Venture capital, private equity firms initiate or complete 3 major deals

In the last 10 days, a number of noteworthy venture capital and private equity acquisitions have made the headlines: An innovative deal announced at the start of the year took a substantial step forward, a vital Steward Health Care sale was finalized, and a health information technology deal worth more than $1 billion was inked.?

General Catalyst’s venture capital firm, Health Assurance Transformation (HATCo),?announced?Thursday that it has signed a definitive agreement to acquire Akron, Ohio-based?Summa Health?for $485 million. The two organizations signed a nonbinding letter of intent in January.?

“As part of HATCo, Summa Health will be better positioned to build upon our existing strengths and capabilities while also benefiting from new opportunities and technology,” said Dr. Cliff Deveny, Summa Health’s CEO. “Our goals are to expand access to care and improve the experience for our patients, providers, and staff. This is only the beginning of our long-term journey together.”?

According to the announcement, the combination of the purchase price and Summa Health’s current cash will allow the health system to pay off approximately $850 million in debt. Remaining cash will be used to fund a new, separately governed foundation that will support community health in the Greater Akron area.?

In addition, HATCo said it has committed $350 million in capital funding over a five-year period to ensure there are resources for “routine purposes” and investment in technology to support Summa Health’s growth. The company has committed another $200 million over seven years for strategic investments and innovation.?

Summa Health’s network includes two acute care hospitals, 15 community medical centers, a rehab hospital, a multi-specialty group practice, a health plan, and a charitable foundation. The nonprofit health system has more than 8,000 employees.?

The acquisition is subject to regulatory review. No estimate was provided for when the deal might close.?

Separately, Dallas-based?Steward Health Care?completed the sale of Stewardship Health, a provider organization that includes Steward Health Care Network and Steward Medical Group, to Rural Healthcare Group (RHG), a Nashville, Tenn.-based primary care provider organization that operates a total of 17 clinics in Tennessee and North Carolina.?

RHG, an affiliate of PE firm Kinderhook Industries, signed a definitive agreement in August to acquire Stewardship Health, which has a primary care provider network consisting of approximately 5,000 employed and affiliated providers across nine states, according to Steward Health Care.?

Although Kinderhook did not specify a purchase price in its?press release, news outlets reported it was a $245 million cash deal, an amount proposed in Steward Health’s bankruptcy court filing earlier this year.?

The consolidated company is being rebranded as?Revere Medical.?

“This is an exciting time for both Stewardship and RHG, now known as Revere Medical,” said Benson Sloan, CEO of Revere Medical. “Combining the organizations will allow for Revere Medical to accelerate the impact of our operating model across more providers, patients, and communities. The next step is to integrate the two organizations while making further investments to bolster the delivery of care. As Revere Medical, our mission of improving the lives of people in underserved areas through high-quality care remains unchanged.”

“Kinderhook is thrilled to partner with Benson Sloan, Dr. Joseph Weinstein [president of Stewardship Health], and the Stewardship team, who have exemplified their commitment to quality health care delivery, improved clinical outcomes, and providing an infrastructure for physicians to do what they love — serve their patients,” said Chris Michalik, managing director at Kinderhook Industries.?

“This partnership is the most recent example of Kinderhook’s dedication to enabling value-based, patient-first platforms that enhance the role of primary care at the center of [the] healthcare ecosystem,” said Matt Bubis, managing director at Kinderhook Industries.

And in another PE-related deal, Francisco Partners signed a definitive agreement to acquire?AdvancedMD, a cloud-based provider of medical office software based in South Jordan, Utah, from Global Payments for $1.1 billion, according to a?filing?with the Securities and Exchange Commission.?

AdvancedMD offers a cloud-native medical office software platform that unifies practice management, electronic health record, patient engagement, and payments software solutions, according to the?news release.?

Global Payments acquired AdvancedMD from Marlin Equity Partners in 2018 in a deal valued at $700 million, Fierce Healthcare reported.

Francisco Partners said it has invested in more than 450 technology companies in the 25 years since the firm was launched.?

Our Take: Research firm PitchBook noted in its third-quarter?Healthcare Services PE Update?report that although private equity-associated health care transactions were down 25% in the quarter relative to last year’s Q3, analysts are expecting more PE activity through the end of this year. Nonetheless, annual volume is expected to be 15% lower this year than last.?

Part of the drop is due to more intense state and federal regulatory scrutiny, though that appears to have eased somewhat as proposed legislation at the state level has stalled.?

The deal-making focus seems to be shifting toward health information technology and pharmaceutical services (specialty pharmacy in particular), and away from providers, the report suggests.?

Part of the reason may be that PE firms are having a harder time finding buyers for the physician practices they own and are therefore having to hold on to them longer, the authors of the report noted.

The analysts also found that value-based primary care companies have become less profitable for PE firms as many insurers have scaled back their Medicare Advantage plan offerings in some markets. ?

We wouldn’t be surprised to see PE-related acquisitions pick up considerably under the new administration, as federal oversight of M&A activity is likely to decrease.

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?HCR #174: Advancing Health Care Policies to Meet People's Needs, with Natalie Davis?

We frequently address policy issues on Health Care Rounds, but this week is a real treat. Our guest, Natalie Davis, co-founder and CEO of?United States of Care —an organization that includes?a?veritable?“Who’s Who”?in health care. Natalie joins us to share her thoughts on the current state of value-based care, AI’s growing role in it, and how she’s advocating for policy changes that could shape the future of healthcare in the US. Listen?here ?or wherever you get your podcasts, or watch the episode on?YouTube .

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What else you need to know

Steve Nelson has been appointed as Aetna’s president,?effective immediately, CVS Health?announced?Wednesday. Nelson served as CEO of UnitedHealthcare from 2017 to 2019, and more recently in the roles of president and CEO at ChenMed, a senior-focused primary care provider based in Florida. David Joyner, who previously led CVS Caremark and took over as CEO of CVS Health in mid-October, replacing Karen Lynch, announced the appointment during CVS’ third-quarter?earnings call.

According to the company’s?financial statements, the health care benefits segment, which includes Aetna, had an adjusted operating loss of $924 million for the quarter, compared with a profit of $1.5 billion in the same quarter of 2023. Much of the loss was due to higher-than-expected utilization; Aetna’s medical loss ratio for the most recent quarter was 95.2%, compared with 85.7% in the previous year’s third quarter. The company recorded premium deficiency reserves of approximately $1.1 billion during the third quarter related to anticipated losses for the 2024 coverage year.

Joyner said during the call that CVS “clearly underestimated the medical cost” when pricing its Medicare Advantage business for this year, noting there were also miscalculations for Aetna’s individual exchange business. He said CVS would “take the necessary actions to drive a multi-year earnings recovery at Aetna,” including benefit design and price changes in both MA and exchange plans, the restructuring of risk management processes, and operational changes. Joyner also said that by the end of this month CVS will have completed its three-year plan to close 900 stores and expects to close approximately 270 more in 2025.?

Wegovy (semaglutide) significantly reduced hospital admissions?and overall length of hospital stay in Novo Nordisk’s Phase III SELECT trial, which enrolled more than 17,000 adults with overweight or obesity and known heart disease, but without diabetes. Dr. Steven Kahn, an investigator in the study who is with the department of medicine at VA Puget Sound Health Care System and University of Washington, Seattle, said in a?press release, “This cohort of patients had a high rate of hospital admissions, but for those given once-weekly semaglutide 2.4 mg, we observed significant reductions in hospital admissions and overall time they spent in the hospital.”

The trial results showed that a first hospital admission for any cause occurred in 33.4% of those in the Wegovy group and in 36.7% of those in the placebo group. The number of total hospitalizations also was lower in the Wegovy group versus the placebo group (18.3 admissions per 100 patient years vs. 20.4), and hospital stays were shorter for Wegovy versus placebo (157.2 days per 100 patient years vs. 176.2 days).??(Disclosure: Novo Nordisk is a Darwin Research Group client.)

The U.S. Supreme Court heard oral arguments Monday in a case?focused on how the Department of Health and Human Services (HHS) calculates disproportionate share hospital (DSH) payments. The plaintiffs (a group of more than 200 hospitals that serve a large number of low-income patients) in Advocate Christ Medical Center v. Becerra, a lawsuit originally filed in 2017, claim HHS’ formula for calculating the DSH payments undercounts the number of patients that should be included. The core argument centers on interpretation of the phrase “entitled to supplemental security income (SSI) benefits.”

The plaintiffs say the phrase includes any individual who is enrolled in SSI, whereas HHS says the phrase includes only those who are enrolled in SSI and are entitled to cash benefits for the month in which the hospital stay occurred. The plaintiffs say the difference in interpretations is costing them approximately $1.5 billion annually. They also say their eligibility for the DSH payments has an impact on their entitlement to benefits programs such as the 340B Drug Pricing Program. A lower court ruled in HHS’ favor in 2022.?

CarePoint Health Systems filed for Chapter 11 bankruptcy on Nov. 3.?The Jersey City, N.J.-based system has obtained $67 million in financing to ensure its three hospitals remain open during the restructuring process, according to a?press release. Late last month, CarePoint Health’s nonprofit board of trustees formally?approved?a partnership agreement announced in January, under which the three hospitals — Bayonne Medical Center, Hoboken University Medical Center, and Christ Hospital — would affiliate with Secaucus, N.J.-based, for-profit Hudson Regional Hospital to form a network called Hudson Health System. Under the agreement, Hoboken University Medical Center and Christ Hospital would continue to operate as nonprofit entities.

In related news, Law360 reported on Tuesday that a magistrate judge partially denied CarePoint’s request to postpone a status conference and motion hearing in an antitrust lawsuit CarePoint brought against West Orange, N.J.-based RWJBarnabas in 2022. CarePoint alleges in the lawsuit that RWJBarnabas conspired with Horizon Blue Cross Blue Shield to send traffic to competing emergency departments without approval from the state’s health department. RWJBarnabas tried unsuccessfully to have the case dismissed a year ago.?

Cigna CEO David Cordani cast doubt on the likelihood of a revived merger?with Humana. During the company’s third-quarter?earnings call?on Oct. 31, Cordani said the company does not comment on “media rumors” before saying he wanted “to be very clear on the actions we are pursing.” He then said the company is continuing to use its excess free cash flow to buy back its stock. So far this year, Cigna’s repurchases total $5.7 billion, including more than $715 million last month. Cordani said Cigna expects to buy back more shares in the fourth quarter. Bloomberg reported in mid-October that Cigna and Humana had resumed their discussions of a potential merger, but industry analysts said the repurchases suggest that Cigna is not likely to pursue such a deal. ?

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What we’re reading

Chang(ing) Health Care: Bigger May Not Be Better, Just Necessary . Health Affairs, 11.1.24

100 hospitals and health systems with great oncology programs | 2024 . Becker’s Hospital Review, 11.8.24

I Am Nothing . NEJM Perspective, 11.2.24