Editor's note: This story has been updated with additional details and comments from General Catalyst.
Venture capital firm General Catalyst is making good on its October promise to purchase a health system with about eight months left to spare.
In a Wednesday morning blog post and press release, General Catalyst announced that Health Assurance Transformation Corp. (HATCo) — its recently launched company focused on the health system space — has signed a non-binding letter of intent to acquire Akron, Ohio-based Summa Health.
Under the terms of their agreement, Summa Health would become a wholly owned subsidiary of HATCo and effectively end its longtime nonprofit status.
“HATCo is grounded in the belief that by making health systems more profitable, vibrant and innovative, they will be better equipped to serve everyone in their communities with greater impact. We are thrilled to partner with Summa Health to bring this vision to life,” Marc Harrison, M.D., co-founder and CEO of HATCo, said in the announcement. “The current national healthcare system is fragmented and creates barriers to care and wellness. In partnership with Summa Health, we intend to prove that a model that’s better for patients can also be good for business and create a blueprint for other systems and communities.”
HATCo and Summa Health are now in a period of due diligence, but “anticipate finalizing a definitive agreement in the next several months,” according to the release. A General Catalyst spokesperson told Fierce Healthcare that the organizations expect their deal to close before the end of 2024, though it will require regulatory approvals.
The spokesperson declined to share terms of the deal during the due diligence period.
Summa Health is among Ohio’s largest integrated healthcare delivery systems. It spans two acute care hospital campuses, 15 community medical centers, a rehab hospital, a health insurance arm, a multi-specialty group practice and a research and medical education program. It employs more than 8,000 people, according to its website.
“This new structure will better serve our communities clinically, economically and socially,” Cliff Deveny, M.D., Summa Health President and CEO, said in the announcement. “With HATCo, Summa Health will be able to increase local investment and introduce new resources that allow us to expand access to affordable, quality, coordinated care.”
The venture capital firm’s announcements placed the focus on near-term technology innovation and patient benefit, which it said will pave the way for “sustainable, long-term transformation” to value-based care and new revenue streams.
A blog post penned by Harrison and General Catalyst CEO and Managing Director Hemant Taneja sought to address concerns that the purchase “may be mischaracterized as another ‘private equity’ deal” similar to those that have generated critical media reports and policymaker scrutiny.
HATCo and Summa Health “are operating over longer time horizons,” meaning that the purchase “is not a quick flip but a long-term commitment to transformation that benefits the community,” they wrote. The firms’ focus “isn’t on taking costs out,” but rather on introducing innovations to the health system such as “modern, tech-enabled healthcare delivery platforms at scale, across all points of care,” according to the blog.
It's an opportunity to bring innovation in while focusing on taking costs out," Taneja told Fierce Healthcare. "We believe there's an opportunity to create a blueprint for the rest of the country to create a more proactive, affordable and equitable system of care which is at the core of General Catalyst's Health Assurance strategy."
Though Summa Health is set to become a for-profit, General Catalyst said that HATCo would continue the system’s existing charity care commitment (which in 2022 came as $210 million in community benefit). The transaction as it stands will create a community foundation that will focus investment into social determinants of health among residents of the Greater Akron area, which will be funded using the transaction's upfront capital.
Summa Health and its subsidiaries reported almost $1.8 billion in total revenues, gains and other support across 2022 and an operating loss of $39 million, according to financial documents. Across the first nine months of 2023, it has reported a $37 million operating loss (about $16 million worse than the period a year prior).
In 2019 the health system had kicked off plans to merge with Michigan’s Beaumont Health (now Corewell Health), though that arrangement fell through in 2020.
The General Catalyst spokesperson said that Summa Health's current leadership team, including Deveny, are slated to stay in place.
"Summa Health will also retain its headquarters and 8,500 employees," the representative said. "We do not anticipate reductions in workforce. The plan is to grow."
In a statement addressed to its community, Summa Health affirmed that the system "will continue to be led by Dr. Cliff Deveny and the new Summa Health Board of Directors will continue to have local community representation." The system reiterated the commitments to long-term financial sustainability and community benefit, and said that it would continue to provide "the same essential services it currently offers, with a focus on continued growth and enhanced access to care."
An FAQ from the system stressed that it is "in sound financial standing" but recognizes that "pressures like rising supply costs and ongoing changes in reimbursement will continue to negatively impact our bottom line and ability to serve patients and staff. In our current structure, we will have limited ability to continue investing in the growth and improvements our community deserves and needs."
Summa Health also said it expects no changes to insurance accepted across its facilities due to the deal, that it plans to keep its branding and "is committed to continued investment" in its existing employees and providers.
"Although we understand the concerns about being backed by venture capital, we believe that in HATCo, we have found a truly strategic partner that is committed to our model and the culture that has driven Summa Health’s success," it wrote in the FAQ.
General Catalyst launched HATCo back in October as an entity that would focus on helping partner health systems shift to value-based care, adopt digital health technologies, improve financial sustainability and align stakeholders, including payers, investors and government.
Alongside its headline-grabbing promise to acquire a health system within the next 12 months, HATCo said it would access the expertise of General Catalyst’s 20-plus health system partners as part of a “health assurance network” that would share best practices and a “transformation playbook” for providers. The company also planned to tap into the digital health and health tech companies in General Catalyst’s portfolio to fuel transformation within its health system partners.