Summa-HATCo deal observers dive into questions about financing for-profit hospital model

The financial implications of the deal for Summa Health to be acquired by HATCo were examined Tuesday during an Akron Press Club discussion as the community continues to dissect what it will mean for the nonprofit health system to become a for-profit enterprise.

"I think that Summa probably made the best decision they could," Paul Lee, senior partner at Strategic Health Care, said of the pending deal in a conversation moderated by M.L. Schultze, a freelance journalist and Akron Press Club board member.

Lee said that by agreeing to sell to HATCo, a subsidiary of venture capital firm General Catalyst, Summa executives likely decided that facing financial struggles, they figured bringing in private equity financing would make a larger difference than being bought out by another nonprofit system.

As of March 31 , Summa reported about $861 million in debt.

Who runs America's nonprofit and for-profit hospitals?

J.B. Silvers, emeritus co-dean at Case Western Reserve University's Weatherhead School of Management, said he believes that in health care, "the term 'for-profit' is a little bit of a misnomer." He said he believes a more apt distinction is between tax-exempt and taxable status.

All hospitals have a bottom line, Silvers said. But whereas for-profit hospitals give money back to their donors, with nonprofits, "it has to go back to society it the form of what I call social dividends," such as free care and social outreach.

Silvers said the fact that Summa will start paying taxes as a for-profit hospital system "is a very big deal for this county and for the city."

Lee said it's important to recognize that nonprofit hospitals are run by community members, whereas for-profit hospitals are not.

"I'm not saying that a for-profit hospital is not responsive to its community," Lee said. "However, there is a difference in terms of control, and that's something that you have to think about in all of this."

What are HATCo's goals with the Summa deal?

Generally speaking, Lee called health care "extremely expensive" and said it's important for hospitals to make money.

"Otherwise, you can't replace your equipment, you can't give raises to your people, all that kind of stuff," Lee said. "Private equity also needs to make money. But show me a private equity company that doesn't need to make a lot of money. That is the difference, I think."

In an Akron Ward 5 meeting last week, Summa President and CEO Dr. Cliff Deveny said General Catalyst is only looking for a 1% to 2% return.

Silvers said he knows both Deveny and Dr. Marc Harrison, HATCo co-founder and CEO, adding that they "are dramatically different than the typical private-equity, Wall Street types, of which I know, because I teach finance."

"The typical model for private equity is go in, buy an asset, strip out part of it, do it all with debt, take the cash out, pay yourself back off and hope for the best — quick turnaround, three, four, five years — do it again," Silvers said.

By comparison, Silvers said, everything he's gathered on the pending Summa-HATCo deal does not indicate stripping of assets but rather trying new technologies, such as artificial intelligence, which can help "problems with scheduling" and "the flow of information."

Deveny told Akron community members last week of General Catalyst: "Where they want to make their money is on introducing new technologies with the companies they invest with and prove them in Akron."

Silvers added, though, that the parties "haven't been very forward in terms of disclosure because of the negotiations."

How much of a risk is HATCo taking?

Lee said he believes that HATCo is taking a risk by planning to prove services like AI in the Summa system and then scale them — because competition between tech companies looking to obtain a foothold in healthcare is so fierce.

"I will tell you that there are hundreds of organizations, private equity-backed organizations, that are doing that across the country. I'm talking about cutting-edge technologies, whether it's … AI-driven or other areas."

Is HATCo well-positioned to respond to mounting Medicare costs?

For every dollar spent on Medicare patients, Medicare pays 82 cents to hospitals, Lee pointed out. It's a historic low in Medicare reimbursement, according to the American Hospital Association .

At the same time, the number of Summa patients on Medicare and managed care has increased , from 49.8% at the end of March 2023 to 51.6% at the end of March 2024.

Silvers said he believes Summa, following the HATCo acquisition, will respond to these margin pressures by finding ways to increase outpatient services and adopt new, efficient uses of technology, such as for telemedicine.

Patrick Williams covers growth and development for the Akron Beacon Journal. He can be reached by email at pwilliams@gannett.com or on X, formerly known as Twitter, @pwilliamsOH.

This article originally appeared on Akron Beacon Journal: Summa-HATCo deal observers dive into questions about financing for-profit hospital model