Industry experts say Summa Health System should get a major boost from its new minority owner.
Catholic Health Partners is paying Summa $250 million in a deal that is scheduled to close as early as today, according to filings with the Ohio Attorney General’s office obtained by the Akron Beacon Journal.
In exchange, the Cincinnati-based statewide Catholic hospital system gets a 32 percent ownership stake in Summa, CHP leaders told investors at a recent meeting.
Summa is expected to announce more details in the coming weeks about its partnership with Catholic Health Partners (CHP), the state’s largest hospital system with 24 hospitals in Ohio and Kentucky and $5.6 billion in assets.
“I believe now that this relationship with Catholic Health Partners and this evolution with where health care is going is one of our defining moments,” said Thomas J. Strauss, Summa’s president and chief executive. “…We think this is going to be a powerful example, not only for the state but for the entire country.”
The deal still requires several approvals, Catholic Health Partners spokeswoman Liz Vogel said in an email on Saturday.
"We are excited and optimistic about the opportunity with Summa," she said. "However there are still several steps to take before the transaction can close. Among them, we must receive approval from Bishop Lennon at the Catholic Diocese of Cleveland and regulators from the Ohio Department of Insurance."
Summa is Summit County’s largest employer, with more than 11,000 workers if partially owned and affiliated ventures are included. It includes Akron City, St. Thomas, Barberton and Wadsworth-Rittman hospitals, SummaCare insurance, physician practices and partial ownership of Western Reserve Hospital and Crystal Clinic Orthopaedic Center.
Under the 10-year agreement, Catholic Health Partners will “assist Summa in achieving operating efficiency by leveraging our expertise and tools,” CHP leaders said in the presentation to investors.
Summa will pay for the consultation services, including monthly payments of $133,000 to national health-care financial consulting firm Kaufman Hall & Associates, according to public filings. The payments to the health care consultant continue throughout the negotiations of the deal, Summa spokesman Mike Bernstein said. Once the deal closes, the fees cease.
Four key areas
Strauss said Summa initially wants to work with CHP on four key areas: reducing the average length of stay for inpatient services, improving billing and collection, boosting productivity and reducing supply costs.
“Our hope is we’re going to learn from them,” Strauss said. “They do a very strong patient flow. It’s almost like a command center, where they have electronic monitoring of bed flow, along with the redesign of some of that clinical care to get the best use of the dollars.”
CHP is getting five of 15 seats on the Summa Health System board and will record 32 percent of Summa’s net income as “other operating revenue.”
The deal includes “substantial guardrails for performance expectations” that allow Catholic Health Partners to become more actively involved in Summa’s operations if targets aren’t achieved.
The partnership gives Summa access to cash — something Summa leaders say is needed as federal programs and private insurers shift from a system that pays hospitals for procedures, treatments and inpatient stays to a new system that provides incentives to keep people healthy.
The infusion of cash “of course will strengthen their credit profile,” said Adam Kates, a director at national bond ratings firm Fitch Ratings that follows both health systems.
But just as importantly, Kates said, Summa should benefit from CHP’s managerial expertise in revenue enhancement.
“I don’t think Summa is in a poor position,” he said. “I don’t believe they’re doing this as a necessity. I think what they did is they looked at the future of health care and health-care reform. I think they’re trying to be proactive and pursue a unique partnership without going the merger-acquisition route to address some strategic areas that they want to address.”
Humility of Mary Health Partners, which operates three hospitals in Trumbull and Mahoning counties, has seen reduced costs and improved quality from CHP’s consolidated services, President and Chief Executive Robert W. Shroder said.
Information technology, for example, is standardized and run out of Cincinnati, he said. The Youngstown-Warren market is in the process of taking over payroll responsibilities for all Catholic Health Partners facilities.
Systemwide, Catholic Health Partners expects to save $25 million to $35 million annually by consolidating finance, human resources, legal, marketing, payer contracting and other business operations, according to the report to investors.
“We’ve been able to save money, and the one that does it the best becomes how you do it across the system,” Shroder said.
Revenues exceed expenses
Despite operating in an economically challenged market, Humility of Mary’s revenues have exceeded expenses for at least five years. The strong finances are allowing St. Elizabeth Boardman Health Center to undergo a massive, $100 million expansion project.
Likewise, Mercy said being part of Catholic Health Partners since 1997 has helped its two hospitals in Lorain and Oberlin and its other ventures.
“As part of Catholic Health Partners, Mercy has the benefit of leveraging the strength of being part of the largest health system in Ohio,” Mercy spokesman LeeAnn Hastings said in an email. “This has been beneficial in a number of operational issues, such as negotiating contracts with vendors, the implementation of our electronic health record system at our employed physician practices and the use of regionalized services.”
Shroder said he expects Summa to see similar results.
“I think what we’ll do with Summa is we’ll talk about where the biggest bang for the buck is and we’ll talk with them about learning from us,” said Shroder, a top former executive with Barberton Hospital. “What they bring to us, I think they have incredible knowledge in the insurance market with SummaCare. I think our affiliation with Summa will actually improve us and, hopefully, it also helps them.”
Catholic Health Partners is stronger than Summa on several measures of financial health.
CHP reported a 3.4 percent operating margin last year, while Summa had an operating margin of 1.3 percent, rather than the 3.2 percent margin it had hoped to achieve.
Catholic Health Partners boasts a cash-to-debt ratio of 114 percent.
For CHP, “that means for ever $100 they borrow they have $114 sitting in financial assets,” said J.B. Silvers, director of research at Case Western Reserve University’s Health Systems Management Center in Cleveland. “If you liquidate the whole thing, they’d have an extra 14 percent left over. They’re doing real well with that. They have a pile of cash, they have a great margin and they’re growing like mad.”
Both organizations have credit-worthy ratings, but Catholic Health Partners is rated higher.
“They’re focused on being a low-cost provider,” Fitch Ratings’ Kates said of CHP. “Given their service areas and payer mix, they’ve had to focus on being extremely efficient.”
CHP has done a good job of building a statewide network of hospitals, many in suburban areas, while selling out-of-state facilities outside its core market, said Bill Banks, adjunct assistant professor of health economics in the University of Cincinnati’s master of health administration program.
“Catholic Health Partners, across Ohio, is really the only one that can say, ‘We spread throughout the whole state,’ ” Banks said.
CHP has a commanding 12 percent of market share in Ohio, ahead of Cleveland health-care giant Cleveland Clinic, which has 10 percent, according to Ohio Hospital Association data.
In its presentation to investors, CHP indicated it’s seeking deals that improve its market share, boost value for patients, strengthen the health system’s ability to get paid for value and promote the shift toward an integrated care model that covers the continuum of patient care.
The health system also recently announced a deal to acquire Kaiser Permanente Ohio’s insurance plan, physician practices and medical offices in Northeast Ohio.
The nonprofit Catholic Health Partners is sponsored by Sisters of Mercy, South Central Community; Sisters of Mercy, Mid-Atlantic Community; Sisters of Humility of Mary; Franciscan Sisters of the Poor; and Covenant Health Systems.
CHP maintains its ties to the Catholic church, as evidenced by its stance against a requirement under federal health-care reform for employers to provide health insurance that covers oral contraceptives and sterilizations without a copay.
Summa officials stressed that while the organizations have a mutual mission of caring for poor and underserved patients, they won’t share religious ties.
“We will not become a Catholic organization,” Strauss said. “But we have a statement of shared values that we believe in.”
Cheryl Powell can be reached at 330-996-3902 or email@example.com. Follow Powell on Twitter at twitter.com/abjcherylpowell.