General Catalyst’s HATCo to buy Summa Health for $485M

General Catalyst’s Health Transformation Company has signed a definitive agreement to buy Summa Health for $485 million, the organizations said Thursday.

The purchase price combined with Summa’s current cash will allow the Akron, Ohio-based health system to pay off its debt, which is around $850 million. With the leftover money, Summa Health CEO Dr. Cliff Deveny said the company will launch a separately governed community foundation to support healthcare in the surrounding region.

Related: General Catalyst to invest $1B into healthcare companies

General Catalyst’s HATCo announced its intent to acquire Summa Health in January, three months after the portfolio company was launched at HLTH 2023.

HATCo committed $350 million for the first five years of the deal to upgrade Summa's technology and infrastructure and an additional $200 million over the first seven years for strategic investments. The investment is needed to help Summa maintain its services, Deveny said.

“We’ve been in a position where we haven’t had to cut services, as of today, [but] when looking at the economics of healthcare today and what's happening, it's a very tough situation,” Deveny said. “I'm excited to move forward and to see where this can go.”

Regulatory approval from Ohio’s attorney general and insurance department is still required, and Summa also submitted the proposed transaction to the Federal Trade Commission. Deveny did not have a timeline for when regulatory approval might happen.

The 10-month process to structure the deal was longer than executives on both sides expected but there was a deliberate nature to the negotiations to ensure fairness, said Dr. Marc Harrison, the CEO of HATCo and former CEO of Salt Lake City-based Intermountain Health.

“These guys have been somewhat capital starved, and they've been making really hard decisions, maintaining [services] as best they can,” Harrison said. “The opportunity for all of us to have money that can be predictably spent in concert with excellent performance really sets us up.”

Deveny said there were a lot of components for both sides to dissect during the deal-making process, especially because the organization is an integrated health system with a health plan.

Summa Health, with three hospitals and 15 community medical centers, has struggled financially over the last few years, like other health systems. Summa posted an operating loss of $37 million for the first nine months of 2023, compared with an operating loss of $21 million in the year-ago period, according to an unaudited financial statement. Leadership didn’t think Summa’s current path, or a traditional merger with another health system, would have worked for its long-term financial health.

“Doing more of the same and just continuing on the path that we're on is actually riskier in the long term for the community,” said Summa Chief Operating Officer Ben Sutton.

Along with an upgrade to technology infrastructure, executives say initial plans for the collaboration include using artificial intelligence to improve consumer engagement, clinician documentation and revenue cycle management improvements on the provider side and Medicare Advantage products on the health plan side.

In October, General Catalyst announced it had raised another $8 billion with more than $1 billion of that slated for healthcare-focused companies. Hemant Taneja, CEO of the venture capital firm, said its other portfolio companies have expressed excitement over the possibility of working with Summa and General Catalyst’s other health system partners.

“It’s very hard for new companies to break into the sector and be able to do work at scale,” Taneja said. “The fact that we are doing that, not only in terms of acquiring Summa and working with that organization on their transformation, but also with all our other health insurance partnerships, I think founders find it appealing.”