Healthcare Consolidation: M&A Not the Only Way
The answer is complex, but it determines whether your organization can stay somewhat independent (as Summa will be able to do in Ohio) or whether it needs a capital-rich acquirer that will essentially take over big portions of the management of your hospital or system.
Summa was very attractive, says Tom Strauss, its president and CEO, who adds that while Summa had recently recorded some of its best years in terms of margin, it lacked the scale to compete over the long term.
Recognizing its position of strength, however, let Summa control the process of finding a partner, as well as retain local governance and its majority interest in Summa (the minority investment CHP made in the partnership has not been disclosed). Some 10 organizations, which Strauss calls "like-minded nonprofits" were interested, and Summa took five of those to face-to-face meetings. Three were selected as finalists before the CHP deal was announced at the end of February.
Of course Summa has been on the other side of this kind of transaction many times since 2007, Strauss says. In 2007, it consisted of three hospitals and a health plan. Now there are eight hospitals and a health plan with 250,000 lives.
That track record of successful integration proved potent when Summa began shopping for a partner that could deliver scale. Critically, CHP fit beautifully in terms of a vision for the future, Strauss says.
"We think local autonomy and control is important, but most important is the belief by both organizations that the future of healthcare is not to grow mass and raise our prices to burden the employers in our communities," Strauss says.
Both organizations are committed to some of the value-based programs that have recently roiled the healthcare marketplace. Both are enrolled in CMS' accountable care organization program, and both were among the few organizations that received a shared savings award from CMS in 2012. Both are advanced in the creation of patient-centered medical homes through their owned and affiliated physician practices.
"We know that if we can combine these synergies, we can impact not only the health status of our communities but also decrease the total cost of care for our communities," says Strauss.
For his part, CHP's Connelly says health systems have to stretch for scale, even though CHP is by far the larger of the two organizations. But he also notes Summa's particular attributes that fit well with CHP, and may not have fit as well with the other two organizations Summa chose as finalists.
For one, says Connelly, Summa has all of the elements of an integrated delivery system. They have a well-organized and highly reputable employed physician group, "which is the top of the pyramid in terms of the importance of reform," says Connelly.
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