Three months after General Catalyst announced it planned to buy a health system, the venture capital firm has landed on a target: Summa Health, one of the largest integrated delivery systems in Ohio.
General Catalyst and Summa have signed a non-binding letter of intent outlining the proposed acquisition, the companies announced Wednesday.
If the deal is finalized — a big if, considering the nonprofit plans to convert to a for-profit operator, a move with significant regulatory hurdles — Summa will become part of a General Catalyst business called the Health Assurance Transformation Corporation, or HATCo, that’s run by former Intermountain CEO Marc Harrison.
The two are currently working to nail down details of the proposed deal, and plan to finalize a definitive agreement in the next several months, according to a release.
Financial terms of the deal were not released, but “HATCo’s investment in Summa Health is significant,” wrote Summa’s board of directors on the hospital’s website.
In 2022, the most recent period full-year data is available, the nonprofit brought in $1.8 billion in revenue. General Catalyst aimed to spend between $1 billion and $3 billion on a transaction, Harrison told Forbes last year.
General Catalyst’s gamble on Summa
General Catalyst sent shockwaves through the healthcare industry when the venture capital firm said in October it was shopping around for a health system.
General Catalyst already has a network of more than 20 health systems across 43 states and four countries that trials and provides feedback on technology developed by its portfolio companies. However, that network didn’t give it enough control to try new things.
The goal of the purchase is for the health system to act as a proving ground for General Catalyst to test ways to improve hospital operations and patient care, without risk aversion or cash shortfalls, management said.
Industry reaction was mixed. The general thought was that it was a fascinating idea, but the venture firm may not know what it was getting itself into. Sutter Health’s chief innovation officer Chris Waugh told Healthcare Dive General Catalyst will face “some real trial and error” in acquiring a nonprofit.
Now, General Catalyst has eyes on that nonprofit: Akron, Ohio-based Summa. The more than 130-year-old system has two acute care hospitals, one rehab hospital, a network of community medical centers and physician offices and a health insurance arm, called SummaCare.
Barring regulatory delays, Summa could become a wholly-owned subsidiary of HATCo by the end of this year, according to its board.
However, the deal could face regulatory delays. Along with antitrust agencies being more aggressive in general, nonprofits have faced notable scrutiny while transitioning to for-profit companies.
HCA Healthcare is currently being sued by North Carolina’s attorney general over degraded care quality at Mission Health, a system HCA acquired in 2019 before converting it into a for-profit operator.
Summa has pledged to maintain the medical services it currently provides. CEO Cliff Deveny promised in a statement that, with HATCo, Summa will be able to “increase local investment and introduce new resources that allow us to expand access to affordable, quality, coordinated care.”
HATCo has also pledged to keep up Summa’s community care requirements, and form a nonprofit to invest in the greater Akron region as part of the deal.
Those pledges come as regulators stare down a history of for-profit entities reneging on similar promises in the pursuit of hospital acquisitions.
In October, for example, private equity firm Prospect Medical Holdings announced it was looking for a buyer for struggling health system Crozer Health, after the Pennsylvania attorney general alleged Prospect was trying to go back on its purchase agreement and attempting to preemptively close Crozer locations.
“We understand that this may be mischaracterized as another ‘private equity’ deal,” Harrison and General Catalyst CEO Hemant Taneja wrote in a Wednesday blog post.
Harrison and Taneja promised their focus is not to take costs out of Summa, but instead transition the system to a value-based model of healthcare while providing new technology and resources.
Summa’s decision to accept HATCo’s advances is part of a larger trend of nonprofit operators looking for novel sources of funds as what once was their core source of revenue — patient volume — continues to stagnate, and the costs of providing care show no signs of slowing down.
