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What the General Catalyst Plan to Buy a Health System Could Mean for Future VC Business

Analysis  |  By Jay Asser  
   October 13, 2023

It's a potentially seismic strategy that will further close the divide between venture capital and providers.

Venture capital firms are no strangers to acquiring and restructuring hospitals, but their relationship with healthcare has generally stopped short of direct ownership to influence how care is provided.

However, that's exactly what General Catalyst is attempting to do through its bold move of buying a health system as a testing ground for new technology. The venture capital firm announced its eyebrow-raising intentions at the HLTH conference, where it publicly launched a business spinout called Health Assurance Transformation Corporation (HATCo). Former Intermountain Health CEO Marc Harrison will lead the new company, working alongside General Catalyst managing director Hemant Taneja.

While Harrison and Taneja did not divulge key details such as which health system they are looking to purchase, when the acquisition would happen, or for how much, the announcement at HLTH and through their blog post signals a potentially unprecedented shift in how venture capital can break down walls between it and providers.

"[It] is another step in GC's move to 'transcend' venture capital," Harrison and Taneja wrote in the blog. "We've said that achieving HATCo's mission will require a long-term orientation that existing fund structures cannot support."

Venture capital firms don't usually buy health systems due to the thin margins and regulatory challenges. It's a high-risk, low-reward business decision for players whose main objective is to squeeze out profits.

What General Catalyst is trying to do through its impending purchase is change the paradigm. The venture firm already partners with 20 health systems across 43 states that test out technology developed by its portfolio companies, but the firm is now seeking to implement new technology without being restricted by cash-strapped and risk-averse providers.

The private equity model is all about reducing costs and in many ways, General Catalyst is hoping to do the same, but Harrison and Taneja said the commitment to technology and innovation will give "health systems the opportunity to capitalize on new revenue streams, which (in turn) should allow them to invest in more innovation and in servicing their communities. In addition, HATCo will look to foster the creation of scaled platforms (rather than fragmented point solutions) that can provide the missing technology pieces of the puzzle."

The other aim of General Catalyst's plan is to leverage its technology to implement a value-based care model that demonstrates it can be both better for patients and profitable for business. Part of HATCo's vision is to use AI and data analytics to prevent patients' conditions from developing or worsening, thereby reducing the need for costly services.

It's not too dissimilar to what Kaiser Permanente is striving for with its launch of Risant Health, which is focused on delivering value-based care through technology to its acquired health systems. Where HATCo is attempting to differentiate is by creating a blueprint with its health system that can be applied elsewhere.

HATCo also wants to deviate from the typical timeline of venture capital acquisitions—the thinking isn't years-long, but decades-long. It's a long-term play that Harrison and Taneja say they have the capital and stomach to see through.

"The transformation of our healthcare system is not a short-term endeavor," they wrote. "Even venture's decade-long return horizons are insufficient to effect real, systemic change. HATCo aims to create a new standard of healthcare investing and set expectations for investors to think longer term."

The suggested timeframe means other venture capital firms may have to wait a while to see if General Catalyst's unprecedented maneuver pays off, but before the full results are even realized, the process could embolden other firms to make similar leaps.

Regardless, it's becoming more and more clear that the future of hospital and health system mergers and acquisitions will be driven by technology and the role it can play in not just refining healthcare, but overhauling it.

“[It] is another step in GC's move to 'transcend' venture capital. We've said that achieving HATCo's mission will require a long-term orientation that existing fund structures cannot support.”

Jay Asser is the contributing editor for strategy at HealthLeaders. 


General Catalyst announced it is forming a new business called Health Assurance Transformation Corporation (HATCo) to purchase an unnamed health system as a way to test new technology and improve care.

HATCo is aiming to leverage its technology to deliver value-based care and generate profits that sustain the business for decades.

It's a sizeable risk for a venture capital firm to buy a health system, but General Catalyst could provide a blueprint for other firms to follow, even before the results are fully realized.

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