Summa Health System announced a tentative deal Thursday to join with Catholic Health Partners, the largest hospital system in Ohio.
Under the plan, the nonprofit Catholic health system will get an undisclosed minority ownership stake in Summa, which includes Akron City, St. Thomas, Barberton and Wadsworth-Rittman hospitals, SummaCare insurance, a physician practice and other owned and affiliated businesses.
Summa’s board of directors has approved a letter of intent to finalize a partnership agreement, likely by midyear.
The deal comes seven months after Summa confirmed it was seeking a minority owner to strengthen its financial position and prepare for changes from health-care reform.
The health system leaders said they will work together to enhance productivity and payment collection, reduce supply costs, boost quality and enhance value for consumers in their markets.
“We believe collectively we will help lead the transformation of health care, not only in our local markets but how the state of Ohio will move,” said Thomas J. Strauss, Summa’s president and chief executive.
The financial terms and the exact percentage of CHP’s ownership stake were not disclosed as negotiations continue. However, Summa leaders stressed the Akron-based hospital system will retain local control and majority ownership.
Catholic Health Partners owns 24 hospitals throughout Ohio and Kentucky, employs more than 33,000 people and reports $5.6 billion in assets.
The Cincinnati-based organization had $3.8 billion in net operating revenue in 2012, compared to revenues of about $1.4 billion for Summa.
Summa is Summit County’s largest employer, with more than 11,000 workers if partially owned and affiliated ventures are included.
Catholic Health Partners brings to the table a history of strong financial performance, along with statewide dominance in the hospital market.
“CHP’s effective management controls have been crucial in the system’s steady historical operating performance despite weak economic and demographic profiles in certain of its regional markets,” concluded analysts with Fitch Ratings, an international credit-rating agency.
CHP reported a healthy 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.
Last month, Summa laid off 54 employees as it contends with lower-than-expected revenues and prepares for looming changes from health-care reform.
Summa talked with 10 large hospital systems throughout the state and nationwide before selecting Catholic Health Partners because of shared “visions and values,” said Richard H. Marsh, immediate past chair of Summa’s board of directors.
“When looking specifically at what is most important to us, I am confident that Catholic Health Partners is the right group to join us on our journey to transform the delivery of health-care,” Norman Wells Jr., chairman of the board of Summa Health System, said in a news release.
CHP and Summa have an existing relationship, with several of CHP’s facilities joining SummaCare’s Medicare managed-care plans’ hospital network at the beginning of the year.
Both also have “accountable-care organizations,” the industry trend that brings together doctors, hospitals and other providers to coordinate patient care and then share any savings achieved.
For Catholic Health Partners, a partnership with Summa provides even greater market penetration in northern Ohio, where it owns hospitals to the west of Akron in Toledo, Lima and Lorain and to the east in Youngstown and Warren.
Mercy Medical Center in Canton is owned by the Sisters of Charity Health System, which is not part of CHP.
Together, CHP and Summa would command a 17 percent market share in Ohio, according to CHP President and Chief Executive Michael Connelly. CHP already has a leading 12 percent statewide market share.
“We believe that health care, as it evolves, is going to become driven by state activities,” he said. “If you’re going to respond to these kinds of changes, you’re really much more effective when you have a significant presence in the state.”
SummaCare part of deal
Industry experts have said potential partners likely would be attracted by Summa’s insurance arm, SummaCare, which has about 230,000 enrollees and generates about a third of Summa’s revenue.
CHP has a venture to manage health benefits for self-insured employers and has been considering expansion of its insurance business, Connelly said.
While past mergers involved community hospitals seeking a bigger partner, large hospitals increasingly are exploring partnership opportunities with each other, said Cliff Lehman, senior vice president of member services and operations for the Ohio Hospital Association.
“More in the last year, we’ve seen larger systems partnering with larger systems,” he said.
As hospital systems begin taking on more of the financial risk for managing the health of patients under health reform, “you want to spread that over a larger group,” Lehman said.
Access to capital is another major driver for partnership talks, said J.B. Silvers, director of research at Case Western Reserve University’s Health Systems Management Center in Cleveland.
Summa and rival Akron General Health System also are facing increased competitive pressure as the Cleveland Clinic and University Hospitals “edge their facilities closer to Akron,” he said.
In a prepared statement on Thursday, Akron General Health System President and Chief Executive Dr. Thomas “Tim” Stover said Summa’s deal with CHP “does not steer us off our own course of providing exceptional health-care services to the people and communities we serve.”
Stover has acknowledged his organization also is considering partnership opportunities.
Cheryl Powell can be reached at 330-996-3902 or email@example.com. Follow Powell on Twitter at twitter.com/abjcherylpowell.