Eyeing growth in the ambulatory surgery market, Bain Capital's tech fund buys HST Pathways, Casetabs

Bain Capital Tech Opportunities, the private equity firm's tech fund, has acquired and combined two cloud-based software companies that serve the ambulatory surgery center (ASC) industry.

The investment from Bain Capital will help maximize opportunities for growth for the two software companies, HST Pathways and Casetabs, the companies said in a press release. The combination of the two companies will offer ambulatory surgery centers a flexible and secure set of technology solutions and enhanced products and services, executives said.

The combined company will be led by executives from both teams, with HST's Tom Hui serving as CEO. Casetab's existing investor Nexxus Holdings will remain as a minority investor.

Financial terms of the private transaction were not disclosed.

"Healthcare IT has been an area of success across the Bain Capital platform, particularly in the evolving ambulatory surgery center industry. Given the growth in facilities and surgical volume at ASCs, we see a unique opportunity to better scale and optimize their workflow software and operations," Darren Abrahamson, a managing director of Bain Capital Tech Opportunities told Fierce Healthcare.

"HST and Casetabs are two of the best-regarded software providers in that market and we believe there is a profound opportunity for further growth for them as a combined company," he said.

Combined, HST and Casetabs will offer a broad number of offerings, including practice management software, physician office scheduling, care coordination, revenue cycle optimization, enterprise supply chain management, patient engagement and communication, an electronic health record system and analytics.

RELATED: ASCs could get more Medicare customers, more quality requirements after CMS rule

In 2019, HST and Casetabs began bi-directional integration of their products. A revenue sharing agreement was launched in January 2020, when Casetabs’ schedule sharing application became an integrated feature of HST’s practice management software.

The number of ASC facilities has been growing consistently. ASCs performed more than half of all outpatient surgeries in 2017, up from 32% in 2005, according to Bain & Company research. The research also indicates procedures performed at ASCs will grow by an average 6% to 7% a year through 2021, up from 4% to 5% over the past three years.

Industry tailwinds are helping fuel growth in this segment. Payers and regulators are beginning to allow more surgeries to take place in ambulatory surgery centers. Last year, the Trump administration said it planned to expand traditional Medicare coverage in ASCs, with the Centers for Medicare & Medicaid Services proposing to extend Medicare coverage to ASCs for total knee replacements and several coronary procedures. The decision follows Medicare Advantage plans that frequently turn to ASCs for knee replacements.  

Some studies have shown that ASCs are a lower-cost setting than hospital outpatient departments,

The market is a unique segment within healthcare that requires industry-specific solutions, and HST and Casetab will offer a single platform to handle all aspects of ASCs' workflows and operations, according to Bain Tech Opportunities.

“ASCs are well-positioned to continue their growth trend thanks to the quality, safety, and efficiency they offer patients and physicians. HST and Casetabs are primed to fuel this progress by offering a flexible SaaS-enabled platform to help ASCs scale their businesses and deliver good patient outcomes,” Abrahamson said.

Tech Opportunities will work with the combined company to accelerate a go-to-market strategy by enhancing the sales team, instituting a cross-sale program, and reorganizing pricing and packaging. It will also help bolster tech and product talent to drive further innovation.

There are several logical tuck-in merger and acquisition targets for HST to pursue to continue expanding its product platform, potentially into patient onboarding, revenue cycle management solutions, patient pricing and insurance verification and healthcare procurement, Tech Opportunities said.

RELATED: ASCs projected to save Medicare more than $73B in next decade: analysis

Bain Capital announced last year it was raising $1 billion for a new technology fund that will be used for buyouts and late-stage minority investments, CNBC technology reporter Alex Sherman reported.

Bain Capital Tech Opportunities targets $50 million to $200 million equity investments, primarily in enterprise software and cybersecurity, according to CNBC.

The deal to acquire HST and Casetabs marks the first control investment and the first health IT transaction for Bain Tech Opportunities, according to PE Hub.

Bain Capital's investments in the healthcare services and technology sectors include backing IQVIA, Waystar, and Zelis.

HST was in the late stages of a Piper Sandler-run sales process, PE Hub reported in October.

Lafayette, California-based HST Pathways generates annual recurring revenue of $22 million and is profitable, PE Hub reported, citing sources familiar with the process. The business was previously anticipated to command a valuation in the $175 million to $200 million range, the publication reported.

Both companies have seen rapid growth. HST, the larger of the two companies, has grown to almost 800 facilities and boasts a growth rate of 154% over the past three years.

Los Angeles-based Casetabs is currently in 750 facilities, up from 196 in October 2019.