General Catalyst portfolio company Health Assurance Transformation Corporation has signed a non-binding letter of intent to acquire Summa Health, the two organizations announced Wednesday.
Venture capital firm General Catalyst announced the formation of HATCo in October to provide financial and operational advisory assistance to health systems. HATCo co-founders Hemant Taneja and Dr. Marc Harrison said the company would acquire a health system within its first year of operation as proof of concept for its advisory services.
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Harrison said Akron, Ohio-based Summa Health, a nonprofit system that includes three hospitals and 15 community medical centers, was the right fit for the company's acquisition target.
“We weren’t looking specifically at a region of the country but the characteristics of the health system,” Harrison said. “First and foremost, we were looking for leadership that was seeking change. Second, we wanted a system that had serious market relevance in the area they served. Third, we wanted it to be the right size—not small enough that they didn’t have all the services available but not so big that it was going to be impossible to change.”
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. Year-over-year, revenues for the first nine months increased 4.4% to $1.39 billion in 2023 while expenses increased 6% to $1.42 billion. Summa’s total revenue from patients minus contractual allowances and discounts increased by 19% from 2018 to 2022 while operating expenses increased by nearly 54%, according to Modern Healthcare data.
Summa Health president and CEO Dr. Cliff Deveny said the health system's current model is not sustainable. In mid-2019, Southfield, Michigan-based Beaumont Health signed a letter of intent to acquire Summa but Beaumont pulled out and the deal was called off in May 2020.
“We’ve been searching for about 10 years for a model that creates certainty,” Deveny said. “We were looking for a path to not only grow, but improve access, outcomes and patient experience going forward. We think this is that model.”
It also helped that Summa is an integrated health system with a payer arm, SummaCare, Harrison said. HATCo aims to help Summa move more patients into capitated payment models, he said.
An acquisition still requires the execution of a definitive agreement and regulatory approval. The two organizations said they hope to finalize an agreement in the spring and close a transaction by year's end. As planned, Summa would convert to for-profit status, become a wholly owned subsidiary of HATco and maintain its headquarters and 8,500 employees. Deveny said he would remain president and CEO, reporting to Harrison.
Plans call for Summa to create a community foundation post-acquisition that invests in social determinants of health across the Akron metropolitan area. The system intends to continue to provide charity care.
An acquisition would allow Summa to make investments in technology to improve the clinician and patient experience, executives said.
“As we think about what the gaps are at Summa and how healthcare is going to transform over the next 10 years, we would struggle to keep up from a technology perspective,” said Ben Sutton, chief operating officer. “That’s what HATCo brings to the table and what General Catalyst brings to the table.”
HATCo isn’t looking to add other health systems immediately, nor is it looking for a quick payout, said Taneja, also the CEO of General Catalyst.
“When a private equity firm buys a health system, they buy it in one of their funds with the idea that they want to improve the financial performance of the health system and then go transact it,” Taneja said. “This isn’t a fund investment out of one of our pools of capital. The intention is to help Summa stay as an institution and continue to serve the broader Akron community on a long-term basis.”
