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Analysis

Why Summa Health Wants to Be Under Beaumont's Umbrella

By Steven Porter  
   July 17, 2019

The nonprofit health system has been looking for a way to kickstart its own growth despite the relatively stagnant Akron area.

Summa Health CEO Cliff Deveny, MD, says he and the board have been "looking for a dose of Miracle-Gro" to fuel their strategic vision for the nonprofit health system. And they think they found precisely what they have been after.

The Akron, Ohio–based organization announced last week that it intends to become a wholly owned subsidiary of Beaumont Health, based in Southfield, Michigan. Although it would be part of a larger operation that straddles a state line, Summa Health would maintain its own local leadership and board. The tie-up could open doors, Deveny says, to growth opportunities well beyond the local market in which Summa Health currently operates—an attractive option in light of challenging market circumstances.

"Even though we are substantial in size, we have seen continued pressure on revenue by the expansion of Medicare and Medicaid in our population," Deveny says. "Our community is getting older, poorer, and smaller."

About 73% of Summa Health's payer mix now relies on government reimbursement, he says.

The population of Akron and the two-county area in which it is situated, just south of Cleveland, have remained largely stagnant in recent years, according to U.S. Census Bureau estimates. Unlike the health systems that serve metro areas experiencing annual population growth of 3% or more, where provider organizations can grow alongside their communities, health systems in sleepier markets often have an uphill battle.

"Since our community is not growing and we really didn't have the opportunity to enjoy some of what other communities are seeing, we really have to focus on forcing the growth, either through inorganic or organic ways and then taking the assets we have and maximizing those," Deveny tells HealthLeaders.

"With that, we knew if we didn't find a partner—if we didn't get an organization that scored high enough in our search—that we were going to go it alone and just incrementally grow and eke it out every year," Deveny says.

Related: Summa Health Pursuing Deal to Become Part of Beaumont Health

Going it alone, however, would have come with some tough choices, and Summa Health's leaders wanted to steer clear of any situation in which they would have to shutter certain services, he says. So the system sent a request for proposals last fall to about 30 organizations within 250–300 miles, with revenues of more than $3 billion, plus all the local organizations in northeastern Ohio, he says. The organization reasoned at the time that, although it was already "on a path of growth, its progress may be stymied without a partner that can help address market pressures."

Summa Health's team was pleased to find so many viable options, Deveny says.

Why Pick Beaumont?
 

Although there were multiple workable proposals to choose from, Summa Health's leaders identified Beaumont Health as the best option for several reasons, Deveny says, including the following:

  • Financial stability: Faced with big operating losses in 2017, Summa Health eliminated about 300 positions, shortly after Deveny was named interim CEO following his predecessor's resignation amid conflict with the system's physicians, as The Plain Dealer reported. The system finished 2017 with a $28 million operating loss then posted a $24 operating profit in 2018, according to its audited financial statements. Despite the improvement and the expectation that 2019 will be another strong year, Summa Health was drawn to the stability of Beaumont Health's financial position, Deveny says. Beaumont had total net revenues of more than $4.8 billion in 2018, up from $4.4 billion in 2017, according to the system's unaudited financial statement.
     
  • Growth potential: Pairing with Beaumont also gives Summa the ability to serve more than its immediate geographic area. Deveny says the partnership will enable his organization's insurance product, SummaCare, to expand to new markets in Ohio and to support risk-based health insurance contracts and services in Michigan, too.
     
  • Commitment to clinical services: Summa wanted a partner who would commit to clinical services in the local community where Summa already operates, including maternity services, behavioral health, and opioid treatment, Deveny says. Beyond simply making such a commitment, Beaumont is already demonstrating its leadership by partnering with Universal Health Services (UHS) to build a new behavioral health hospital, he adds.
     
  • Ability to fill gaps in specialty care: Beaumont is also positioned to feed Summa's coverage area with greater access to specialty care services, Deveny says. "With all of their training programs, they really rose to the top," he says. Beaumont hosts medical students in their third and fourth years of study, has more than 900 physicians-in-training across more than 100 programs, and offers continuing medical education opportunities.
     
  • Cultural fit: Deveny says he and the Summa Health board work well with Beaumont's team, including CEO John Fox. It's clear, he says, that the two teams share a similar vision and sensibility for the road ahead. (A spokesperson for Fox did not respond to an interview request to expound on his earlier statement.)

Summa had viable options within Ohio but decided to reach across Lake Erie because Beaumont checked every box on Summa's list, Deveny says.

"We really got everything we were looking for," he says.

Why Be Acquired?
 

Rather than becoming a wholly owned subsidiary of a larger system, Summa Health could have simply struck a partnership—but Summa had already tried that approach.

Cincinnati-based Mercy Health owns 30% of Summa and holds 16 seats on its board as part of a 10-year partnership agreement, as The Plain Dealer reported. Summa negotiated with Mercy before issuing its RFP last fall; if the planned deal is finalized, then Beaumont will redeem Mercy's equity at closing, Deveny says.

"We got a significant amount of value out of the Mercy relationship," he says, citing about $75 million in bottom-line improvement. But there were also limitations in a partnership arrangement.

"When there's not full all-in integration and commitment to each other, you don't really extract all the value and you continue to be somewhat defensive of what you have and your ways of doing things," Deveny says. "It's more 'we'/'they' than it is 'us.'"

Allan Baumgarten, a consultant and long-term observer of healthcare industry trends, says the Beaumont-Summa combination—much like the possible merger of Sanford Health, based in Sioux Falls, South Dakota, and UnityPoint Health, based in Des Moines, Iowa, announced last month—shows how health systems are increasingly willing to strike deals across state lines to form significant multi-state systems.

"I think it is a new example of a trend we're seeing more broadly, and that is the regional boundaries of a local market getting much more expansive," Baumgarten says.

Considering the feedback healthcare provider organizations have received from the Federal Trade Commission and other antitrust regulators, who have indicated a willingness to challenge consolidation in local geographic markets, the prospect that more systems will strike deals across state lines like this seems likely, Baumgarten adds.

"Some of the major systems have basically topped out in terms of how much they could continue to acquire locally as part of their growth strategy … so those health systems that are looking to expand are casting their nets over a much wider geographic territory and looking to expand across different states," he says.

Deveny says healthcare strategy leaders should seek out partners who value developing these super-regional-type organizations.

"In a lot of communities," he says, "you don't want to necessarily be pulled into a proxy war with two large organizations that may be going at it."

“When there's not full all-in integration and commitment to each other, you don't really extract all the value and you continue to be somewhat defensive...”

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Summa's reasons for seeing Beaumont as a strong partner include its financial support, clinical commitment, and leadership culture.

There's good reason to believe healthcare providers will pursue more partnerships across state lines like this.


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