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BEHIND‐THE‐SCENES LOOK AT ACADEMIC MEDICINE MERGERS

Daroff, Robert B. MD

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Dr. Daroff is Chief of Staff and Senior Vice President for Medical Affairs at University Hospitals of Cleveland, and Professor of Neurology and Associate Dean of Case Western Reserve University School of Medicine.

Mergers of Teaching Hospitals in Boston, New York, and Northern California By John A. Kastor 456 Pages • University of Michigan Press 2001

Most physicians are aware of the mergers of major teaching hospitals in Boston (Brigham and Massachusetts General Hospital, joining to form “Partners”), New York (Columbia Presbyterian and NYU-Cornell), and Northern California (University of California-San Francisco and Stanford), but few know the details.

In Mergers of Teaching Hospitals in Boston, New York, and Northern California, John A. Kastor, MD, a cardiologist and former Department of Medicine Chair, provides these details in an exhaustive account of the three major mergers that occurred in academic medicine in the 1990s.

As a former Department Chair and a current hospital administrator, I am familiar with the complex dynamics of teaching hospitals. My hospital, University Hospitals of Cleveland, belongs to a consortium of major east coast academic medical centers (AMCs) that includes the four Boston and New York hospitals (as well as Hopkins, Penn, Strong Memorial, and Yale), which provides me with some perspective – and a reason for my interest in this book.

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HISTORICAL SCHOLARSHIP

Readers should be aware, however, that over three years have passed since the author sent his manuscript to the publisher in February 2000 and, other than important items added in proofs (usually as footnotes), there are no current details of the remaining New York and Boston mergers, which is unavoidable in a book about evolving contemporary history. Nonetheless, the book's strength is its historical scholarship. It is not a muckraking exercise, but rather an honest, dispassionate effort to present the origins, successes, and failures of the mergers. Extremely well annotated, there are 774 citations, mostly for interviews and newspaper and journal articles.

The book begins with a discussion of the evolution of the health care crisis in American medicine, particularly affecting AMCs, and then proceeds to review the history of each pairing of hospital and medical school.

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BOSTON MERGER

Neurology Today readers may be interested in the genesis of the key mergers. In Boston, the origin of Partners began when Daniel Tosteson, Dean of Harvard Medical School (HMS), convened a meeting in January 1993 to unite the five Boston hospitals where HMS students rotate: Beth-Israel (BI), Brigham and Women's (Brigham), Boston Children's, Deaconess, and Mass General Hospital (MGH), none owned by Harvard. Tosteson feared that worsening medical economics would jeopardize hospital viability and he wanted to secure stability for student education. What transpired, to the apparent consternation of the Dean, was the merging of only the Brigham and MGH. The merger took the form of a holding company (Partners), with each hospital being separately managed. Partners signed up 900 community-based primary care physicians and acquired community hospitals to secure a referral base for the Brigham and MGH.

The neurology training programs at Brigham and MGH merged, breaking up the successful longstanding association of the Brigham with BI and Deaconess as the “Longwood Neurology Program.” I learned from a Boston source that currently only about 30 percent of the Brigham-MGH training programs have merged, but almost all Brigham residencies split from BI.

Kastor regards Partners as a success, even though operational losses in 2000 (the last year reported) had to be covered by the endowment. Operational losses are now the rule with teaching hospitals, and we cannot determine how an independent Brigham or MGH would have fared.

Neurologist Joe Martin, Dean at HMS, is portrayed glowingly, financially helping and administratively coordinating student teaching at Partners and the other teaching hospitals.

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NEW YORK MERGERS

In New York, we learn that in the early 1990s, Presbyterian Hospital was hemorrhaging financially. Trustees asked Harry Bolwell, a retired Cleveland industrialist (and my friend) who had been Chairman of the Board at University Hospitals of Cleveland, to serve as Chief Executive Officer (CEO). He recruited Bill Speck, Chairman of Pediatrics in Cleveland (and another friend), to succeed him in 1993. In 1997, Speck concluded that his hospital needed a merger. He preferred the New York University (NYU) Hospital, but their trustees were more inclined to Mt. Sinai.

At the same time, the Deans at Columbia College of Physicians and Surgeons and Cornell Medical School were discussing merging the two medical schools to create a single school with two independent teaching hospitals. The medical school merger did not materialize but the hospitals came together as the New York-Presbyterian Hospital in January 1998.

In addition to the anticipated financial savings by combining hospital support services, and increasing bargaining clout with payers, the two institutions hoped they might become the “best” medical facility in the US, surpassing the Harvard hospitals and Hopkins. However, attempts at consolidating departments and divisions largely failed, including those of neurology and neurosurgery.

David Skinner, CEO of New York Hospital, became CEO of the merged hospitals, and Bill Speck became President and Chief Operating Officer, with the expectation that he would succeed Skinner as CEO in a few years. However, the trustees bypassed Speck, who is now Director of the Marine Biological Laboratory at Woods Hall. A lively, detailed discussion of the Skinner-Speck succession may only interest current Columbia and Cornell faculty and those who knew Speck from Cleveland, but it is a dramatic tale. Kastor concluded that the New York merger was “a work in progress,” with a strong likelihood of success.

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CALIFORNIA MERGERS

As for Northern California, Kastor writes that in April 1995, Gerhard Casper, President of Stanford University, and Joe Martin, then Chancellor at University of California-San Francisco (UCSF) before moving to the Deanship at HMS, decided to merge rather than compete. Two difficult years of discussion followed. This differed from those in Boston and New York, because Stanford University owned its hospital, and UCSF was part of the University of California system. The State of California had to approve the merger, and trade unions representing nonprofessional employees at UCSF, fearing loss of jobs, fought against it. Stanford insisted that the merged entity be private, not public. Like New York, and unlike Partners, they decided to function as a single operating entity, with a single CEO, in a full-asset merger.

The Chairman of the Board of “UCSF-Stanford Healthcare” was to be a Stanford trustee, and the CEO was to be the then-current UCSF CEO, but he declined and the Stanford CEO assumed the position, creating angst among the UCSF faculty. Merging a state facility into a private corporation necessitated political and legislative machinations before the final merger became operational in January 1998. Administrative offices, like Partners, were separate from the two hospitals; 10 miles from UCSF and 25 from Stanford. Although in neutral territory, this proved unpopular with both faculties, particularly Stanford's.

Figure. Mergers of T...
Figure. Mergers of T...
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The distance between the hospitals made unification of the faculty impossible. The first Chief Medical Officer of the merged entity was from UCSF, but he had no control of financial resources, and was not “trusted” by the Stanford faculty. In April 1999, both hospitals appointed separate Chief Medical Officers.

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THE HUNTER GROUP

UCSF had an antiquated computer system, which, along with operational shortfall, caused the “sucking” of dollars to the north (from Stanford to UCSF), adding to the consternation of the Stanford faculty. Additional problems related to an inner-city community hospital, Mt. Zion, owned by UCSF, which was a major financial drain. Both the CEO and Chief Operating Officer were “encouraged” to resign, and the Hunter Group, an organization that “helps” distressed hospitals, took control. They are described as “heartless consultants who specialize in scorched-earth hospital makeovers” achieved by substantially reducing personnel.

Despite their distressed financial condition, the merged hospitals supported their two medical schools with $120 million in 1999. The continued financial support of medical schools by their deficit-ridden teaching hospitals is the rarely publicized rule that further contributes to the hospitals' financial woes.

Finally, on February 1, 2000, the two-year-old merger was dissolved. Kastor provides numerous reasons for the failure, such as poor financial performance, the money drained from Stanford to the north, and unwillingness of the faculty to coalesce into a new culture, among others. Faculty impressions ranged from its being a bad idea to begin with, to being a good idea but poorly managed, or to one that could have succeeded with more time.

In the concluding chapter, the author agrees with Kenneth Shine, President of the Institute of Medicine, who predicted that saving money by consolidation is only a minor plus. “Economy of scale” is ephemeral. There is usually minimal to zero reduction of expenses, because merging itself is exceedingly costly.

Contracting for managed care is probably beneficial, particularly in areas where managed care has a strong presence. Clinical programs and the educational endeavor are rarely helped, as synergies created by mergers almost never occur; the few exceptions include the Brigham-MGH neurology residency amalgamation.

Loyalty to one's hospital and medical school does not shift to the merged entity. Sam Thier, CEO of Partners, did not encourage a shift because, as Kastor reported, Thier felt “the value of the MGH and Brigham names are too precious.” Partners also had the distinct advantage of contending with only one medical school. Most health care analysts feel that the UCSF-Stanford failure has put an end to “merger mania;” I strongly concur.

Some readers – like friends I surveyed who were involved in these mergers – might find this book overly detailed. Certainly, not all readers will want to read the entire book. However, John Kastor can be justifiably proud of his scholarly effort which, as a definitive source, will forever benefit historians and archivists of the six hospitals and five medical schools involved in the Boston, New York, and Northern California mergers.

I learned from Kastor himself that he continues to write about academic medical centers. He finished Governance at Teaching Hospitals: Turmoil at Penn and Hopkins, which is in press, and is currently working on a tentatively titled book, Specialty Care in the Era of Managed Care: Cleveland Clinic versus University Hospitals of Cleveland.

© 2003 American Academy of Neurology

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