University Hospitals, Western Reserve partnership changes Akron’s healthcare landscape yet again

The mix of hospital ownership in the Akron market has yet again shifted this month with University Hospitals gaining a minority interest in Western Reserve Hospital, an independent, physician-owned hospital in Cuyahoga Falls.

The partnership, which gives UH its first inpatient location in Summit County, builds on years of the providers of both institutions working alongside each other to serve patients in the Akron area, said UH president Dr. Cliff Megerian. The roughly four dozen UH physicians who practice in Summit County have often referred patients to Western Reserve Hospital — a for-profit, full-service, acute-care hospital with 89 staffed beds — when they needed to be admitted.

“So over a number of years, we became exceedingly impressed with the hospital and the quality of Western Reserve Hospital, and more importantly — or as importantly — the quality and the excellence of the physicians who are associated with that hospital,” Megerian said. “And so I think that led us to get closer, to have discussions, and it just seemed like the right thing to do after we got to know the leadership of both the hospital and the physician groups.”

Western Reserve Hospital declined to make someone available for an interview. Terms of the deal are not being disclosed.

UH’s partnership with Western Reserve Hospital also links it to the affiliated physician groups Pioneer Physicians Network and Unity Health Network. The totality of physicians coming together in this deal makes it a “formidable” group of physicians, said Megerian, who will take over as CEO of UH when Tom Zenty retires at the end of January.

The partnership with Western Reserve “fits very well” into his strategy going forward and rounds out Zenty’s strategy of substantial growth throughout his tenure, Megerian said.

Northeast Ohio is no stranger to its smaller community and independent hospitals affiliating in some way with UH or the Clinic. Through arrangements from partnerships to full acquisitions, the region’s two largest health systems have grown the reach of their brands exponentially in the past couple of decades.

The southern part of the region in particular has seen a lot of activity in recent years. The Clinic acquired Akron General Health System in 2015 and Union Hospital in Dover in 2018. It’s currently in the due diligence process with Sister of Charity Health System, exploring the possibility of Mercy Medical Center in Canton joining Cleveland Clinic. COVID-19 has slowed the process, which began when the two systems signed a letter of intent last fall.

Summa Health’s efforts to secure a partner ultimately fell apart in the spring when Southfield, Mich.-based Beaumont Health walked away from partnership plans after pausing the process to focus on COVID-19. The two were just days away from finalizing their agreement. Summa has no plans for a another formal partner search, said President and CEO Dr. Cliff Deveny, noting that, with COVID-19 still center stage, there’s no sense of immediacy to make a decision about partnerships.

As hospital leaders look down the road at potentially drastic changes in how health care is regulated, paid for and delivered, smaller organizations have turned to partners to gain capital, economies of scale, access to technology, supply chain efficiencies and more. This year, COVID-19 has added financial strain to many health care systems.

“In an environment where successful hospitals need capital, and they need to scale and have all sorts of other needs, it’s increasingly difficult for a smaller, provider-owned facility to compete,” said Allan Baumgarten, a Minnesota-based health care consultant who studies the Ohio market.

Western Reserve Hospital is the 19th hospital in UH’s network, which also includes more than 50 outpatient health centers across 16 counties.

Western Reserve Hospital, which opened its doors in 2009, was founded and is majority-owned by Western Reserve Hospital Partners, a group of more than 100 Northeast Ohio primary care physicians and specialists. The hospital spent more than three years in legal battles with Summa Health after a partnership between the two soured. The messy separation was completed at the end of 2017 with Summa selling the facility to Western Reserve Hospital and selling its 40% interest to a third-party investor.

Today, informal collaboration between the two has been a healthy way to work together to care for patients, Deveny said.

“We would wish UH well. We’ve had that partnership, and we’ve seen what works, what doesn’t work,” he said. “Sometimes, being in business together isn’t as healthy as maybe just having a relationship in the community. And my sense is we’ve got a very positive relationship with Western Reserve right now.”

Cleveland Clinic made its biggest play in the Akron market in 2015, when it took on full ownership of Akron General Health System a year after it became a minority investor.

At this point, Megerian said he doesn’t see UH eventually owning Western Reserve Hospital.

“That’s not really something that we are talking about,” he said. “We are, at this point, exceedingly pleased to be a partner with Western Reserve and maintain that going forward.”

Given the need to find efficiencies and expand expertise as the health care industry changes, the announcement from UH and Western Reserve Hospital wasn’t surprising, said Dr. Brian Harte, president of Cleveland Clinic Akron General.

In the years since Akron General joined the Clinic, the Cleveland-based system has invested in the Akron community with an injection of capital, added service lines and improved technology.

“As health care gets more and more complicated — as we’ve seen at the Cleveland Clinic — it really requires an investment in those resources,” Harte said.

How the Cleveland-based systems’ growing presence in the Akron area impacts market share is yet to be seen.

While UH and the Clinic have made their moves, Summa has continued to expand with outpatient services, including its ambulatory center at NEOMED (Northeast Ohio Medical University) in Rootstown and a new Stow-Kent ambulatory center.

“Those will obviously creep into both UH’s and then Cleveland Clinic’s market as well,” Deveny said. “It’s not hospitals. We think it’s a lower cost option to make expansions. We have specialists in Stark County as well. So everybody’s kind of doing the same thing, and the question is you know, at the end, will there be any net pickup or not? It’s to be seen at this point.”

Minority interest arrangements or partnerships that stop short of outright acquisitions may be more prevalent in the future. The middle-ground partnerships are a way of conserving capital, Baumgarten said.

“The Clinic and UH are huge organizations and … if they want to expand, if they want to acquire, they have cash flow, they have cash reserves, they can easily bond,” he said. “They have a lot of ways of financing but it’s not unlimited. And so I think they are looking to use their capital in the best way possible. And so in this case, making a limited investment and not a full acquisition may be what they think is the most strategic kind of approach to be taking.”

UH and Western Reserve Hospital are working together to inventory services, examine needs and create a plan for what services could be added.

“A very significant portion of the Akron market is attached already in some way to WRH,” Megerian said. “And the fact that we can enhance the service delivery so those patients can remain under the care of their doctors … with perhaps extended services delivered by our doctors who are now their partners, I think gives — I hope gives — comfort to that group of patients.”