General Catalyst Buys a Hospital
Now what?
General Catalyst is starting out hot in 2024, announcing that they are acquiring Summa Health, an Ohio-based nonprofit health system. The news comes after General Catalyst spun out a company last year called the Health Assurance Transformation Corporation (HATCo) led by former Intermountain Healthcare CEO Marc Harrison, with plans to find a health system that they could purchase.
The news is making waves in the health tech world and also raising questions about the transition from non-profit to for-profit, changing revenue models, and adoption of new technology.
The biggest initial change is turning a non-profit health system into a for-profit one. On the surface, this may seem like something that is detrimental to care, especially for vulnerable populations. However, some analysis shows that even as non-profit hospitals’ profits increase, charity care doesn’t. This indicates that not all exemptions and funding for non-profits benefit the community they serve. Much of the cash reserves go to things like building new facilities in wealthier areas that generate more revenue, diverting funds from investments in vulnerable populations.
With that said, the concern with for-profit hospitals is they may not invest in local communities and just go after populations that will bring in the most money. General Catalyst recognizes this and they are addressing it by continuing the system’s charity care commitment which was $210 million in 2022. This is still a vague, large number and we don’t know what it will go into but at least it’s a commitment.
In 2022, Summa Health had a revenue of $1.8 billion and an operating loss of about $38 million. GC is definitely going to be looking to change this most likely with a combination of new revenue models and potential changes in practice infrastructure.
Risk contracts and value-based care will play a role here. However, as we know, this is better in theory rather than in practice of actually saving dollars. The concern is they’ll cut costs in ways that don’t necessarily benefit patient care, something that we’ve seen from private equity. This could involve shifting care from inpatient settings to outpatient surgery centers or, more drastically, eliminating unprofitable services altogether.
Many are concerned about the private equity model creeping in, but VC firms who have purchased health systems always mention that they are there for the long run and not for short-term gains. It’s a nice sentiment, but we’ll have to see what happens if the value-based care models don’t work and they need to find a way to make money.
The big plus of HATCo acquiring Summa Health is modernizing the healthcare system with the latest technology. GC already has partnerships with health systems and a payor to license its portfolio companies’ technologies. This acquisition will provide Summa Health access to these technologies and GC’s portfolio companies.
This is probably one of the biggest wins for GC. There was a ton of investment into the health tech space over the last few years and lots of that hasn’t gone anywhere. Having a health system they own can give their companies a place to implement their tools in the real world. The main concerns are patient care and provider preference (and if they get to decide what to use and what not to use). For now, GC is saying that only “mature” companies will be able to integrate with Summa Health. It’s still unclear what mature means, but it will likely focus on updating the system with existing tech rather than experimenting with new developments like generative AI right off the bat.
The GC announcement came as a shock to me. I didn’t expect them to find a hospital system so quickly (even though the deal is still pending). There are still a lot of open questions and implementation will likely be more complicated than we can imagine, but this is an intriguing step. If anything, it’s refreshing to see a new model, and if successful, I’m sure other VCs will follow suit.