Dr. Marc Harrison, who’s now CEO of HATCo, talking on the Healthy Returns convention in New York City on May 21, 2019.
Astrid Stawiarz | CNBC
Dr. Marc Harrison is a unique sort of enterprise capitalist.
He’s not in search of the subsequent Mark Zuckerberg or Elon Musk. He’s not hanging out at startup demo days. He’s positively not posting life recommendation screeds to founders on X. (He hardly posts in any respect.)
Far faraway from the web hub of Silicon Valley, Harrison went to medical college within the late Nineteen Eighties and has spent the majority of the previous twenty years on the higher ranks of medical methods, most not too long ago as CEO of Intermountain Healthcare, a Utah-based nonprofit with 33 hospitals and over 63,000 staff.
In late 2022, Harrison joined enterprise agency General Catalyst, which has backed tech highfliers like Stripe, Snap and Airbnb. But the transfer to VC from well being care hardly represented a profession change.
In January, General Catalyst introduced it was shopping for Summa Health, a nonprofit built-in well being system that helps greater than 1,000 inpatient beds throughout its community of hospitals, community-based well being facilities and its multi-specialty group follow. Summa operates throughout 5 counties in northeast Ohio and in addition runs a medical insurance entity.
Under its new construction, Summa will grow to be a for-profit group, and General Catalyst says it can introduce new tech-enabled options that purpose to make care extra accessible and inexpensive.
General Catalyst set the stage for the deal when it introduced in Harrison and, a yr later, launched a brand new firm referred to as the Health Assurance Transformation Corporation, or HATCo, that might function on a “decades-long time horizon.” Harrison was named HATCo CEO, and is now in control of overseeing its work with Summa.
“This is the first time that anybody has done anything quite like this,” Harrison, 60, instructed CNBC in an interview. “There are many digital health solutions that are out there as point solutions. This is the first holistic transformation of a health system to a thoughtful combination of digital and in-person care.”
The deal is not accomplished.
Over the subsequent a number of months, HATCo and Summa will have interaction in a due diligence interval, work to craft a definitive settlement and start to map out the precise challenges they hope to sort out. In the latter half of the yr, the transaction will undergo the regulatory approval course of.
The events declined to share particular monetary particulars concerning the acquisition with CNBC, however HATCo needs to clarify that this is not simply “another ‘private equity’ deal,” Harrison wrote in a press release. By that, he means the target is not to overtake Summa by slicing prices.
Summa Health Medina Medical Center
Courtesy: Summa Health
History in well being care
While shopping for a hospital is an unprecedented transfer within the enterprise trade, the place corporations rake in huge piles of cash from institutional buyers and search to outperform the market, General Catalyst has a wealthy historical past within the broader health-care sector.
The 24-year-old agency has closed essentially the most offers in digital well being since 2020, based on information from PitchBook. Its portfolio firms within the area embrace insurer Oscar and digital well being firm Livongo, which was acquired by Teladoc virtually 4 years in the past.
Hospitals are completely different although, and plenty of are nonprofits for a motive. Providing well being care is pricey, and reimbursement charges can fluctuate dramatically. With sufferers shouldering a lot of the load, a research final yr by the Urban Institute discovered that 73% of adults with medical debt owe hospitals a minimum of a few of that cash.
An October report from Fitch Ratings stated labor prices “remain stubbornly high,” and that controlling these bills will probably be essential if nonprofit hospitals wish to cut back credit score strain and ship stronger margins.
Conditions aren’t more likely to change in a single day.
“We expect weak margins to persist through 2023 and into 2024 due to an inelastic revenue model and higher labor costs due to still very tight labor conditions,” Fitch stated.
General Catalyst says it needs Summa to function a “blueprint” that reveals different well being methods how delivering higher take care of sufferers will also be “good for business.”
Experts like Ceci Connolly have considerations. Connolly, CEO of the Alliance of Community Health Plans, which represents nonprofit provider-aligned regional well being plans, stated she’s excited to see if the deal presents a brand new strategy that may handle among the issues in well being care. She’s simply undecided the way it will work.
“I would be lying if I didn’t say it gives me a little bit of pause that you are going to take a nonprofit, community-based health-care entity, and now have it answering to investors and needing to generate profits,” Connolly stated.
Connolly’s viewpoint is smart. Limited companions — the endowments, sovereign wealth funds and pensions methods that put cash into enterprise capital — look to the asset class as a wager on innovation in tech. It’s the place billions can get minted on a single fortunate wager.
“A lot of people feel like a PE or venture capital company owning a hospital is kind of like asking Freddy Krueger to come babysit your kids,” stated John Bass, CEO of the health-care enterprise studio Hashed Health. “It just makes people a little nervous, and it doesn’t feel quite aligned with this concept of health care being a human right.”
Still, Bass stated he is “thrilled” to see General Catalyst take huge swings in health-care innovation, given all of the challenges the trade faces.
HATCo is capitalized outdoors of General Catalyst’s funds construction. It operates as a holding firm inside General Catalyst and is totally unbiased from its enterprise enterprise, the agency says, although it can collaborate with the funding group.
General Catalyst stated HATCo is just not designed to comprehend returns via will increase in volume-based income or price slicing. Instead, it can work to generate new income streams by introducing new options and fashions of care.
Chris Bischoff has been main General Catalyst’s well being investments since 2021. The agency has been within the area for greater than a decade, and Bischoff stated it is come to view the health-care enterprise as having two distinct however interrelated elements.
The first is the “innovation side,” or the extra conventional enterprise enterprise, the place General Catalyst works with entrepreneurs to create and scale new options. The second is the “transformation side,” which now consists of HATCo. The purpose there’s to associate with well being methods to attempt to pace up supply and roll out new instruments.
“We see a really powerful flywheel between the two,” Bischoff instructed CNBC in an interview.
Chris Bischoff speaks at Slush 2023.
Courtesy of General Catalyst
General Catalyst has teamed up with greater than 20 well being methods throughout the U.S., Canada, the U.Ok. and Israel as a part of its transformation enterprise. The partnerships are designed to share finest practices and encourage collaboration. Bischoff stated they assist cut back friction in terms of tech deployment, eliminating the necessity for a bunch of third events to become involved.
Some companions embrace HCA Healthcare, University of California Davis Health and Intermountain Healthcare, Harrison’s former employer. In a ebook revealed final yr about his work at Intermountain, Harrison wrote that General Catalyst was serving to the hospital construct a brand new market, very like the App Store, for well being care.
“Think of it this way: Major airlines don’t build their own air-planes,” he wrote. “They work with a range of partners to help them deliver their offerings. To revolutionize how we care for patients, we in health care are doing the same.”
The matter is private for Harrison.
In 2009, he was identified with bladder most cancers, which was remedied due to “aggressive surgical treatment,” Harrison wrote in his ebook.
But virtually a decade later, he was identified with a number of myeloma, a type of blood most cancers, and issues seemed dire. After a failed bone marrow transplant, Harrison stated he “scrambled” and tried a novel immunotherapy that ultimately helped him get his situation below management.
“I don’t know how long this treatment and others I might 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 again down from a grueling battle. He’s a nine-time Ironman participant who represented the U.S. in 2014 on the world triathlon championship.
‘There’s loads of unused capability’
Michael Greeley, co-founder and common associate on the well being tech VC agency Flare Capital Partners, stated the health-care supplier world is in “acute distress” as many organizations try to function on “razor thin profit margins.”
“There’s a lot of unused capacity, like beds that are empty, because they literally don’t have the labor to clean the rooms,” Greeley instructed CNBC in an interview. “It’s a high fixed-costs business that, if you can’t drive the volume through it, you’re gonna lose money.”
On its FAQ web page concerning the acquisition, Summa stated it is in “sound financial standing” and on observe to satisfy its targets. The group reported $1.79 billion in income in 2022, up from $1.67 billion in 2021, based on Summa’s annual reviews.
However, the group stated it might have a restricted capability to spend money on progress or different enhancements inside its present construction since challenges like provide prices will proceed to harm its backside line.
Summa had been in the marketplace for a associate since 2018. The subsequent yr it introduced plans to merge with the Michigan-based system Beaumont Health. The organizations reached a definitive settlement that December, however Beaumont, now Corewell Health, immediately pulled out months later with out providing a public rationalization.
Summa Health System – Akron Campus
Courtesy: Summa Health
Dr. Cliff Deveny, Summa’s CEO, stated that within the years that adopted, the group hadn’t been capable of finding a well being system with sufficient digital well being assets and technological ambitions, particularly since many massive suppliers are contending with related monetary constraints.
“We had been on about a 10-year journey of growing, but not really making the transformational changes in and how we run our business,” Deveny instructed CNBC in an interview. “We saw this as a way to really pivot and change how we provide care.”
HATCo set its sights on Summa after scanning the broader health-care atmosphere. Harrison stated he was lucky to satisfy Deveny early within the search.
Summa’s government management group will stay intact, and the group says it can proceed to supply the identical providers to sufferers and the higher group.
Harrison stated the executives must stay cautious and rigorous about managing conventional operations, however that they’ll now have extra “money, time, people, technology.”
“This is not like a turnaround, this is not a distressed system,” Harrison stated. “This is an excellent system that has weathered maybe the most difficult time in health care that anybody’s ever experienced, and they’ve done it well. And now they’re ready to go to the next level.”
HATCo stated its main goal is to carry sustainable and agile innovation to Summa, significantly via the introduction of latest platforms and tech options. The group may even transition to what’s generally known as a value-based care mannequin, which incentivizes preventative care and conserving sufferers wholesome versus charging charges for providers like appointments and procedures.
It’s an costly endeavor, and aligning insurance coverage payers, clinicians and sufferers behind a value-based care mannequin is usually simpler stated than accomplished.
Harrison stated HATCo will possible use tech options from a few of General Catalyst’s portfolio firms, in addition to from others. The tech firms HATCo faucets will probably be on the mature aspect, not early-stage startups, he added.
Ben Sutton, Summa’s working chief, stated the 2 organizations are additionally nonetheless evaluating what introducing new applied sciences will seem like in follow.
“We want to build it from the ground up,” Sutton instructed CNBC. “We really want to make sure that we’re tailoring those solutions to the challenges that we’re having here in Akron and in the region that we serve, and make sure that we’re implementing things that are most impactful immediately.”
Additionally, Summa will not function as a nonprofit system. Summa stated on its web site it can begin a brand new group basis with the intention to keep its dedication to charity care, however the Summa Health Foundation will not be operational.
We’re not ‘guinea pigs’
Summa helps a workforce of round 8,500 individuals, making it the largest employer in Summit County, house to town of Akron. There’s some worry among the many locals about what occurs subsequent.
At a luncheon in late January, Akron Mayor Shammas Malik stated residents and staff have expressed some confusion and concern concerning the deal, based on a report by Ideastream Public Media. More than 450 individuals have signed a petition urging Summa to stay a nonprofit and to halt negotiations with HATCo.
James Hardy, a member of Akron’s metropolis council, stated throughout a gathering on Jan. 22, that he opposed the sale, citing a “moral objection to the use of Summa, its staff and its patients as ‘guinea pigs’ for venture capitalists.”
During his greater than six-minute speech, which was met on the finish with scattered applause, Hardy went on to ask that Summa pause the method and take into account alternate options like changing the hospital to a “county-owned system.”
“The community has not been consulted at all and we stand to gain or lose the most at the outcome of this proposal,” Hardy stated. “At the very least, Summa owes greater Akron a transparent process where concerns and questions of the general public are asked and answered.”
Mayor Malik met with Harrison and Summa executives early in February, following town council assembly, and had a “positive and thoughtful conversation” about their ambitions to create a “new model” for well being care as an alternative of constructing cuts, the mayor stated in a press release to CNBC.
“When looking at the proposed Summa acquisition, there are plenty of fair and understandable concerns,” Malik stated in a press release. “There is also the potential for this to be a very positive and transformative step for Summa, stabilizing a pillar of our community.”
Harrison has handled competing considerations up to now. In his ebook, he wrote about steering Intermountain through the Covid pandemic, when health-care employees, authorities officers and Utah residents overtly disagreed about the appropriate path ahead.
“Rather than avoiding conflict or seeking to ram through it, we’ve accepted it as a fact of life and attempted to manage it adroitly and compassionately on behalf of progress,” Harrison wrote.
HATCo has a fancy, decades-long street forward, and Harrison is now on the heart of an effort to point out that community-based health-care suppliers will be worthwhile with out slicing prices or abandoning sufferers.
Flare Capital’s Greeley stated different VCs are unlikely to comply with General Catalyst’s lead due to all the prices and complexities concerned in proudly owning a hospital system. But he stated he is cheering the agency on from the sidelines.
“Hats off,” he stated. “If anybody can pull it off, I think they’ll have a reasonably good shot.”
WATCH: Health care has extra upside forward
Source: www.cnbc.com”