Jan 17, 2024 - Business

Venture capital firm General Catalyst to buy Ohio health system Summa Health

Illustration of a bandaid with a barcode in the middle area.

Illustration: Gabriella Turrisi/Axios

Venture capital firm General Catalyst on Wednesday announced plans to buy Akron, Ohio, health system Summa Health, which it will convert into a for-profit.

Why it matters: This is an unprecedented deal for venture capital, which typically invests in startup companies. If successful, it could position General Catalyst as the industry's most formidable developer and seller of health care technology.

What's happening: Summa — an integrated delivery system that spans emergency, acute, critical, outpatient, and home care services — will become a wholly-owned subsidiary of General Catalyst (GC) via its new company, HATCo, pending regulatory approval.

  • Post-deal, the company will retain several Summa executives, involve some of the more mature startups in GC's portfolio, pursue value-based care arrangements, and avoid staff reductions, the companies tell Axios.
  • Summa CEO Cliff Deveny, COO Ben Sutton, and board chair George Strickler will maintain leadership positions in the organization.

By the numbers: HATCo CEO Marc Harrison and the Summa executives declined to provide specific deal terms, but Deveny tells Axios the system's annual revenues are roughly $2 billion.

What they're saying: "Our benefit is we don't have a wide-ranging region, we've got a very tight group of people that we can get our hands around and actually show the models can work," Deveny says.

  • "We do not see this as a place where very early startups will be brought into play," says Harrison. "We will be looking for much more mature companies that actually have a proof of concept and are getting to that product-market fit stage."
  • "Building trust starts with working with the [Summa] management and thinking through the low-hanging fruit to build trust with the workforce, then bring innovation in," says General Catalyst CEO Hemant Taneja.

Be smart: Investor-owned hospitals — particularly those backed by private equity — have been criticized as negatively impacting patients and staff.

  • Harrison stresses General Catalyst's plan is not aimed at mirroring a private equity play, adding that he does not envision staff reductions. "I want to be very clear: We do not anticipate reductions in force or job loss," he says.

Reality check: Transforming a nonprofit institution, with its more lax annual financial reporting requirements, into a for-profit entity with quarterly requirements will prove a steep challenge.

  • The federal tax code also tends to favor nonprofit status, with many government subsidies and programs excluding for-profit entities.
  • The process will be "a lot of work," says Summa's Sutton, adding, "I don't think there's anyone actually here at the table that's worked in a for-profit health system in a meaningful way."

What's next: General Catalyst and Summa will hammer out the details of the relationship to finalize a definitive agreement "in the next several months."

  • In the meantime, executives from both parties say they met with the Ohio Attorney General's office and the Ohio Department of Insurance to inform them about their letter of intent.

Get the full breakdown of General Catalyst's big move with a free trial to Health Tech Deals.

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