In October, General Catalyst launched a new company named Health Assurance Transformation Corporation, or HATCo for short. The company was founded with three main goals: to advise health systems on how to deploy better technology, to develop an interoperability model for technology solutions, and to acquire and operate a health system so that HATCo can “demonstrate the blueprint” of digital transformation in the healthcare industry.
On Wednesday, HATCo named its acquisition target. The company signed a non-binding letter of intent to acquire Summa Health, a three-hospital health system based in Akron, Ohio with a health plan that serves about 60,000 members. Leaders from across the healthcare industry are eager to see how the deal plays out — given the novel nature of the deal and the involvement of one of the country’s most prominent VC firms.
HatCO and Summa expect to finalize a definitive agreement “in the next several months,” according to a press release. Should the deal close, Summa will become a wholly owned subsidiary of HATCo, which plans to turn the health system into a for-profit entity. HATCo said that Summa would maintain its commitment to charity care through this transition, mainly by establishing a foundation focused on addressing social determinants of health within the Akron community.
“It’s a privilege for us to partner with the Summa Health leadership which is committed to leading an enduring institution,” General Catalyst CEO and HATCo Founder Hemant Taneja wrote in a statement sent to MedCity News. “It’s an opportunity to bring innovation in while focusing on taking costs out. We believe there’s an opportunity to create a blueprint for the rest of the country to create a more proactive, affordable and equitable system of care.”
Leaders across the healthcare industry are eager to see how HATCo’s experiment turns out.
Rebecca Springer, lead healthcare analyst at PitchBook, called the deal unprecedented. She noted that a major VC firm has never bought a U.S. health system before, though there are some parallels outside the country, such as the Samsung hospital in South Korea.
Private equity firms have certainly bought health systems before, but General Catalyst “is a ‘pure’ VC firm and has a very different culture and value proposition as an investor than a PE manager,” Springer pointed out.
“The goal is not to generate a 20% IRR in a four to six year hold, but to operate a demonstration and incubation site for new healthcare IT technologies,” she explained.
VC investors have long expressed their frustrations when it comes to collaborating with health systems on technology pilots. Through this Summa deal, General Catalyst is betting that the digital health startups in its portfolio “will benefit from incentive-aligned, long-term pilots as well as ready access to training data and clinical expertise,” Springer stated.
She also noted that value-based care is a key part of General Catalyst’s investment thesis for healthcare. This is underscored by the choice of Summa as its acquisition partner — it is a payvider with a varied payer mix of Medicare, Medicaid, employer plans and ACA plans. In this respect, the deal shares some similarities with Kaiser Permanente’s creation of Risant Health, which seeks to replicate Kaiser’s vertically integrated value-based care model in other health systems, Springer pointed out.
It will be interesting to watch how the deal advances value-based care delivery, she said. Springer also highlighted a few more key questions regarding the deal. For example, she’ll be watching to see whether numerous point solution pilots end up disrupting clinical and administrative workflows at Summa.
Additionally, Springer will be watching startups with pilots at Summa hospitals to see whether they can be successful at other health systems that are not financially aligned with them in the same way. She will also try to determine if the benefits General Catalyst derives from having access to a more aligned testing and development site outweigh the significant capital and operational outlay required to manage the health system.
Ashley Tyrner — CEO of FarmboxRx, a company that delivers food as medicine through Medicare and Medicaid partnerships — said it isn’t yet clear how the deal will turn out. On one hand, private equity and VC firms are focused on the bottom line, which could put extreme pressures on health systems at the expense of care quality and patient outcomes. On the other hand, these firms also introduce fresh eyes and new ideas to long standing problems, which could lead to innovative solutions that alter the trajectory of the industry, Tyrner explained.
“Whether or not GC’s entry into healthcare is a success will ultimately boil down to their integrity and the execution. They have an opportunity to innovate and re-shape care delivery, which is an area riddled with issues and prime for disruption — but they have to do it with integrity so that it’s not at the expense of the patients,” she said.
Another healthcare executive — Dave Latshaw, CEO of AI drug development startup BioPhy — expressed a similar sentiment as Tyrner.
In his view, the best case scenario would result in better technology solutions to enhance patient care and boost health system efficiency. The worst case scenario would be shifting the health system’s focus from patient-centric care to profit maximization, which would likely undermine care quality and accessibility, Latshaw remarked.
“Balancing these two facets — innovation and patient welfare — will be the critical determinant of this venture’s success or failure. If successful, the model could be transformative,” he declared.
Overall, healthcare leaders are curious to see how the HATCo-Summa deal plays out, given they don’t really have similar deals from the past to compare it to.
Cameron Andrew, CEO of health IT developer Sirona Medical, pointed out that the deal comes in the midst of a burnout crisis among providers — and that the need for better technology has never been greater.
“While AI and other transformational technologies are capable of solving healthcare’s staffing crisis broadly, realizing this potential requires large-scale ambition, larger capital and a change in how VC’s think about building for healthcare. What GC & Summa are attempting together is a unique blend of all three,” he stated.
Photo: mediaphotos, Getty Images
