An 'unusual wrinkle' in hospitals' make-or-break year: Fitch

Venture capital firm General Catalyst's pending acquisition of Akron, Ohio-based Summa Health adds an "unusual wrinkle" to what Fitch Ratings has called a "make-or-break" year for nonprofit hospitals, the ratings agency said in a Jan. 31 report shared with Becker's.  

The deal, expected to be completed by the end of the year, would see Summa Health becoming a fully owned subsidiary of General Catalyst's Health Assurance Transformation Corp., or HATCo. If approved, Summa would be transformed from a nonprofit system to a for-profit. 

"How it ultimately fares for Summa, and how it potentially shapes the [nonprofit] hospital sector, remains to be seen," Fitch said in the report. "Day-to-day operations should not look much different for Summa, which remains the market leader in its Northeast Ohio service area. Though leverage is elevated, Summa's balance sheet remains adequate to cushion against operating margins that are expected to be breakeven or better in FY24, which led Fitch to affirm its ['BBB+'] ratings and stable rating outlook for Summa Health last June." 

HATCo CEO Marc Harrison, MD, told Becker's switching Summa to a for-profit system is "how we transform the industry holistically." 

"It does not appear that traditional models, whether it's conventional non-for-profit medicine or unconventional [private equity], is actually really changing the industry holistically, and I think it has to be both a good investment in doing the right thing and then we can make big change," he said. 

Fitch said Summa, like many of its peers, is "struggling with containing higher labor expenses and the need to use expensive agency nurses and other personnel to maintain staffing levels in support of rebounding patient volumes post-pandemic."

"Summa's planned conversion into a for-profit organization sheds more light on the longer-term transformation taking place within healthcare, (i.e., operating as efficiently as possible while improving patient access and patient care, and making more and better use of technology)," Fitch's report said. "Some of these things are being done as vendor/customer relationships and some through alignment/partnerships. This is a move that is likely to draw some regulatory scrutiny. That said, private equity purchasing [nonprofit] hospitals could proliferate over time, if Summa/HATCo proves to be successful."

Dr. Harrison and General Catalyst CEO Hemant Taneja have pushed back on the idea that the acquisition of Summa is "another private equity deal." They said in a Jan. 17 blog post that the acquisition is not a "quick flip but a long-term commitment to transformation that benefits the community."

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