The $485 million deal to sell Akron’s Summa Health to a private-equity-backed company will allow the healthcare system to wipe out its $837 million in debt and reinvest in the hospital system, Summa officials said Thursday.
The sale, which still must be approved by state and federal regulators, would give Summa enough of a cash boost to become debt-free, said George Strickler, the chair of the board of directors. Ben Sutton, Summa’s chief operating officer, said the deal would also allow $70 million in annual investments in the hospital system for infrastructure and technology — the same amount as the annual depreciation — up from the $50 million to $55 million that’s currently being spent each year. Now, he said, the hospital is underfunded.
“We aren’t able to invest for the future the way that we would like to,” Sutton said. “We aren’t able to invest in those new, innovative technologies the way that we would like to as a standalone health system. That’s the opportunity that gets created with the investment we’re talking about.”
Stabilizing and reinvesting in Summa through the sale to General Catalyst’s Health Assurance Transformation LLC, or HATCo, will be transformative over time, Sutton said in a video interview with other leaders. He and Strickler spoke to a Signal Akron reporter Thursday along with Summa Health President and CEO Cliff Deveny and HATCo CEO Marc Harrison after the partners announced they had reached a definitive agreement to sell the company. The groups signed a binding letter of intent to sell Summa to HATCo in January.
Harrison called reaching the agreement “a huge win for Northeast Ohio,” saying it was an unprecedented investment in a new way to run a healthcare organization. HATCo’s vision is to integrate technology in a more thoughtful manner to help keep employees safe and sane, he said, noting that many technology solutions used in healthcare to this point have instead added cost and not improved the problems they were meant to fix.
“The pandemic demonstrated that healthcare in the U.S. is quite fragile, even brittle,” he said.
Deveny said the changes would get Summa “back on steady footing” as well as create more capacity for appointments and make healthcare providers more productive, improving the bottom line.
In making the purchase, HATCo is seeking to create a sustainable, healthy system that will provide modest returns to investors, Harrison said. Owning Summa will also allow HATCo to test technologies and concepts that can then be sold to other hospital systems.
“That’s where the money’s to be made,” he said.
The money for the purchase is coming from the balance sheet of General Catalyst, not from its venture capital funds, Harrison said, noting that HATCo isn’t expecting high returns on a short-term basis, as a venture capital fund would.
J.B. Silvers, a joint professor at Case Western Reserve University’s School of Medicine and Weatherhead School of Management, told Signal Akron previously that General Catalyst has invested in more than 100 companies in the healthcare industry. By investing in Summa, he said, they get a partner where they can try out the technology their portfolio companies are creating. He called it a test kitchen for healthcare.
Harrison said he understood why people in Akron might be nervous about venture capital’s connection to the sale, but he said the “unprecedented investment” should be considered a huge benefit for the area.
Change in the system will happen incrementally if the deal is approved, Sutton said.
As HATCo and Summa took months to craft language in the agreement that Harrison said supported the parties’ joint philosophy, they focused on ensuring that charity care remained a priority and essential services in the community stay in place. The deal will also create a new community foundation to support regional healthcare.
Harrison said he expects regulators, including the Ohio Attorney General, the Ohio Department of Insurance and the Federal Trade Commission, to move slowly, too.
“We believe that the regulatory authorities deserve exactly the same opportunity to get this right, which we believe they will,” he said. “We are going to be patient, we’re going to work together within the bounds of what we’re allowed to do while they’re doing their work, and we’ll be eager to get through the process at the right time, at their pace, and change healthcare.”
Akron Mayor Shammas Malik said at a press conference Thursday that the companies have been transparent with the city about their ongoing process.
“My hope is this deal will be transformative not just for Summa but beyond that,” Malik said.
Strickler said the board is excited about what comes next, while Deveny said members of the medical staff “are ready to rock and roll.”
“They see the opportunities, they’ve tested some of these technologies,” he said. “This has created a path for clarity and hope that a lot of health systems are really struggling to find.”