Dr. Marc Harrison, who’s now CEO of HATCo, speaking on the Healthy Returns conference in Recent York City on May 21, 2019.
Astrid Stawiarz | CNBC
Dr. Marc Harrison is a unique form of enterprise capitalist.
He isn’t searching for the subsequent Mark Zuckerberg or Elon Musk. He isn’t hanging out at startup demo days. He’s definitely not posting life advice screeds to founders on X. (He hardly posts in any respect.)
Far faraway from the web hub of Silicon Valley, Harrison went to medical school within the late Nineteen Eighties and has spent the majority of the past 20 years on the upper ranks of medical systems, most recently as CEO of Intermountain Healthcare, a Utah-based nonprofit with 33 hospitals and over 63,000 employees.
In late 2022, Harrison joined enterprise firm General Catalyst, which has backed tech highfliers like Stripe, Snap and Airbnb. However the move to VC from health care hardly represented a profession change.
In January, General Catalyst announced it was buying Summa Health, a nonprofit integrated health system that supports greater than 1,000 inpatient beds across its network of hospitals, community-based health centers and its multi-specialty group practice. Summa operates across five counties in northeast Ohio and likewise runs a medical insurance entity.
Under its recent structure, Summa will change into a for-profit organization, and General Catalyst says it can introduce recent tech-enabled solutions that aim to make care more accessible and inexpensive.
General Catalyst set the stage for the deal when it brought in Harrison and, a yr later, introduced a recent company called the Health Assurance Transformation Corporation, or HATCo, that will operate on a “decades-long time horizon.” Harrison was named HATCo CEO, and is now in command of overseeing its work with Summa.
“That is the primary time that anybody has done anything quite like this,” Harrison, 60, told CNBC in an interview. “There are a lot of digital health solutions which can be on the market as point solutions. That is the primary holistic transformation of a health system to a thoughtful combination of digital and in-person care.”
The deal is not done.
Over the subsequent several months, HATCo and Summa will engage in a due diligence period, work to craft a definitive agreement and start to map out the particular challenges they hope to tackle. Within the latter half of the yr, the transaction will undergo the regulatory approval process.
The parties declined to share specific financial details in regards to the acquisition with CNBC, but HATCo desires to clarify that this is not just “one other ‘private equity’ deal,” Harrison wrote in an announcement. By that, he means the target is not to overhaul Summa by cutting costs.
Summa Health Medina Medical Center
Courtesy: Summa Health
History in health care
While buying a hospital is an unprecedented move within the enterprise industry, where firms rake in big piles of cash from institutional investors and seek to outperform the market, General Catalyst has a wealthy history within the broader health-care sector.
The 24-year-old firm has closed essentially the most deals in digital health since 2020, in response to data from PitchBook. Its portfolio corporations within the space include insurer Oscar and digital health company Livongo, which was acquired by Teladoc almost 4 years ago.
Hospitals are different though, and lots of are nonprofits for a reason. Providing health care is dear, and reimbursement rates can vary dramatically. With patients shouldering a lot of the load, a study last yr by the Urban Institute found that 73% of adults with medical debt owe hospitals at the very least a few of that cash.
An October report from Fitch Rankings said labor costs “remain stubbornly high,” and that controlling these expenses will probably be crucial if nonprofit hospitals want to cut back credit pressure and deliver stronger margins.
Conditions aren’t more likely to change overnight.
“We expect weak margins to persist through 2023 and into 2024 on account of an inelastic revenue model and better labor costs on account of still very tight labor conditions,” Fitch said.
General Catalyst says it wants Summa to function a “blueprint” that shows other health systems how delivering higher look after patients will also be “good for business.”
Experts like Ceci Connolly have concerns. Connolly, CEO of the Alliance of Community Health Plans, which represents nonprofit provider-aligned regional health plans, said she’s excited to see if the deal presents a recent approach that may address a few of the problems in health care. She’s just undecided how it can work.
“I could be lying if I didn’t say it gives me just a little little bit of pause that you will take a nonprofit, community-based health-care entity, and now have it answering to investors and needing to generate profits,” Connolly said.
Connolly’s viewpoint is smart. Limited partners — the endowments, sovereign wealth funds and pensions systems that put money into enterprise capital — look to the asset class as a bet on innovation in tech. It’s where billions can get minted on a single lucky bet.
“A whole lot of people feel like a PE or enterprise capital company owning a hospital is form of like asking Freddy Krueger to come back babysit your kids,” said John Bass, CEO of the health-care enterprise studio Hashed Health. “It just makes people just a little nervous, and it doesn’t feel quite aligned with this idea of health care being a human right.”
Still, Bass said he’s “thrilled” to see General Catalyst take big swings in health-care innovation, given all of the challenges the industry faces.
HATCo is capitalized outside of General Catalyst’s funds structure. It operates as a holding company inside General Catalyst and is totally independent from its enterprise business, the firm says, though it can collaborate with the investment team.
General Catalyst said HATCo is just not designed to comprehend returns through increases in volume-based revenue or cost cutting. As an alternative, it can work to generate recent revenue streams by introducing recent solutions and models of care.
Chris Bischoff has been leading General Catalyst’s health investments since 2021. The firm has been within the space for greater than a decade, and Bischoff said it’s come to view the health-care business as having two distinct but interrelated parts.
The primary is the “innovation side,” or the more traditional enterprise business, where General Catalyst works with entrepreneurs to create and scale recent solutions. The second is the “transformation side,” which now includes HATCo. The goal there’s to partner with health systems to try to speed up delivery and roll out recent tools.
“We see a very powerful flywheel between the 2,” Bischoff told CNBC in an interview.
Chris Bischoff speaks at Slush 2023.
Courtesy of General Catalyst
General Catalyst has teamed up with greater than 20 health systems across the U.S., Canada, the U.K. and Israel as a part of its transformation business. The partnerships are designed to share best practices and encourage collaboration. Bischoff said they assist reduce friction with regards to tech deployment, eliminating the necessity for a bunch of third parties to get entangled.
Some partners include HCA Healthcare, University of California Davis Health and Intermountain Healthcare, Harrison’s former employer. In a book published last yr about his work at Intermountain, Harrison wrote that General Catalyst was helping the hospital construct a recent marketplace, very like the App Store, for health care.
“Consider it this manner: Major airlines don’t construct their very own air-planes,” he wrote. “They work with a spread of partners to assist them deliver their offerings. To revolutionize how we look after patients, we in health care are doing the identical.”
The matter is personal for Harrison.
In 2009, he was diagnosed with bladder cancer, which was remedied due to “aggressive surgery,” Harrison wrote in his book.
But almost a decade later, he was diagnosed with multiple myeloma, a type of blood cancer, and things looked dire. After a failed bone marrow transplant, Harrison said he “scrambled” and tried a novel immunotherapy that eventually helped him get his condition under control.
“I do not understand how long this treatment and others I would try will contain my disease, so I’m not wasting a minute,” Harrison wrote.
If his athletic accomplishments are any indication, Harrison is not one to back down from a grueling fight. He’s a nine-time Ironman participant who represented the U.S. in 2014 on the world triathlon championship.
‘There’s numerous unused capability’
Michael Greeley, co-founder and general partner on the health tech VC firm Flare Capital Partners, said the health-care provider world is in “acute distress” as many organizations are attempting to operate on “razor thin profit margins.”
“There’s numerous unused capability, like beds which can be empty, because they literally do not have the labor to wash the rooms,” Greeley told CNBC in an interview. “It is a high fixed-costs business that, for those who cannot drive the amount through it, you are gonna lose money.”
On its FAQ page in regards to the acquisition, Summa said it’s in “sound financial standing” and on course to fulfill its targets. The organization reported $1.79 billion in revenue in 2022, up from $1.67 billion in 2021, in response to Summa’s annual reports.
Nevertheless, the organization said it might have a limited capability to speculate in growth or other improvements inside its existing structure since challenges like supply costs will proceed to harm its bottom line.
Summa had been available on the market for a partner since 2018. The subsequent yr it announced plans to merge with the Michigan-based system Beaumont Health. The organizations reached a definitive agreement that December, but Beaumont, now Corewell Health, suddenly pulled out months later without offering a public explanation.
Summa Health System – Akron Campus
Courtesy: Summa Health
Dr. Cliff Deveny, Summa’s CEO, said that within the years that followed, the organization hadn’t been capable of discover a health system with adequate digital health resources and technological ambitions, especially since many large providers are contending with similar financial constraints.
“We had been on a couple of 10-year journey of growing, but probably not making the transformational changes in and the way we run our business,” Deveny told CNBC in an interview. “We saw this as a strategy to really pivot and alter how we offer care.”
HATCo set its sights on Summa after scanning the broader health-care environment. Harrison said he was fortunate to fulfill Deveny early within the search.
Summa’s executive leadership team will remain intact, and the organization says it can proceed to supply the identical services to patients and the greater community.
Harrison said the executives may have to stay careful and rigorous about managing traditional operations, but that they are going to now have additional “money, time, people, technology.”
“This is just not like a turnaround, this is just not a distressed system,” Harrison said. “This is a wonderful system that has weathered perhaps essentially the most difficult time in health care that anybody’s ever experienced, and so they’ve done it well. And now they’re able to go to the subsequent level.”
HATCo said its primary objective is to bring sustainable and agile innovation to Summa, particularly through the introduction of recent platforms and tech solutions. The organization will even transition to what’s referred to as a value-based care model, which incentivizes preventative care and keeping patients healthy versus charging fees for services like appointments and procedures.
It’s an expensive undertaking, and aligning insurance payers, clinicians and patients behind a value-based care model is usually easier said than done.
Harrison said HATCo will likely use tech solutions from a few of General Catalyst’s portfolio corporations, in addition to from others. The tech corporations HATCo taps will probably be on the mature side, not early-stage startups, he added.
Ben Sutton, Summa’s operating chief, said the 2 organizations are also still evaluating what introducing recent technologies will appear to be in practice.
“We wish to construct it from the bottom up,” Sutton told CNBC. “We really need to be certain that that we’re tailoring those solutions to the challenges that we’re having here in Akron and within the region that we serve, and be certain that that we’re implementing things which can be most impactful immediately.”
Moreover, Summa will not operate as a nonprofit system. Summa said on its website it can start a recent community foundation as a way to maintain its commitment to charity care, however the Summa Health Foundation will not be operational.
We’re not ‘guinea pigs’
Summa supports a workforce of around 8,500 people, making it the largest employer in Summit County, home to the town of Akron. There’s some fear among the many locals about what happens next.
At a luncheon in late January, Akron Mayor Shammas Malik said residents and employees have expressed some confusion and concern in regards to the deal, in response to a report by Ideastream Public Media. Greater than 450 people have signed a petition urging Summa to stay a nonprofit and to halt negotiations with HATCo.
James Hardy, a member of Akron’s city council, said during a meeting on Jan. 22, that he opposed the sale, citing a “moral objection to the usage of Summa, its staff and its patients as ‘guinea pigs’ for enterprise capitalists.”
During his greater than six-minute speech, which was met at the tip with scattered applause, Hardy went on to ask that Summa pause the method and consider alternatives like converting the hospital to a “county-owned system.”
“The community has not been consulted in any respect and we stand to realize or lose essentially the most on the end result of this proposal,” Hardy said. “On the very least, Summa owes greater Akron a transparent process where concerns and questions of most people are asked and answered.”
Mayor Malik met with Harrison and Summa executives early in February, following the town council meeting, and had a “positive and thoughtful conversation” about their ambitions to create a “recent model” for health care as an alternative of creating cuts, the mayor said in an announcement to CNBC.
“When the proposed Summa acquisition, there are many fair and comprehensible concerns,” Malik said in an announcement. “There may be also the potential for this to be a really positive and transformative step for Summa, stabilizing a pillar of our community.”
Harrison has handled competing concerns previously. In his book, he wrote about steering Intermountain through the Covid pandemic, when health-care employees, government officials and Utah residents openly disagreed about the fitting path forward.
“Fairly than avoiding conflict or searching for to ram through it, we have accepted it as a fact of life and attempted to administer it adroitly and compassionately on behalf of progress,” Harrison wrote.
HATCo has a fancy, decades-long road ahead, and Harrison is now at the middle of an effort to point out that community-based health-care providers might be profitable without cutting costs or abandoning patients.
Flare Capital’s Greeley said other VCs are unlikely to follow General Catalyst’s lead due to all the prices and complexities involved in owning a hospital system. But he said he’s cheering the firm on from the sidelines.
“Hats off,” he said. “If anybody can pull it off, I believe they’ll have a fairly good shot.”
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