VC Firm General Catalyst Plans To Buy OhioBased Hospital Summa Health
Three months ago, venture capital firm General Catalyst announced an unusual move to create an entirely new company that would one day take over a multibillion-dollar health care system that could serve as a test bed for new technologies.
On Wednesday, that Healthcare Assurance Transformation Corp. (Hatko) - Her intentions are revealed.
Both companies have signed a non-binding letter of intent, which, upon completion of the transaction, aims to transform Suma Health into a profitable company. “We have smart people solving a lot of problems, but they need the wonderful growth that HATCO can provide,” said Cliff Deviney, president and CEO of Suma Health. “They have the money and the technology to move the company forward faster.”
Mark Harrison, co-founder and CEO of HATCo, previously told Forbes that he was looking for a health system with "good bones" and "room for improvement." What makes Soma Health special is that it also has a “scalable” health plan, he said.
In 2022, Soma Health reported an operating loss of about $39 million on revenue of $1.8 billion, according to audited financial statements. While HATCO declined to disclose terms of the deal, Summa Health President and CEO Cliff Deviney told Forbes that it includes "significant capital and technology capabilities."
Suma Health is currently loss-making, with management blaming a combination of rising inflation and temporary labor costs as coronavirus relief funds run dry. Deviney estimates Soma Health's total revenue in 2024 will be about $2 billion.
Historically, hospitals and doctors billed their patients for every service they provided. However, the U.S. health care system is gradually moving toward "value-based care," a model in which providers are paid a fixed amount for managing a person's overall health over a specified period of time. If a person requires nothing more than an annual medical exam, unused funds are retained by the provider. But if that person ends up in the emergency room more than once, the provider must cover the excess amount.
The idea is that insurers and health care providers will work to keep patients healthy if it impacts their bottom line. Summa's 60,000 health insurance members already have value-based health care contracts, and HATCo and Summa Health look forward to leading the way. said the goddess. “And we want to move to a model that does the right things.”
Suma Health currently offers coverage to people age 65 and older through Medicare, large corporate and individual commercial plans. One of the company's fastest-growing segments is small businesses, which are struggling to keep up with rising costs and may share the risk with many other employers, Deviney said.
While HATCo's acquisition of Summa Health is being funded by venture capital, which typically expects a relatively quick return on investment, Harrison told Forbes that's not the case here. The company operates outside of General Catalyst's traditional venture fund structure, "with the full expectation of very long, perpetual ownership," Harrison explains. “These are not exit plans.” The Soma and Dewani Health Department will remain in place.
The next steps are due diligence, followed by the signing of the final contract, and then inspections by the Ohio Attorney General's Office and the Ohio Department of Insurance. The deal is also subject to federal oversight, as any deal worth more than $111.4 million must be reported to the Federal Trade Commission or the Department of Justice. As part of the transition to a for-profit entity, Suma Health will use a portion of the proceeds from the sale to create a fund to help communities with needs such as housing and food insecurity.
Deviney told Forbes that he is looking forward to working with General Catalyst's portfolio companies and other technology companies to find the best AI assistants to help doctors and nurses; He sees plenty of opportunities to modernize call centers and patient engagement programs. He said his goal is to use technology to make care easier for doctors and more accessible for patients.
Harrison cautioned that such changes would not have a negative impact on Soma Health's workforce, which includes about 8,500 health care workers. “This is an increase in supply, not a decrease,” he said. “We don't expect any layoffs. In fact, we really hope to reach people in a variety of ways, even as we use technology.”
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