Decoding the Weird Economics and Incentives in General Catalyst's Acquisition of Summa Health
In this health system analysis report, let's explore General Catalyst's acquisition of Summa Health, focusing on the relevant history of both organizations, plus the weird economics behind the deal.
The coverage this year around General Catalyst’s acquisition of Summa Health is abundant yet nonspecific.
I’m surprised the news doesn’t provide more thoughtful coverage beyond,
Omg a VC firm is buying a health system 😱
Another one bites the dust - Private equity is taking over another health system 🫠
I’m not joking. Look up “general catalyst summa health” and see for yourself!
This deal fascinates me for several reasons. Let’s explore:
Background on Summa and General Catalyst, and why they’re coming together now
Key reasons why this deal is different than other private equity (PE) deals
The magical economics behind General Catalyst financing this deal
This whole enterprise is one interesting experiment.
Let’s begin at the start.
Summa Health: Winning the battle, but losing the war
To understand Summa Health, you must first understand Akron and Northeast Ohio.
Summa Health System formed in 1989 when Akron City Hospital and St. Thomas Hospital merge. The goal? Increase market share and improve operational efficiency in the Akron area.
Akron is just 40 miles south of Cleveland, and while Summa Health holds a strong primary care ambulatory market share in Akron, its presence weakens significantly when you factor in the Cleveland MSA.
Blake Madden, founder of healthcare industry newsletter Hospitalogy, and Michael Stratton, founder of Health Data Atlas, co-authored a blog post on this very topic.
Madden and Stratton highlight that Summa does well across primary care, cardiology, gastroenterology, and OBGYN within Akron MSA, but barely breaks 10% in any specialty in the larger combined market:
There’s no question Summa Health operates in a fiercely competitive market dominated by Cleveland Clinic—a key point, considering Summa always wanted its own unique piece of the patient share pie.
For example, on January 6, 2020, Summa Health announced its intent to merge with Beaumont (now Corewell). But the pandemic derailed those plans. At the time, Beaumont had four times the revenue and nearly five times the number of employees. When the merger fell through, Summa CEO Dr. Cliff Deveny CEO mentioned that the board wasn’t keen on considering another health system merger.
With over $1.3 billion in debt, Deveny also said that without the General Catalyst deal, Summa’s financial issues might have forced some tough decisions.
Combine that with the fact that Akron itself saw a population decline of 0.9% from 2020 to 2023, and it’s clear Summa wasn’t in a strong financial position to continue providing care without significant cost reductions.
This is likely why the General Catalyst talks went over well:
"You're not going to make any money on Summa Health System," Deveny explained, "but the way you would make money is developing these technologies, these things that can be applied to other hospitals, health systems in the United States." —Dr. Cliff Deveny (Source)
Deveny admits that Summa is not a moneymaker, but it excels in key areas, including:
Running a highly successful Medicare Advantage program through SummaCare, its payer organization (4.5/5 stars in 2024!)
NewHealth Collaborative, its ACO, achieving a 96.8% quality score and generating MSSP savings of $11.6 million in 2021
High-performing specialty service lines within the Akron Metro
SummaCare is one of the few hospital-owned health plans in Ohio, making Summa a unique asset. Having a health plan gives them more control over patient care and financial outcomes, aligning with GC’s value-based care (VBC) focus.
In short, Summa Health is an attractive bet for a private equity firm with big ambitions for the future of healthcare.
Enter General Catalyst: A particularly special snowflake
To understand the General Catalyst side of the equation, you must first understand Dr. Marc Harrison, the former CEO of Intermountain Health, who now leads HATCo—General Catalyst’s new company focused on this acquisition.
Harrison was brought in from Cleveland Clinic Abu Dhabi to run Intermountain Health’s growing system in 2016. A quick look at his resume:
Harrison is a pediatric critical care specialist.
He laid the groundwork for value-based care and care delivery models at Intermountain Health, and helped spin off initiatives like the Utah Alliance for the Determinants of Health and Civica Rx, the first nonprofit generic drug company.
He’s an AHA 2019 TRUST Award recipient for outstanding achievements in quality care, physician engagement, and innovation.
In other words, Harrison is a powerhouse with a proven track record in transforming healthcare.
This was going-away post when he left Intermountain, freshly poached by General Catalyst:
“To that end, I will start a revolutionary healthcare platform company with General Catalyst, the most socially responsible venture capital company in this space.” —Marc Harrison
General Catalyst likely made him an offer he couldn’t refuse: What if we give you a greenfield opportunity that’s never been done before, with significant resources at your fingertips, and without all of the regular health system bureaucracy?
GC’s opportunity offered him a chance to transform a health system like Summa from the outside, but with the experiential insider knowledge that he’s grown to have.
Thus, HATCo (Health Assurance Transformation Company) was born. The way they framed their mission speaks to leaders like Harrison, who have been over-pitched by the non-initiated of healthcare:
Notice the emphasis on “…not to disrupt healthcare systems…” My take? They don’t want to appear like outsiders, though Summa’s acquisition is clearly a vertically integrated play.
(PSA to health tech companies: please abandon the “disrupt” verbiage asap.)
(As an aside, the lip service around “not to disrupt” is a little funny considering Hemant Taneja, CEO of General Catalyst, announced GC’s intent to acquire Summa Health during HLTH 2023.)
HATCo’s vision, with Marc Harrison at the helm
General Catalyst is backing into a long-term transformational vision—not your typical “quick flip” approach, with a focus on value-based care.
A decisive pivot to value-based care – As we’ve said, a shift to value-based care is an essential part of our approach. HATCo intends to work with the ecosystem to demonstrate that a model that is better for patients can also be good for business. The board and leadership team of HATCo bring the kind of experience and expertise we believe is required for driving value at scale, digital transformation, and healthcare financing. The hope is that over time and together, HATCo and the HA ecosystem will help deliver a far better experience than consumers experience today. (Source)
To support HATCo, General Catalyst also boasts a portfolio of 118 “Health Assurance” companies (as of October 2024) in the health tech/biotech space. There are 118 of them as of October 2024 (Google Sheet).
On top of that, they’ve partnered with 20 health systems, though “partnership” is loosely defined. While 15 of these partnerships are public, the other five remain unclear.
Banner Health
Cincinnati Children’s Hospital Medical Center
Guy’s & St Thomas NHS Foundation Trust (United Kingdom)
Hackensack Meridian Health
Health First
HCA Healthcare
Intermountain Healthcare
Jefferson Health
MetroHealth
OhioHealth
The Medical University of South Carolina (MUSC)
UC Davis Health
UCI Health
Universal Health Services (UHS)
WellSpan Health
On paper, Summa Health and General Catalyst were destined to come together. Summa, despite its successes with its health plan and ACO, struggled to grow in a tough market (“losing the war”). Meanwhile, General Catalyst had a broader vision to transform health systems from the inside—using proven care delivery trailblazers like Marc Harrison to lead the charge.
Now, let’s dive into why this might just be the strangest private equity deal of all time.
Key reasons why this private equity deal is not very PE
Private equity usually follows a pretty standard playbook: acquire, cut costs, flip the company, and walk away with quick returns.
But this deal?
It breaks the mold.
Ten-year (!) horizon: General Catalyst isn’t looking for quick returns. This suggests a focus on creating lasting change rather than short-term financial gains. They’re giving themselves a decade-long runway to “create a new standard of healthcare investing and set expectations for investors to think longer term” (Source). That’s a big departure from the typical PE model.
Marc Harrison’s leadership: Harrison’s track record in healthcare transformation, especially in VBC, gives this deal credibility and depth.
Value-based care focus: GC is betting big on value-based care (VBC) instead of the traditional fee-for-service model. Their long-term success depends on improving quality and efficiency in care.
Collaborative network: With 20 health systems in their “sandbox,” GC is able to experiment and share knowledge across its portfolio.
Building, not stripping: Instead of cost-cutting through layoffs, GC wants to invest in and scale healthcare technology within Summa. In theory, they want this to be about building something sustainable—not squeezing out short-term profits.
But all of this is the high-level happy vision and how GC wants this to work in theory.
Let’s take a look at the numbers, economics, and incentives of the deal, all of which raise some serious questions.
When the numbers aren’t numbering: How is General Catalyst paying for Summa Health? And can Summa Health survive?
This is where things get interesting—and risky.
Sergei Polevikov points out that GC is financing this acquisition as a leveraged buyout (LBO). In simple terms, they’re borrowing money to make the deal happen. Polevikov estimates that GC has $1 billion in assets on its books. If they pay even 1x Summa’s annual revenue of $1.8 billion, that sum would far exceed what GC purportedly has in cash.
Now, LBOs are typical in the private equity world. But given the unusual aspects of this deal—a 10-year timeline and promises of no layoffs—it raises eyebrows. Especially since Summa will be the one left paying down the debt from the buyout.
Street of Walls highlights key criteria for selecting good LBO candidates. Let’s see how Summa stacks up:
Mature industry/company ✅
Clean balance sheet with low or no outstanding debt 🚫
Strong management team and potential business improvement measures ✅
Strong competitive advantages and market position 🚫
Steady cash flows 🚫
Low future capital expenditures and working capital requirements 🚫
Possible sale of underperforming/non-core assets ✅
Feasible exit options ✅
Summa is not exactly the ideal candidate for a leveraged buyout. While other hospitals and health systems have been acquired by private equity before, GC’s approach is different. They claim they won’t implement the typical aggressive cost-cutting measures and are giving themselves a much longer runway. These promises are, frankly, against the usual private equity ethos.
A glance at Summa’s Fitch Ratings report is revealing. Summa received a BBB+ rating, which, while not alarming, comes with some concerning details:
FY23 operating EBITDA was modest at 3.1%, compared with 3.7% for FY22. FY23 operating results exceeded Summa's budget but were still constrained. Summa's goal was to achieve breakeven operations by FYE24, equivalent to about a 5.4% operating EBITDA. Through the three months YTD (ending March 31), performance was higher than for the same period the year prior. However, it was still below budget due to higher than budgeted labor and bad debt/charity expense as well as higher than expected employee medical claims. There also was a modest revenue shortfall against plan. (Fitch Ratings)
EBITDA is crucial here because it indicates how much flexibility Summa has to make payments if GC acquires it via an LBO.
According to Fitch, if Summa’s operating EBITDA drops below 6-7%, it could trigger a credit rating downgrade. Worse, if Summa’s liquidity or cash-to-debt ratio consistently falls below 100%, it would signal a significant financial strain (Fitch Ratings).
Depending on how the deal is structured, Summa would be taking on hundreds of millions in new debt. GC has said they’ll cover $800 million of Summa’s $1.3 billion debt. But that still leaves $500 million for Summa to manage on its own. And with a purchase price range rumored to be between $1 billion and $3 billion, Summa could either break even—or end up in a worse financial position than before the acquisition.
While Fitch Ratings maintained its BBB+ rating, calling the acquisition an “unusual litmus test,” that’s hardly comforting.
It’s not like we have Experian or TransUnion giving us a call any time we’re about to make a potentially life-altering decision with our finances.
Fitch’s role isn’t to predict the future or assess the soundness of this transaction; it’s merely providing a snapshot of the current financial picture.
Isn’t there a better way for Summa Health?
I can’t help but wonder: is there a different path for Summa Health without selling to General Catalyst?
This transaction feels unusual, mainly because it flips so many “basic premises” of private equity on their head: short time horizons, aggressive cost-cutting, and a focus on immediate returns. Instead, we’re seeing promises of a 10-year runway, no layoffs, an emphasis on increasing value, and an infusion of technology into the health system.
It’s so hands-on, and honestly, so risky.
In this case, we’re not just tweaking a piece of the private equity playbook. We’re tossing several chapters out the window.
But one thing is certain: GC will be putting immense pressure on Summa to improve operational efficiencies and maximize value-based reimbursements. In a deal that’s already strange, this added pressure could potentially be catastrophic for the sustainability of the health system.
What does the best-case scenario look like here? What needs to be true for both General Catalyst and Summa Health to come out as winners?
Or will General Catalyst just come out on top? It’s very possible—considering the economics of private equity and the fact that GC has another arm of their business (the regular portfolio-investing side) to fall back on if things go sideways.
At the end of the day, if this deal goes through, I hope it genuinely improves the region and expands access to care.
But there’s no denying that people in Akron are anxious. A Change.org petition is already circulating, with locals pushing to keep Summa Health nonprofit. A quick glance at the comments there—or in Akron-focused Subreddits—reveals just how much this deal has left the locals on edge.
One of the biggest concerns locals have is how Summa will handle the shift from nonprofit to for-profit status. Losing nonprofit perks, like tax exemptions, could further strain the system’s finances. And employees, especially physicians, are worried about losing eligibility for Public Service Loan Forgiveness (PSLF), which could trigger a wave of talent leaving the organization.
My hot take
Blue-sky dreaming here—
I want to see Summa benefit from GC’s platform. I want them to keep delivering exceptional care, expanding their services, and taking care of their patients—all while being properly reimbursed for what they do. And I hope the caregivers get access to innovative tech that makes their jobs easier, not harder.
For GC, this acquisition is no walk in the park. The long-term goals are bold, and the 10-year horizon makes it even more so. It runs counter to the typical incentives of a private equity firm. There’s no doubt it’s financially risky if it doesn’t pan out.
On one hand, I’m curious to see if we’re witnessing the creation of a new healthcare blueprint—or just another cautionary tale about mixing venture capital with healthcare.
On the other, I’m concerned. There are too many potential factors in this deal that could work against Summa in the long run.
Unlike Cleveland Clinic or University Hospitals, Summa Health is a community-based system. And the real questions are:
Will GC help Summa do more for Northeast Ohio and its patients?
Or will the economic pressures ultimately force GC to flip the system faster than anticipated, leaving patients with fewer options?
Feel free to click the ❤️ button on this post so more people can discover it. I’d love to hear your thoughts in the comments.
References
American Hospital Association. (2019, June 3). AHA Center for Health Innovation selects Marc Harrison, M.D., for 2019 TRUST Award. https://www.aha.org/press-releases/2019-06-03-aha-center-health-innovation-selects-marc-harrison-md-2019-trust-award
Beaumont Health and Summa Health. (2020). Beaumont Health and Summa Health sign definitive agreement. Summa Health. https://www.summahealth.org/pressroom/allnews/2020/beaumont-health-and-summa-health-sign-definitive-agreement
Census Bureau. (2023). QuickFacts: Akron city, Ohio. U.S. Census Bureau. https://www.census.gov/quickfacts/fact/table/akroncityohio/PST045223
Cleveland.com. (2024, January 19). Summa Health CEO says deal to sell will allow it to retire debt, focus on care. https://www.cleveland.com/metro/2024/01/summa-health-ceo-says-deal-to-sell-will-allow-it-to-retire-debt-focus-on-care.html
Fierce Healthcare. (2023). HLTH23: VC firm General Catalyst launches new company, plans to buy health system. https://www.fiercehealthcare.com/health-tech/hlth23-vc-firm-general-catalyst-launches-new-company-plans-buy-health-system
Fitch Ratings. (2024). Fitch affirms Summa Health (OH) at ‘BBB+’; Outlook stable. https://www.fitchratings.com/entity/summa-health-oh-97195113#rating-actions
Fitch Ratings. (2024, January 31). Summa Health acquisition: Unusual litmus test for US NFP hospitals. https://www.fitchratings.com/research/us-public-finance/summa-health-acquisition-unusual-litmus-test-for-us-nfp-hospitals-31-01-2024
Hospitalogy. (2024, July 2). HATCo: A marketing ploy or a serious health system transformation vehicle? Breaking down the Summa Health acquisition. https://hospitalogy.com/articles/2024-07-02/hatco-a-marketing-ploy-or-a-serious-health-system-transformation-vehicle-breaking-down-the-summa-health-acquisition/
Medium. (2024, January 19). We bought a hospital we couldn’t afford: General Catalyst becomes General Hospital. https://medium.com/@WellAI/we-bought-a-hospital-we-couldnt-afford-general-catalyst-becomes-general-hospital-3f5532267f30
Street of Walls. (n.d.). Leveraged buyout analysis. https://www.streetofwalls.com/finance-training-courses/investment-banking-technical-training/leveraged-buyout-analysis/
SummaCare. (2024). Quality ratings. https://www.summacare.com/about-us/quality-ratings
Summa Health. (2021, August 31). Summa’s Accountable Care Organization achieves significant savings in Medicare Shared Savings Program. https://www.summahealth.org/pressroom/allnews/2021/summas-accountable-care-organization-achieves-significant-savings-in-medicare-shared-savings-program
WYSO. (2024, July 18). Venture capital firm HATCo on track to acquire Summa Health by end of 2024. https://www.wyso.org/2024-07-18/venture-capital-firm-hatco-on-track-to-acquire-summa-health-by-end-of-2024
General Catalyst. (2024, October 8). The future of health. https://www.generalcatalyst.com/perspectives/the-future-of-health
Change.org. (2024, January 22). Petition to keep Summa Health nonprofit. https://www.change.org/p/petition-to-keep-summa-health-non-profit