarce and finite. During COVID, many clinicians slept in rooms separate from their families to protect their loved ones. They went into the hospital each day, aware of the significant risks to their health. They worked even longer hours to address the healthcare needs of patients. All these factors have led to clinician burnouts. Many providers chose to fully retire; many more opted to take time away from a clinical care environment. We’re seeing the effect of that now with a shortage of labor coming out of COVID, and you can’t offset that labor shortage with technology very easily. This situation is worsened by the significant wage inflation we’re seeing today, which exceeds the rate of insurance payment increase. In the current economic environment, employers are starting to tighten up on spending and looking to reduce healthcare costs. As a response, we focus on trends that help reduce the overall cost of care and improve the efficiency of providers.

The Pulse: Both of my parents are doctors, so I’ve heard firsthand about the burnout. How do you think the health system can address this challenge?

DB: That’s a good question. I don’t know if there’s a singular response to this challenge, but there are three trends I would point to. First, there’s an increased desire by clinicians to be employed, whereas I suspect that when your parents were coming into the medical field, they positioned themselves as the world’s best entrepreneurs by first starting to run their own practices. Over time, more clinicians are becoming employed by hospitals, larger practice entities, or payers, which helps to reduce their administrative burden.

The second trend we’re seeing are a growing number of platform consolidations supported by private equity sponsors, particularly across the dermatology, oncology, cardiology, and primary care fields. As groups have come together and providers have chosen to join larger practices, they now have the volume to justify additional investment in resources, such as imaging or lab operations. Those consolidations can also take pressure off practitioners / practice owners, especially given what appeared to be a YoY decrease in revenues industry-wide due to insurance payments, and allow physicians to make better use of their time, see more patients, and focus less on administrative tasks.

I think the biggest move that we’re experiencing in different parts of the country is the shift from fee-for-service to fee-for-value. Fee-for-service has physicians getting paid on a piecemeal basis, but fee-for-value really empowers clinicians to act in the best interest of their patients, which is genuinely working to keep the patient out of the hospital. It’s better for everyone, right? It reduces cost for the payer, provides better care for the patient, gives more control to the clinician, and better serves the overall health system, because you end up with less use of the most expensive resources in healthcare.

The Pulse: The last trend ties back nicely to the conference theme this year, “The Empowered Healthcare Consumer.” What role does the consumer play in your investment decision? Once you’re on the board of those companies, how do you address the needs of the consumer?

DB: The most listened to and engaged consumers in this country are the Medicare and Medicare Advantage beneficiaries. That may sound a bit counterintuitive. I suspect other folks might ask – why not the young population of Gen Z, who are engaging with technology and health systems in new ways? Well, I’ve invested in four Medicare Advantage plan businesses, and, in each of them, the seniors (the 65 and older demographic) are knowledgeable and engaged advocates in their own healthcare. They understand their benefits and costs extraordinarily well. They know which clinicians and which provider groups are of higher quality than others based on a rating system from one to five stars. These are people who’ve come in, asked questions to the sales representatives, and made decisions on their own every year. In fact, the dual eligibles get to make decisions almost on an ongoing, regular basis. In contrast, if you’re employed, you can only choose from a limited number of plans your employers picked. Because of the demographics of this Medicare consumer group, these consumers have the time, energy, and incentives to engage in the selection of their plans, their providers, and how they use the healthcare system.

The Pulse: Thank you for your time interviewing with us. Do you have any closing remarks?

DB: I was heavily involved in the WHCBC during my time at Wharton and it’s great to see it continue to deliver a positive impact to the Wharton healthcare community and beyond.

Interviewed by Yuntian Han, December 2022.

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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.