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Academic Medicine:
doi: 10.1097/ACM.0b013e3181f85a36
Commentary

Commentary: What Happens When a Combined Entity Is Lesser Than the Sum of Its Parts?

Davis, Kenneth MD

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Dr. Davis is president and CEO, The Mount Sinai Medical Center, New York, New York.

Editor's Note: This is a commentary on Kastor JA. Failure of the merger of the Mount Sinai and NYU hospitals and medical schools: Part 1. Acad Med. 2010;85:1823–1827; and Kastor JA. Failure of the merger of the Mount Sinai and NYU hospitals and medical schools: Part 2. Acad Med. 2010;85:1828–1832.

Correspondence should be addressed to Dr. Davis, The Mount Sinai Medical Center, 1425 Madison Avenue, New York, NY; telephone: (212) 659-8888; fax: (212) 659-9800; e-mail: kenneth.davis@mssm.edu.

First published online September 17, 2010.

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Abstract

Elsewhere in this issue, Kastor examines the failed merger of the Mount Sinai and New York University (NYU) medical schools and hospitals. The failure of the merger is even more remarkable today than it was when the hospitals began disassociating in 2001. Today, both Mount Sinai and NYU hospitals and medical schools are stronger than they were when merger discussions began, and they are certainly far stronger than when the merger began to unwind. This fact calls into question the validity of the assumptions that initiated the desire to merge, as well as the execution of the merger. The author of this commentary offers his perspective as a leader with more than 40 years of experience at Mount Sinai. He examines the reasons behind dissolving the merger and the factors that have led to Mount Sinai's success since then.

The failure of the merger of the Mount Sinai and New York University (NYU) hospitals and medical schools is even more remarkable today than it was when the hospitals began disassociating in 2001. Today, the hospitals and medical schools of both institutions are stronger than they were when merger discussions began, and they are certainly far stronger than when the merger began to unwind. This fact calls into question both the validity of the assumptions that initiated the desire to merge, as well as the execution of the merger.

My perspective on the merger is not without bias. My entire medical career has been inseparable from Mount Sinai. I was a member of the second class of the Mount Sinai School of Medicine, entering the institution in 1969. For all but six years of my career I have been at Mount Sinai, first as chief of psychiatry at the Bronx Veterans Administration Hospital, then as chairman of psychiatry for Mount Sinai School of Medicine, as dean of the School of Medicine, and currently as president and CEO of The Mount Sinai Medical Center, a position I have held since early 2003.

During the 40-plus years that I have been part of Mount Sinai, there was no more perilous time than the period from 2001 through the end of 2003 when the merger with NYU was unraveling. By 2001, both boards of trustees had acknowledged that the merger was not working, auguring a period of extreme operational and financial chaos for Mount Sinai. Bond ratings plunged, faculty left, key management sought other positions, consultants were engaged, morale fell, and, most important, patients sought other institutions for their care. The New York Times ran a long front-page story examining “how a once great institution lost its way.” Those of us who had spent our professional lives in the institution we loved were shocked and saddened by these wrenching circumstances.

As it was becoming increasingly clear that the merger was in trouble in 2000–2001, the CEO of the merged hospital system resigned, and shortly thereafter the dean of the medical school did as well. Mount Sinai entered a leaderless period when it was most in need of strong leadership. In 2002, a search committee of the board of trustees was convened to identify a new board chair, dean for the school, and CEO of the medical center. The committee hired a CEO who began his tenure toward the middle of 2002, only to be fired in April 2003. Peter May was chosen to be the new board chair, a position he assumed in 2002. The last position to be filled was that of the dean. I was offered and accepted that position at the end of 2002, and began officially functioning as dean in early 2003.

Throughout 2002, I was a member of the “turnaround committee,” a group of faculty, senior management, board members, and consultants designed to implement changes deemed necessary to regain Mount Sinai's stability. As a consequence, I was privy to key pieces of data regarding the fiscal status and operations of the hospital and school. Throughout 2002 and into the first quarter of 2003, the metrics continued to worsen. The “turnaround” was not happening. Virtually all critical targets were not being met. The hospital was overrun with consultants whose continual mantra was, “Cut FTEs.” The board decided that another change was necessary and subsequently fired the CEO. In April 2003, the board asked me to become both the dean of the school and CEO of the medical center. The day I took over, the cash account from which we manage payroll had a little over $2,000,000 to meet a payroll of more than 14,000 employees.

By 2003, it was the consensus of the board that the “campus-centric” status of the merger was not working, and the process of demerging had to begin. However, demerging would not be easy, because the Mount Sinai NYU Health System (The Mount Sinai Medical Center, The Mount Sinai Hospital, and Mount Sinai School of Medicine) had combined its debt into one new obligated group. It took years to actually end this merger, and it will not be until 2011 that diplomas from the Mount Sinai School of Medicine do not include the phrase “of New York University.”

Today, Mount Sinai's medical school and hospital have never been stronger. The bond ratings for both the hospital and school have moved from junk to the A category. Our cash position is close to half a billion dollars. Our endowment is near its all-time high, despite the market setbacks. Philanthropy has never been better. We have entered a period of extraordinary recruitment of physicians and scientists and are building new laboratory and clinical facilities. For the first time in the hospital's history, it is an “honor roll” hospital, listed among the top 20 in the nation by U.S. News and World Report. Similarly, the medical school, also for the first time in its history, is a top 20 medical school according to the U.S. News and World Report graduate school listings. Clearly, this magazine is not the arbiter of quality, but it is nevertheless widely followed, and Mount Sinai's meteoric rise in these ratings is a reflection of the resurrection of the institution. However, the real story lies behind those rankings. Mount Sinai students have an average MCAT and GPA among the top 10 in the country, which is reflected in the school's relative selectivity. However, the metric that we are particularly proud of is that Mount Sinai ranks third in the country in grants per investigator.

The turnaround of Mount Sinai would not have happened without a superb management team. The recruitment of Wayne Keathley as hospital president and Dennis Charney as dean of the school, and the ability to convince Don Scanlon to return to Mount Sinai as CFO, would have never happened had the merger not been unwinding. They needed confidence that Mount Sinai was a manageable entity.

The key elements of the turnaround were conceived in the spring of 2003 and included a plan to demerge as rapidly as possible. A strategy was devised and accepted by the board that ran precisely counter to the advice of the consultants. The consultants repeatedly and loudly proclaimed, “We do not believe in the revenue fairy,” referring to counting on the expected financial benefits of recruiting and hiring new physicians. In contrast, I argued that Mount Sinai's stature and brand made it possible, with adequate resources, to recruit physicians to Mount Sinai, and that the virtuous cycle that would derive from good recruitments would pay for itself. Indeed, that proved the case. Could that same strategy have worked in the merged entity? Perhaps, but it was clearly more difficult to execute in the merged institutions where decision making was not as straightforward as it is in the smaller entity.

Today, The Mount Sinai Medical Center is best conceived of as a biomedical college. It is not a university, nor is it a conglomeration of hospitals with independent governance sharing a relationship with a medical school. Mount Sinai School of Medicine derived from The Mount Sinai Hospital. The hospital, in a very real sense, gave birth to the school. As such, the two entities have always been closely intertwined. The boards of trustees of the hospital and school meet together, and both the president of the hospital and the dean of the medical school report to the CEO of the medical center. Thus, the governance structure between the school and hospital is completely integrated. As a consequence of that integration, this “biomedical college” does not have to deal with the competing interests of a university, a quasi-independent hospital or series of hospitals, or a separate medical school with a dean reporting to its own board of trustees.

Mount Sinai takes for granted that there is a shared infrastructure that supports both hospital and medical school activities. From information technology to housekeeping, from food services to finance, the same people offer a seamless integration of support functions for the good of the entire medical center. When The Mount Sinai Hospital merged with NYU Tisch Hospital to form Mount Sinai NYU Health, suddenly the Mount Sinai School of Medicine found itself at a distance from the hospital whose services it had always taken for granted. Synergies were lost, and costs mounted. Perhaps of greater importance was that both the hospital and the school lost the ease they previously had in making decisions and facilitating operations.

Looking back on the merger with the perspective of how well the demerged entities are currently doing, one cannot help but wonder whether, under different circumstances, the merger could have worked. How could it be that the combined entity could not be better than the sum of its parts? My guess is that for the merger to have succeeded, all parties had to be willing to merge the hospitals and the medical schools and establish an independent new entity to oversee that combined institution. The new board of trustees would have had to empower the CEO to force the old institutions to come together to actually be one functioning unit and accept the firings, resignations, accusations, and vituperation that would have been inevitable. However, from the start this “merger of equals” was not designed in a manner that would overcome the forces that demanded independence, and it ultimately produced an unworkable and dysfunctional circumstance.

I suspect that health care reform will bring another round of enormous change to large medical centers around the country as providers come to realize that “bending the cost curve” means, at best, diminishing, and even negative operating margins. Health system mergers may emerge again as a possible solution. In that event, perhaps the failed Mount Sinai NYU Health System will provide valuable lessons, in which case John Kastor1,2 will have done academic medicine a great service by taking the time to document our folly.

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Funding/Support:

None.

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None.

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Ethical approval:

Not applicable.

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References

1Kastor JA. Failure of the merger of the Mount Sinai and NYU hospitals and medical schools: Part 1 [published online ahead of print September 17, 2010]. Acad Med. 2010;85:1823–1827. doi:10.1097/ACM.0b013e3181f65000.

2Kastor JA. Failure of the merger of the Mount Sinai and NYU hospitals and medical schools: Part 2 [published online ahead of print September 17, 2010]. Acad Med. 2010;85:1828–1832. doi:10.1097/ACM.0b013e3181f65019.

© 2010 Association of American Medical Colleges

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