Summa Health System announced a tentative deal this morning 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 and other owned and affiliated businesses.
Summa's board of directors has approved a letter of intent to finalize a partnership agreement, likely by mid-year.
The deal comes seven months after Summa confirmed it was seeking a "like-minded," larger hospital system as its partner and minority owner to strengthen its financial position and prepare for changes from health-care reform.
"We have had the unique opportunity to get to know several leading national health-care organizations throughout this process," Norman Wells Jr., chairman of the Board of Summa Health System, said in a news release. "Our experience with each has been extremely positive, and we have learned a great deal about what makes them successful. 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."
Catholic Health Partners (CHP) 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.
Summa will retain local control, according to the news release.
Catholic Health Partners brings to the table a history of strong financial performance, along with statewide dominance in the hospital market.
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.
The Catholic-sponsored health system has a leading 12 percent market share statewide and is among the largest health-care systems in the nation, according to a recent report from Fitch Ratings, an international credit rating agency. CHP is the leader in five of its six markets statewide.
In recent years, the Cincinnati-based health system divested three operating units in Pennsylvania and Tennessee and in the housing development field to focus on its core markets.
"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," Fitch Ratings analysts concluded.
For Catholic Health Partners, a partnership with Summa would give the statewide health system even greater market penetration in northern Ohio, where it already operates hospitals to the west of Akron in Toledo, Lima and Lorain and to the east in Youngstown and Warren.
CHP's other Ohio facilities are in the Cincinnati area and Springfield.
Mercy Medical Center in Canton is owned by the Sisters of Charity Health System, which is not part of CHP.
Industry experts have said potential partners likely would be attracted to Summa's insurance arm, SummaCare, which has about 230,000 enrollees and generates about a third of Summa's revenue.
While merger deals in the past typically involved community hospitals seeking a bigger partner, large hospitals throughout the state and nationwide 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. "The trend is probably picking up."
A number of factors are driving this trend, including health-care reform and the huge expense of adopting electronic health records, according to Lehman.
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," he said.
Access to capital is a major driver for many partnership talks, said J.B. Silvers, director of research at Case Western Reserve University's Health Systems Management Center in Cleveland.
"Larger systems have more access to capital than smaller systems," he said.
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.
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