The Vistria Group: What’s hot in healthcare

Home and community-based care, behavioural care and speciality pharma offer fresh opportunities for healthcare investors, say The Vistria Group’s co-heads of healthcare Jon Maschmeyer, Amy Christensen and David Schuppan.

This article is sponsored by The Vistria Group.

What are some of the macro themes driving healthcare investment today?

Jon Maschmeyer, The Vistria Group

Jon Maschmeyer: One important theme is the transition to value, where quality, service and outcomes are all rewarded. Healthcare has traditionally been a market with a lot of inefficiencies, but increases in cost have led to a focus on value and that drives a lot of what we do. Technology, of course, is another factor that affects all our businesses in different ways. We have tried to embrace new technology and use it as a differentiator and competitive advantage.

David Schuppan: Socio-demographics also can’t be underappreciated – good, old-fashioned demand. We are all a little older, a little more chronic and all looking at the whole person more comprehensively, including behavioural and socioeconomic considerations. As we move from fee-per-service to performance-based reimbursement, that is creating enormous opportunity to drive value. Tech innovation, personalised medicine and data connectivity are making it possible to provide quality care at a lower cost.

What is driving opportunities in the field of home and community-based care?

David Schuppan, The Vistria Group

DS: Home and community-based care populations tend to be complex, with polychronic conditions as well as socioeconomic needs. They require long-term care and the aim within these sectors is for that care to be provided in the home or community, as opposed to an institutional setting. Demand for these services is increasing given the age, income and health profile of the individuals involved.

This aligns with our mission and impact-orientation at The Vistria Group. These populations tend to fall between the cracks of the various funding sources and can often consume healthcare more significantly, ineffectively and inefficiently, so there is tremendous opportunity to better co-ordinate care and improve quality of life, while creating value for the healthcare system. Reimbursement in the US has evolved to offer integrated care incentives. That is accelerating a lot of innovation, consolidation and professionalisation.

What are some of the investments you have made in this space?

DS: We have six companies that fall into this category, but I will focus on three that best represent the themes I have discussed.

Sevita is the largest provider of home and community-based services (HCBS) to complex individuals – people with developmental disabilities and acquired brain injury, as well as the elderly. The company helps those individuals remain in their homes. The goal is to do more for those we care for, which not only provides great organic growth but also helps our clients use services in a more co-ordinated, cost-effective manner. As value is generated from that co-ordination over time, Sevita hopes to participate in the associated savings.

Another company is Help at Home, the largest provider of HCBS to the frail and elderly. The model here is very similar. The company builds meaningful, long-term relationships with its clients, supporting them clinically and from a care co-ordination perspective.

Finally, we’ve invested in a company called HomeFree Pharmacy Services, which provides long-term integrated pharmacy services to polychronic individuals in home and community settings.

All these investments help us treat people in the home, where they want to be, instead of an institutional setting. This is done in a way that can yield better patient outcomes and quality of life, along with a lower cost of care delivery.

What are some of the challenges associated with investment in this sector?

DS: The patient population tends to be harder to reach given the socioeconomic context and the fact they are in their homes. Bringing different funding sources together is also challenging and something we seek to overcome with demonstration programmes or through privately negotiated opportunities that companies of scale can obtain. Another challenge is that these are labour-intensive businesses that are typically not technologically or operationally advanced. These are areas we seek to change. Lastly, there are not many sizeable platforms, so we are focused on building more capacity for these value-driving services over time.

What excites Vistria about the behavioural health sector?

Amy Christensen, The Vistria Group

Amy Christensen: We believe there is huge need for people to access high-quality behavioural and mental health services. That need has been exacerbated by the pandemic, which sparked a national conversation around mental health, removing stigma and encouraging more people to seek treatment. There has also been a big change in how we pay for mental and behavioural health. It started with some key pieces of legislation and has led to employers and health insurers recognising the value of providing treatment and increasing reimbursement accordingly. Finally, this too is a highly fragmented industry and we believe there is an opportunity to back good platforms that can help professionalise the industry and, ultimately, improve access to high-quality care.

What experiences have you had investing in the sector so far?

AC: We are focusing on several areas where we see the most pressing need, including the opioid epidemic. We have invested in Behavioral Health Group, which is using a combination of medication and therapy to treat patients suffering from opioid use disorder. The treatment is delivered in an outpatient setting, which allows people to stay in their homes with their families and keep their jobs, achieving better outcomes at a fraction of the cost.

We are also focusing on severe mental illness, including through investment in Beacon Specialized Living, which provides care co-ordination, housing and support services for patients with severe mental illness. Historically, these patients would be placed in institutional psychiatric facilities or persistently turn up in emergency rooms. But over time, it has been recognised that these illnesses are best managed in a home setting, allowing patients and their families to manage very complex conditions in a holistic way and leading to better outcomes and lower costs.

Thirdly, we are planning to invest in behavioural and mental health services for adolescents. This group was severely impacted by the pandemic but was struggling before that, trying to navigate through a social media-driven culture, alongside all the other pressures that young people are feeling so greatly. We want to invest in solutions tailored to kids’ unique needs.

What are the challenges that this sector presents?

AC: We’re focused on recruiting and retaining phenomenal employees and caregivers, but there are a limited number of people trained to deliver the care needed. We are committed to addressing these long-term labour dynamics through our education investments. In the interim, we leverage learnings across the portfolio and work hard with our companies to ensure they are great employers that great caregivers want to work for.

What does the future hold for private equity investment in this sector in a post-pandemic and high-inflation world?

AC: It will continue to be critical for us and others in our industry to demonstrate that we are moving the needle on impact. With every investment, we are committed to scaling access, quality and outcomes, and we are determined to demonstrate that with data. We believe we can responsibly leverage private capital to scale some of the key solutions to public sector challenges and we need to work to prove the value we are adding with this approach.

From an inflationary perspective, healthcare is relatively insulated. However, one challenge we are all facing coming out of the pandemic is the new labour market dynamic – we changed how and where we work, which has real implications for recruitment and retention. Our hope is we collectively find creative solutions that make our workforce better in the future.

DS: I believe the future for healthcare is robust. The themes driving our investment strategies are persistent and we see lots of opportunity to keep running our playbook. Meanwhile, societal need continues to align with our impact strategy, where we aim to create a winning formula for all constituents by viewing investments through both a quality and value lens.

Speciality pharma is another of The Vistria Group’s core healthcare themes. How is this sector evolving, and what investments have you made so far?

JM: The best companies in this space are providing high-quality services to create a model that provides value to all constituents. Patients receive better, faster care, which is valued by pharmaceutical customers and the payors providing reimbursement. Chronic conditions can be managed through a combination of medications and services, which lowers total cost. The best companies create a “triple win” and a positive impact for all.

We are seeing a persistent wave of research and development in this area, driven by technology advances and regulatory incentivisation. This is leading to the development of life-changing or curative drugs targeting smaller patient populations. The pace of development has created unmet service needs as pharmaceutical companies evolve from one-size-fits-all brand name drugs toward drugs that require special delivery and handling, education, and administration. We have been investing in businesses that help fill these evolving and demanding service needs.

The first investment we made was in CareMetx, a company that helps patients access speciality therapies using technology to make the process faster and more efficient.

BioCare is another investment that approaches the same theme from a slightly different direction. It delivers medications that require speciality handling to where they are needed – mostly the infusion suite or hospital.

We have also invested in PantherX Rare, a speciality pharmacy. Panther fulfills prescriptions for the types of medications that cannot be obtained from the corner drug store. It will often become a partner to the patient for life and specialises in the rarest diseases.

What are some of the challenges that this sector presents?

JM: We are often up against larger and very well-capitalised players. Winning and retaining customers can be challenging as a smaller, more disruptive business. Establishing credibility is important and we need to deliver on what we promise.

We overcome these challenges through careful strategy, good execution and by surrounding our companies with tools to help them grow. These include experienced executives, strategic relationships and battle-tested operational playbooks. As our portfolio grows, we also create opportunities for our companies to collaborate and help each other, recognising the synergies in the market.