Ohio’s attorney general signed off on an agreement Wednesday that will sell the nonprofit Summa Health to a venture capital-funded, for-profit company. In doing so, he upped the hospital’s sales price and placed guardrails on the acquisition that will help ensure Summa continues to operate in the community.
The conditional approval by Attorney General David Yost requires Health Assurance Transformation LLC — known as HATCo — to pay $500 million for the hospital system, a $15 million increase from the agreed-upon price. It also requires HATCo to put $15 million in equity into a nonprofit foundation to benefit the community. The foundation must not sell that stake in the hospital for three years.
The provision allows the foundation to maintain a say in the hospital’s operations, said J.B. Silvers, an emeritus professor of finance at the Weatherhead School of Management at Case Western Reserve University who has been following the sale. He said in that way, the nonprofit can represent the community on an ongoing basis.
“The terms are surprisingly in favor of the community,” Silvers said of the list of conditions. “They’re really pretty good.”
Yost’s 10 conditions for approval also include agreements that HATCo cooperate with any investigations from his office, that the foundation’s board members have no affiliation with Summa Health and that the foundation’s charitable purpose is consistent with the purpose of the nonprofit hospital. Michael Bernstein, a Summa spokesperson, said in a statement that Summa and HATCo were working to satisfy the conditions.
Yost’s approval was the final regulatory hurdle the acquisition faced, though Summa still must get some licensing and permit approvals, Bernstein said. The hospital now has 45 days to hold a public hearing on the proposed use of the proceeds from the sale.
What are the attorney general’s requirements for the Summa acquisition?
The attorney general’s conditions are intended to ensure that proceeds from the sale are used to support the health of the community and that HATCo ”honors its promises to continue operating Summa’s health-care operations,” states a letter from Daniel W. Fausey, the section chief of the Charitable Law Section of the attorney general’s office.
The hospital, which will become a for-profit entity, will be the “primary operating platform” for any other HATCo acquisitions or expansions, Fausey’s letter said. And HATCo will be required to maintain the health system’s headquarters in Akron as well as maintain the employment and benefits of all employees for at least a year.
The agreement also has provisions to ensure that the quality of healthcare remains high. Three members of the hospital system’s board will be members of the community, and some guarantees in the agreement require a supermajority of the board to change — notably, Summa’s current charity care policy, which will continue; the continuation of trauma, behavioral health, obstetrics and emergency services; and the current level of support for graduate medical students and clinical research programs.
On top of that, Summa will continue to serve Medicare and Medicaid patients under the agreement.
And Fausey’s letter says the agreement prevents HATCo from selling facilities to lease them back to the hospital or from otherwise getting rid of “key facilities.” Selling buildings and the expense of leasing them back “have created significant issues at other for-profit healthcare organizations,” the letter said.
HATCo has agreed that it won’t cease to operate any hospital or any other major portion of the business for a decade without the prior written consent of the foundation. It also won’t change control of the hospital without the foundation’s approval for that same 10-year period. And any future owner of the hospital must agree to keep the headquarters in Akron as well as to continue the hospital’s charity care policies, essential services, and commitment to education and training.
Silvers said the agreement was “very, very unusual.”
“Most of the time, when something gets bought, there aren’t many strings attached,” he said. “Ten years is a long time. … They’re locking themselves up for a long time.”
How much money will Summa get from HATCo?
Jeff Barge, a member of Summa Is Not For Sale, a group opposed to the hospital’s acquisition by a for-profit entity, said he was pleased by the enforcement provisions that are part of the attorney general’s requirements. He also said it was “innovative” that the foundation would own part of the hospital, and he was glad that the attorney general’s changes raised the cost of the hospital by $30 million, including the equity stake for the foundation.
“That will help a lot of people,” he said. “Who can complain about that?”
But Barge, who has been vocal about his concerns that Summa is being sold for less than what it’s worth, said he still thinks the deal undervalued the hospital.
Along with some of Summa’s current assets, the $500 million purchase price will go toward retiring Summa’s $850 million in debt — eliminating the ongoing costs of paying them. Leftover funds from the purchase following the debt repayment will go toward the creation of the foundation.
The foundation will also control additional funds that Summa already holds that are restricted for charitable purposes.
In addition to the purchase price, HATCo has agreed to invest at least $350 million in capital expenditures within the first five years after the deal closes and at least $200 million more within the first seven years following closing.
Silvers said the bevy of commitments show that HATCo is “very much in it for the long run.”
In a statement, Yost said he was confident the agreement had “enforceable commitments” that will secure Summa’s nonprofit mission, protect patients and ensure continued investment in the community.
“With proper safeguards in place, this has the potential to strengthen health care in northeastern Ohio for years to come,” Yost said.
Are any other hospitals in the country making deals like this?
The deal has already been approved by the Ohio Department of Insurance and the Federal Trade Commission.
Both Summa spokesperson Bernstein and Molly Gillis, a spokesperson for HATCo owner General Catalyst, said in statements that they would work closely with the attorney general’s office to ensure compliance with the requirements. Both called the approval a “significant milestone.”
The approvals will help HATCo and Summa “officially move forward together to begin to advance our long-term vision to create a new, more proactive, affordable and equitable system of community-based, lifelong healthcare,” Gillis said.
As it is, Silvers said, Summa would not have been successful as a standalone hospital system for the long run. But with no debt, and a venture-capital-backed owner that plans to use the hospital as a “test kitchen” for healthcare technology, Silvers said he’s optimistic about the end result.
HATCo will be using that technology not as a customer but as a partner, with the goal of selling its innovations to other hospitals around the world. That’s why it can commit to such a long timeframe, Silvers said — it’s not looking to siphon money from the hospital and sell it but to use it as a way to find ways to improve healthcare and grow its business.
Both Summa and HATCo are “sticking their neck out” to do it, he said.
“Frankly, I think the excitement of trying something new like this is really pretty neat,” Silvers said. “Akron is the only one in the country doing this.”