Ohio’s largest hospital system is in talks to buy about a third of Summa Health System, the organizations’ leaders confirmed on Wednesday.
Under a proposed 10-year deal, Catholic Health Partners plans to make a lump-sum payment in exchange for the minority stake in the Akron-based health system, CHP President and Chief Executive Michael Connelly said during an interview with the Beacon Journal.
Connelly is in Akron this week to meet with Summa’s leaders following the recent announcement that the two health systems intend to join forces.
During a joint meeting with Summa President and Chief Executive Thomas J. Strauss, Connelly said CHP’s investment will be reflective of “a third of the value” of Summa. The exact formula to establish that value still is being determined.
In one measure of value, Summa generated about $1.4 billion in revenues in 2012. A third would be roughly $462 million.
The Cincinnati-based organization had $3.8 billion in net operating revenue last year.
Summa plans to use the money to stay financially healthy as federal programs and private insurers shift from a traditional fee-for-service system that pays hospitals and doctors for procedures, treatments and hospital stays to a new system that provides incentives to keep people healthy, Strauss said.
Hospitals could struggle financially if they don’t get paid as much for patients who still require hospital stays during the transition, he said. Summa officials have estimated those changes from federal health-care reform could cost it anywhere from $19 million to $90 million in revenues annually.
“We’re going to be driving utilization down in the hospital while they’re still paying based on the utilization and volume,” he said. “So we need to build our balance sheet, our capabilities to weather that transition during that period of time.”
Talks between Summa and the Cincinnati-based health system are proceeding well, with plans still on track to finalize a partnership agreement by the end of June or beginning of July, Strauss said.
Under the deal, Catholic Health Partners would get five of Summa’s 16 board seats, allowing local control to continue.
The Akron-based health system — Summit County’s largest employer — includes Akron City, St. Thomas, Barberton and Wadsworth-Rittman hospitals, SummaCare insurance, a physician practice and other owned and affiliated businesses.
Even after Catholic Health Partners becomes its minority owner, Summa won’t become a religious-based hospital system, Strauss said. Services at Summa won’t change after the deal is done.
“Our name won’t change,” he said. “Our brand won’t change. We won’t become a Catholic hospital.”
Though the hospital systems will remain independent, they will work together and share strategies to standardize and improve patient care while reducing costs, the CEOs said.
“We have the same values and philosophies about how to approach health care for the future,” Connelly said. “Our focus on strategies is really creating value-based health care. We want to follow evidence-based medicine, demonstrate quality and bring efficiency.”
Strauss said he’s impressed by CHP’s ability to maintain a strong operating margin while running hospitals that serve large uninsured populations.
CHP reported a 4.3 percent operating margin last year, while Summa had an operating margin of 1.5 percent rather than the 3.2 percent margin it had hoped to achieve.
“We’re both going to learn from each other’s best practices,” Strauss said.
Catholic Health Partners is particularly interested in Summa’s insurance arm, Connelly said.
The organizations together would command a 17 percent market share in the state — a sizable amount that could allow them to work together to develop new programs through SummaCare with the state for Medicaid enrollees, Connelly said.
SummaCare’s experience running a successful Medicare Advantage product also was a draw for CHP as more seniors opt to enroll in the optional managed-care insurance coverage, Connelly said. He estimates about a third of Ohio’s Medicare recipients are enrolled in Medicare managed-care plans.
CHP’s northern Ohio hospitals already joined SummaCare’s Medicare managed-care hospital network this year.
“Having a program like Summa’s with Medicare Advantage is very attractive,” Connelly said
Both already have established “accountable-care organizations,” the industry trend that brings together doctors, hospitals and other providers to coordinate care for a population of patients and then share any savings achieved. Each also is establishing “patient-centered medical homes,” a team-based, coordinated approach to providing primary care.
CHP owns 24 hospitals in Ohio and Kentucky, including facilities to the west of Akron in Toledo, Lima and Lorain and to the east in Youngstown and Warren.
“We are a perfect geographic fit,” Connelly said. “We help Summa and Summa helps us.”
While past mergers involved community hospitals seeking a bigger partner, large hospitals increasingly are exploring partnership opportunities with each other.
Earlier this month, the Cleveland Clinic announced it’s forming a “strategic alliance” with Tennessee-based Community Health Systems Inc., one of the nation’s largest for-profit hospital chains.
Under the five-year agreement, the organizations will remain independent but work together to share data, improve quality and boost efficiency.
Cheryl Powell can be reached at 330-996-3902 or cpowell@thebeaconjournal.com. Follow Powell on Twitter at twitter.com/abjcherylpowell.