Mergers involving academic medical institutions: Impact on academic radiology departments

Mergers involving academic medical institutions: Impact on academic radiology departments

Mergers Involving Academic Medical Institutions: Impact on Academic Radiology Departments Mervyn D. Cohen, MB, ChB, MD, Gregory Jennings, MD During t...

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Mergers Involving Academic Medical Institutions: Impact on Academic Radiology Departments Mervyn D. Cohen, MB, ChB, MD, Gregory Jennings, MD

During the past 10 years, there have been a number of large health care mergers in which at least one partner has been an academic medical center. This review summarizes the definitions, attributes needed for success, and reasons for failure of mergers. It then describes the various mergers and their outcomes and discusses the impact of the mergers on the involved radiology departments. Key Words: Academic medical center, merger, radiology department, academic radiology, medical school finances J Am Coll Radiol 2005;2:174-182. Copyright © 2005 American College of Radiology

INTRODUCTION In the United States, a spate of mergers and acquisitions first affected banking in the early 1980s and then swept through other industries [1]. By 1999, the value of US merger activity equaled 16% of the gross domestic product [2]. In the health care industry, a flurry of defensive mergers occurred during the 1990s, as leaders of many health care organizations began to feel real challenges to their long-term survival. They perceived that monetary pressure from managed care and Medicare cuts would challenge their very economic survival. In short, they came to believe that changing market forces would make it impossible for smaller health care organizations to compete effectively and survive. A small, but very significant, number of recent mergers in the health care industry have involved an academic medical organization as at least one of the partners. These mergers threaten academic medicine, because they may separate medical schools from teaching hospitals; decrease financial support to medical schools as hospitals focus on the “bottom line,” and projected savings from the mergers are not realized; erode the authority of deans and faculty members in hospital affairs; and place new corporations in a position to decide staffing levels and employment terms for clinicians [3]. Unlike mergers of private physician practices, which are quite common, virtually no significant mergers that involve academic Department of Radiology, Riley Hospital for Children, Indiana University School of Medicine, Indianapolis, Indiana. Corresponding author and reprints: Mervyn D. Cohen, MB, ChB, MD, Department of Radiology, Riley Hospital for Children, 702 Barnhill Drive, Room 1053, Indianapolis, IN 46202; e-mail: [email protected]

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departments occur independently of an overarching merger of the parent organizations. The intent of this review is to help the reader understand how mergers involving predominately not-forprofit health care organizations differ from those occurring in the rest of the business world. We review the complex definitions of mergers, the reasons driving mergers, the reasons for their failure, and the critical factors for their success. These principles apply to all mergers. We then describe in detail over a dozen mergers in which at least one partner was an academic medical center. For each merger, we describe both the global structure of the merger and the specific impact on the involved radiology departments. DEFINITIONS In the world of business, including health care, there are many situations in which two organizations choose to come together rather than compete. This “coming together” can take many forms. At its simplest, it may be no more than sharing a piece of equipment, a piece of information, or a human resource for a short period of time. It could be a longer term agreement to share space, buildings, marketing, payroll administration, technology, or other resources. More complex interactions include the involved organizations taking a legal part ownership of each other. At the other end of the spectrum, one organization may completely take over ownership of another as part of a friendly, or even hostile, takeover. The term merger is most frequently used to describe a situation in which two organizations come together in a friendly manner, combining their resources into a new © 2005 American College of Radiology 0091-2182/05/$30.00 ● DOI 10.1016/j.jacr.2004.08.006

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organization. However, there are many different nuances to its meaning. In some situations, the coming together is a true combining of every asset and resource of both parent organizations to blend into a new organization. In other situations, the merger results in the creation of an overarching holding company, under which both of the preexisting organizations continue to exist and operate. Although mergers are meant to be the coming together of equals, with equal sharing of power, they often result in one of the organizations becoming dominant. Besides merger, a wide variety of terms are used to describe all of the above scenarios. None of these terms has any specific meaning, and they are used differently by different people. These terms include working together, collaboration, affiliation, partnership, symbiosis, alliance, marriage, and takeover [4]. For the purposes of this article, we define the term merger to represent a significant, friendly, legal coming together of two organizations. WHY MERGE? In the 1980s and 1990s, new economic challenges to health care delivery surfaced. These included the consolidation of local markets, significant reductions in payments from managed care plans and insurers, and significant declines in the use of hospitals (with a resultant oversupply of hospital beds). The initiation of the Medicare prospective payment system and decreased Medicare payments from the federal Balanced Budget Act of 1997 were other significant factors causing concern [5-7]. This changing environment in health care delivery and reimbursement caused a massive overhaul in the structure of health care institutions. This included hospital mergers, the purchase and sale of physician practices, and the development of integrated delivery systems [1]. Large health plans became reluctant to enter into contracts with academic medical centers because of their higher costs (generally attributed to their teaching function). The clinical revenues of academic medical centers began to drop, and funds available to subsidize teaching and research from clinical revenues declined [1]. The result was that escalating economic pressures on the clinical enterprise threatened the missions of education and research in many academic medical centers [8]. For these centers, three options evolved: ● ● ●

creating a self-contained, integrated delivery system for academic medical centers; separating medical schools from teaching hospitals by selling the hospitals [1]; and forming alliances or mergers with community hospitals or other academic medical centers.

The principal rationale for merging is “to accomplish a goal that cannot be accomplished alone” [4]. Such goals include:

● ● ● ● ● ● ● ●

overcoming money problems: financial pressure is the major motivator in most mergers [6]; achieving economies of scale by reducing excess capacity, increasing efficiency, and decreasing costs [6]; developing an organizational synergy that is greater than the sum of the individual parts [9]; creating market power and increasing market share, thus increasing bargaining power [2,6]; improving clinical reputation; diversifying by increasing the range of products and services offered [2]; gaining access to new technology; and reducing the need to duplicate expensive investments in people or technology [10].

KEYS FOR THE SUCCESS OF MERGERS Literature from both health care and non-health care businesses provides very similar guidelines to direct a successful merger. First, basic business principles must not be ignored. When the leadership of an organization feels threatened, all too often, they see a merger as a solution and then subsequently build a business case to justify their decision to merge. This is a potential disaster. There must be clear and compelling reasons for merging, with the early development of a clear mission, vision, and statement of values for the new organization [11]. Complete due diligence must be performed early in the negotiation process. In their enthusiasm for a merger, leadership may choose to sign the merger deal before they have completed due diligence. Subsequent surprises may threaten or destroy the deal. Although there are many ways to structure a merger, Moore [12] suggested that it is desirable to merge all assets and operate as a single organization (i.e., one Medicare number, one legal institution, one medical staff), to make subsequent divorce and separation difficult. He suggested a no-exit strategy from the beginning [12]. Clear plans for integrating physicians into the new systems must be in place [11]. Some mergers have failed because they occurred before solving issues between the physicians of the parent organizations. Communication with all key stakeholders is important. Everyone must understand the purpose and logic of the deal and buy into it, and thus there must be constant, honest communication [11]. Although the leadership may perceive a need for secrecy, this should be avoided. A perception of fairness is needed and can be helped by the creation of a new, neutral name and corporate identity [11] and a neutral location of the headquarters. Location in one of the preexisting organizations can cause significant jealousy and perceptions of unfairness. This

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must be balanced against the costs of creating a new, neutral headquarters. Once a merger has been agreed to, significant energy must be devoted to implementation. Successful implementation depends on the management of culture [11]. There must be a clear understanding of the culture and values of the people of each organization. Implementation is helped by a clear transition plan, celebrations of meeting merger milestones, the identification of a core of personnel with strong project management skills to keep track of multiple projects, and clear accountability. METRICS OF SUCCESS How do we measure the success of a merger? This is difficult. It is amazing how many different perceptions exist among different stakeholders. For some of these stakeholders, success may even be defined as merger failure and separation. Among for-profit corporations, the metrics for merger evaluation are short-term stock performance, 3-year to 5-year stock performance, and profitability [2]. Although financial success is important in not-for-profit mergers between health care organizations, it does not have the same importance as in the rest of the for-profit business world. However, there are some other good metrics for the success of the clinical operational component of health care mergers. Commonly used measures are operating income, cost savings, revenue, staff reduction, market share, the speed of integration, customer retention, information technology systems integration, product portfolio, and employee retention [9]. Other metrics include organizational learning, innovative capability, and the development of aligned, unified strategic plans [11]. Although the subjective feelings of the staff are also a key component of merger success, they are difficult to measure. The impact of academic hospital mergers on the academic mission is even more difficult to evaluate, and it may require many more years of observing the mergers that survive before this aspect can be adequately evaluated. REASONS FOR FAILURE OF A MERGER Some mergers of academic medical centers are ending in “divorce.” These include mergers between Penn State University and Geisinger Health System; the University of California, San Francisco (UCSF), Hospital and Stanford University Hospital; and New York University Medical Center and Mt. Sinai Hospital [12,13]. Other mergers are continuing but are failing to achieve their goals. There are many reasons why mergers fail or do not live up to their expectations. Perhaps the dominant reason for merger failure is cultural incompatibility between the two organizations [6]. The importance of under-

standing and managing cultural change is frequently underestimated, because organizations rarely perceive culture as a potential deal breaker [9]. Cultural friction is difficult to analyze and control. People cling to old behaviors, because changes are often felt as losses [14]. Cultural clashes result in deteriorating communication, reduced productivity, less team play, power struggles, reduced commitment to goals, and ultimately departures from the organization [9,15]. Another critical cause for the failure of mergers is the inability to unify the existing boards and senior leadership. The parent organizations may retain their identities and even operate somewhat autonomously. This is most likely if the parent organizations retain their existing boards. The retention of existing boards may result in a pervasive perception that one entity is taking over the other; each entity holds this perception [11]. Yet even if the preexisting boards are eliminated, the new board may fail. This is likely to occur when the new board is composed of equal members of the old boards who still represent their original constituents and retain direct loyalty toward the old hospitals [7]. To counteract these tendencies, a significant infusion of new management leadership who can be perceived as neutral is needed at the genesis of the new organization. If too many old leaders are retained, the allocation of top jobs can then easily be perceived as unacceptable, with each side believing that the other has been given too much power. Physician resistance has derailed many mergers [7]. Hospital administrators may find it difficult to make decisions that can alienate physicians, because they are keenly aware that physicians are extremely mobile. They could leave in large numbers and even join competing hospitals [7,12]. Physicians typically resist proposals for mergers [7]. This resistance is a product of loyalty and background. For example, academic faculty members do not want to surrender control to nonacademic physicians, and these private physicians may fear the academic model. The inability of physician leadership to prioritize, downsize, and consolidate clinical programs can compromise mergers [8]. Physicians may also feel resistance to service integration from their patients, who may resent the consolidation of services if this involves increased travel or threatens access to their favorite doctors. Failure to understand and manage the fears of employees can also damage a merger. This can manifest in many different ways. Any attempt to decrease salary or benefits causes resentment. Poor communication and secrecy causes fear and resentment [16]. However, if management is overly reassuring in the initial transition stages, this can lead to a loss of credibility [11]. Finally, economic difficulty can derail a merger. Projections for cost savings may have been too optimistic; many potential savings may exist only on paper or in the

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minds of consultants [7]. Some costs may actually increase, because the consolidation of clinical services may impose travel and scheduling difficulties. The harmonization of information technology systems between organizations may be extremely expensive [7].

health care organizations have an impact on every academic department. Radiology is no different in this regard. In all mergers, departments are relatively powerless and may be forced to accept merger conditions imposed by their parent organizations.

RATIONALES AND ACADEMIC CHALLENGES

CASE STUDIES

Over a dozen academic medical centers have participated in mergers in the past 10 years. The decisions to merge have been made despite the knowledge that most mergers are not successful, and mergers involving academic medical centers seem to have a low probability of success [12]. Proponents argue that the strong clinical entity resulting from a merger is better able to support the academic mission by providing, for example, a critical mass of patients for education and more specialty programs [10]. They also believe that a larger merged clinical program permits the better transfer of basic research to new clinical programs and better positions the new organization to be the provider of choice for complex care for their community [10]. Nonetheless, mergers bring with them big challenges. Mergers can jeopardize the functions of medical schools [3]. The subsidy of teaching and research can come under stress [3]. Academic leaders can become marginalized as a source of their power, their control of dollars, decreases [8]. Mergers of academic medical centers create divided governance, resulting from a structure under which academic and clinical affairs no longer follow the same pathway of authority or accountability. One individual no longer has authority to balance the competing interests of education, research, and clinical service, even though the missions of clinical care and academics should be inseparably linked [8]. Mergers often leave academic considerations with the dean and departmental chairpersons and economic concerns with a new clinical organization [8]. The concept of a clinical board being responsible for the behavior of an academic faculty clearly represents a new paradigm in academic medicine [8]. Mergers between academic and community hospitals are particularly difficult, because community physicians believe that they are subsidizing research and education [7]. If residency programs are in place, it is important to completely integrate curriculum and conferences and resident rotations and call schedules and to ensure the consistency of the educational product delivered by the parent organizations [14]. Even if this is done, another challenge is that the Accreditation Council for Graduate Medical Education considers merged residency programs as new, even if they derive from two preexisting fully accredited programs [14]. The academic challenges after mergers of academic

We now describe over a dozen mergers that occurred in the United States during the past decade or so, in which at least one partner was an academic medical center. Five mergers involved two such centers: UCSF Hospital and Stanford University Hospital, Massachusetts General Hospital and Brigham and Women’s Hospital, New York Hospital and Presbyterian Hospital, North Shore Health System and Long Island Jewish Medical Center, and Beth Israel Hospital and New England Deaconess Hospital. The mergers cover the full spectrum of types of mergers. This overlapping spectrum includes five fairly distinct models that are described below. We also describe three failed mergers. Simple Collaboration with No Shared Financial Risk The alliance between Meharry Medical College and Vanderbilt University Medical Center in Nashville, Tennessee, is much closer to a commitment to cooperate rather than a true merger. Under the agreement, each institution remains separate [16]. Vanderbilt gained access to a relocated general hospital for student training, and Meharry received management assistance. Although limited in scope, the merger has been successful [16]. Fairly Autonomous Operation of Each Hospital Is Retained, Although Each Ultimately Answers to a Common Higher Authority Two mergers fall into this category. In 1994, Massachusetts General Hospital and Brigham and Women’s Hospital in Boston merged (J. Thrall, personal communication, 2004; S. Seltzer, personal communication, 2004). They formed a holding company called Partners that preserved the names and identities of the founding hospitals [6]. Merged administrative functions included finance, budget, information systems, legal, investments, marketing, purchasing, and new ventures [6]. However, each hospital retained strong autonomy [17], which has been important to the long-term successful outcome of the merger, and Partners has a strong market presence. The radiology departments of the two hospitals remain totally independent professional practices, with only minimal interaction. They have created common standards of care for mammography, a technologist development program, and a joint operations committee which has done some joint contracting (J. Thrall, personal com-

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munication, 2004; S. Seltzer, personal communication, 2004). The merger has not had any significant impact on academic activities (J. Thrall, personal communication, 2004) and may have been slightly beneficial (S. Seltzer, personal communication, 2004). In 1997, North Shore Health System and Long Island Jewish Medical Center merged to create the North Shore–Long Island Jewish Health System [17,18] (M. Goldman, personal communication, 2004). Although the hospitals are legally separate, the operational mind-set is of a single collaborative system with two campuses. This merger is unusual in that the hospitals remain separate legal entities and provide duplicate services, yet the physician clinical practices are all fully merged. After the merger, there was rapid consolidation of all of the nonclinical departments (e.g., purchasing, finance, human resources) with single leadership appointments. At the time of the merger, both Long Island Jewish Medical Center and North Shore Health System were academic health centers with medical school affiliations. All of the fulltime physicians were salaried and had university appointments. In 1998, administration mandated that all clinical departments consolidate from a two-chairperson to a single-chairperson leadership within 3 years. This has now been accomplished. For each clinical department, the chairperson determines in which hospital each faculty member will work. A separate research institute was also created, with its own board and director who report back to the parent health care system [18]. The merger is considered a very strong, successful merger. The two academic radiology departments from Long Island Jewish Medical Center and North Shore Health System were brought together under a single leadership. The single chairperson is responsible for recruiting faculty members, setting salaries, and deciding on which campus each radiologist will work. In reality, most of the radiologists work in only one of the hospitals. Although some of the subspecialty divisions within radiology have been completely merged, others have retained separate division leaders. Each hospital continues to have its own radiology residency program, but the department chairman has the authority to merge these programs in the future if desired. Radiologists have been allowed to retain their original medical school (Albert Einstein Medical Center or New York University Medical School) appointments. New radiologists are given faculty status in one of the schools. Before the merger, both radiology departments had a strong emphasis on teaching and clinical work, with some commitment to research. No negative effects on the academic mission have been noted as a result of the merger, and the resulting stronger health

care system may have made it easier to retain faculty members. Hospitals Become Legally One Entity with Single National Accreditation but Continue to Operate Fairly Independently This is the most common merger structure that we have identified; five mergers are of this type. Clinical operations remain predominantly separate, with few or no integrated clinical programs. All of these mergers may be stable but could face future transitional challenges. In 1998, Columbia University/Presbyterian and Cornell University/New York Hospitals in New York City merged to form the New York and Presbyterian Hospital [5,6]. It has a single board and operates as a single hospital organization with two separate geographic facilities [6]. It was a complete asset merger, making subsequent divorce difficult. The merger has been generally been successful (P. Alderson, personal communication, 2004). Radiology has changed little as a result of the merger, with the two departments continuing to operate separately. Collaborative research projects or conferences have been infrequent, and the merger has had no impact on academic radiology (P. Alderson, personal communication, 2004). However, clinical volume has increased. The University of Cincinnati Hospital and Christ Hospital merged during 1994 and 1995. This was a full merger, incorporating all assets (R. Lukin, personal communication, 2004). At the time of the merger, each hospital had its own excellent radiology group. The two groups initially agreed to merge as well and reevaluate the merger after 2 years. By this time, Jewish Hospital had joined the alliance. About halfway through this time period, the radiology merger began to unravel. The radiologists at Jewish Hospital and Christ Hospital stayed together and separated from the University of Cincinnati group. The private and university groups now function completely independently. The merger of the University of Cincinnati Hospital and Christ Hospital had a definite impact on radiology. Initially, there were huge recruitment problems, but these have lessened recently. The merger is believed to have had a definite negative impact on academics (R. Lukin, personal communication, 2004). The current situation is stable, with each radiology group operating independently in its own hospital. In the future, they may face real challenges if further significant consolidation of clinical services between the hospitals occurs. In Minneapolis, the University of Minnesota Hospital and Riverside Hospital merged to create the Fairview University Medical Center in 1997 (W. M. Thompson, personal communication, 2004; C. A. Dietz, personal communication, 2004). The University of Minnesota Hospital continues to be served by a moderately-sized

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academic radiology group, whereas Riverside Hospital is served by a private-practice group that assigns approximately one full-time equivalent radiologist (from a pool of four radiologists) to Riverside Hospital at any one time. The radiology groups function almost independently of each other, with minimal contact. The merger has generally had a strong negative impact on academic radiology (W. M. Thompson, personal communication, 2004; C. A. Dietz, personal communication, 2004). Methodist Hospital and Indiana University Hospital in Indianapolis merged in 1997, forming a new corporation, Clarian Health Partners. All of the assets of these hospitals were placed into the new organization, and a single new operational board was created. Although clinical care remains heavily duplicated, with the integration of very few clinical services, the hospitals have remained profitable throughout the merger. In 2003, a decision was made to merge all of the radiologists into a newly created not-for-profit clinical radiology corporation, with Clarian as the single member and owner. This new corporation is responsible for the delivery of all clinical radiology services and employs both academic and nonacademic radiologists. In addition, the academic radiologists are separately employed by Indiana University Hospital for academic work. A single department chairperson retains absolute authority for all teaching and research affairs. However, the chairperson has relinquished absolute control of clinical radiology, sitting as 1 of the 10 board members of the clinical radiology corporation. Full-time clinical radiologists constitute approximately 20% of all the radiologists in the new group. They have, however, equal board representation as the academic radiologists who have university appointments. Since the formation of Clarian, the research and educational efforts of the radiology department have undergone significant growth, but the long-term impact of the new clinical radiology corporation on academics remains unknown and uncertain. The University of Nebraska Hospital and Clarkson Hospital merged in 1997 to form the Nebraska Medical Center (C. W. Walker, personal communication, 2004). Clarkson Hospital was under economic pressure, with its survival threatened; the University of Nebraska Hospital needed significant additional space, and Clarkson Hospital had excess capacity. The merger was comprehensive, with all of the assets (but not foundation endowments) placed into the new merged organization. The existing boards of the two hospitals ceased to exist, and a new single operational board was created. The merger agreement was originally for 5 years, but this was later extended to 40 years. The university and Clarkson radiology groups continued to function independently for about 3 years and could not make any progress toward integration. Several leadership changes at that time re-

sulted in a mandate from the Nebraska Medical Center board that all radiology services would become unified into a single organization under control of the University of Nebraska Hospital department chairperson. By that time, the Clarkson group had lost nearly half of its radiologists, and there had also been a significant loss of radiologists from the university group. The hospital agreed to provide salary subsidies (for approximately 3 years) to the private radiologists who joined the new group. Many of the Clarkson radiologists joined the new organization, but some left. Overall, the merger activity over the past 7 years is believed to have had a negative impact on the academic mission of the university radiology department. The current stability, with all radiology unified under control of the university chairperson, is expected to result in significant future improvements in academic radiology. Full Integration of Two Hospitals with Significant Integration of Clinical Services Barnes Hospital and Jewish Hospital in St. Louis merged in 1993 [11] (G. R. Jost, personal communication, 2004) to form a single entity, Barnes-Jewish Hospital. The merger was a complete merger of all assets under a new single board. Each entity came into the partnership as an equal partner with equal board representation [11]. Barnes-Jewish Hospital is now one of many hospitals belonging to the BJC HealthCare group, which now consists of about 15 hospitals. Barnes-Jewish Hospital functions as a single hospital unit within the system. Currently, all of the clinical services at Barnes-Jewish Hospital are fully integrated, with no duplication, and all are academic. All radiology services at Barnes-Jewish Hospital are now completely under the control of the university department of radiology chairperson. Jewish Hospital originally had eight or nine radiologists and one or two residents. The residency programs were very quickly and completely merged under the university. In 1994, the Jewish Hospital radiologists were offered faculty positions at Barnes Hospital, with enhanced salaries, fixed for 5 years. Four joined and four left. By the end of 5 years, the academic salaries had become almost equal to that of the original Jewish Hospital radiologists. The impact on academics has been fairly neutral. Having more sites has resulted in some expansion of opportunity (e.g., for teaching). However, purchasing is now slower and more bureaucratic, and this negatively affects academics. Some also believe that because Barnes-Jewish Hospital is the only academic hospital in the entire BJC HealthCare system, the BJC HealthCare board has a focus on the bottom line that is detrimental to the academic hospital. New England Deaconess Hospital and Beth Israel Hospital in Boston merged in 1996 [7] (M. E. Clouse,

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personal communication, 2004; H. Y. Kressel, personal communication, 2004). This was a true merger of two teaching hospitals; all assets were put into the merger, called Beth Israel–Deaconess Hospital [14]. Both existing boards were disbanded, and a new board was created. There were several impetuses for the merger. Beth Israel had a strong primary care base and wanted access to Deaconess’s strong tertiary care business. Deaconess had strong tertiary care and no primary care base and felt that it was being squeezed out of managed care. One large insurance company was threatening to withdraw from them, and they were thus under significant financial strain. Beth Israel was being pressured with a purchase from Columbia and saw the merger as a way out of this. All clinical departments and all residency programs have merged [14]. All clinical services are now fully integrated, and there is no duplication of clinical services within the two hospitals. The physicians are all in a single practice plan with a practice plan CEO. The medical services were integrated very early on, and for any service, the most senior director with the “best curriculum vitae” was appointed as chief. The integration of clinical services did not occur without some trauma, and there were large departures from the organization. Failure to bring together the two anesthesiology departments resulted in a mass walkout of a large number of anesthesiologists [7]. In the first few years, many Deaconess physicians left, gutting entire programs, including a very prestigious transplant program. The final outcome of the merger is not known. There was huge conflict for about the first 3 or 4 years, because some initially perceived the structure as a takeover of New England Deaconess Hospital by Beth Israel Hospital. The system is now being rebuilt and last year was profitable for the first time. Integration is complete. The merging of the two radiology departments was mandated. It took several years for this to be fully accomplished, but there was a single chief from the beginning. The two residency programs were fully integrated very early on. The impact of the hospital merger on academic radiology is mixed. Certainly, in the first few years, the impact was negative because of low morale, staff departures, and difficulty in recruitment. However, the remaining faculty members continued to provide a solid teaching program, and conditions for academic radiology are now improving. Overall, the merger has resulted in improved equipment resources, which has an indirect benefit on academics. Grant income is also starting to increase. Academic Institution Has Effectively Taken Over Private Hospital Two mergers of this type have occurred in Pennsylvania. In Philadelphia, the University of Pennsylvania has virtually

taken over Phoenixville Hospital. Although this was meant to be a merger of equals, the Phoenixville physicians felt that they lost control over spending and resource allocation and that the University of Pennsylvania was the dominant partner [7]. In reality, they perceive this merger as a “takeover” of a smaller hospital by a larger organization. In 1997, the University of Pittsburgh created a merger with Passavant Hospital. Passavant believed that the university failed to make promised investments and had interfered in its affairs [7]. Passavant retained its own board from 1997 to 2002 but then lost it [7]. Complete Failure and Legal Separation Three mergers have ended in failure. These are the mergers between Penn State University and Geisinger Health System, UCSF Hospital and Stanford University Hospital, and New York University Medical Center and Mt. Sinai Hospital. The merger between Penn State University and Geisinger Health System involved a large academic medical center, the Hershey Medical Center of Penn State University, and a successful community health care organization, Geisinger Health System [1,8,12,13]. This merger was driven by economic considerations. The roles of the new board and of the university medical school with regard to clinical control and academic control were poorly defined, and the merger terms were ambiguous. The new board was thus unable to function. The merger also failed to realize the projected cost savings. UCSF Hospital and Stanford University Hospital in California merged in 1997 [6,10]. This merger was driven by economic factors as well and failed mainly because of cultural differences between the organizations. In 1996, New York University Medical Center and Mt. Sinai Hospital announced that they would merge their hospitals and medical schools [19,20] (J. C. Weinreb, personal communication, 2004; B. P. Drayer, personal communication, 2004). The combined facilities formed the largest medical center in the New York metropolitan area [20]. The merger was one of several mergers occurring in New York at that time. Both organizations felt threatened by growth in managed care. After the merger, each hospital continued to function as a separate legal entity, answerable to the board of the newly formed Mt. Sinai–New York University Health System. There were many problems with the merger. The initial merger talks were done secretly, and this caused distrust. Physicians at New York University were concerned that the CEO of the newly merged organization was the original Mt. Sinai CEO. A large debt persisted after the merger. Finally, it proved difficult to govern the organization with a board of over 100 members. In 1999, there was an overall net loss of $23 million despite donations of $30 million to each medical school.

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At the present time, the two organizations have agreed to separate. CONCLUSION Despite the known strong risks of mergers, a mania swept through the leadership of academic medical centers during a 6-year period in the mid-1990s, with almost 20 academic medical centers entering into legal mergers. Almost all gave similar reasons for pursuing their mergers, which all perceived as “essential for survival.” Why did this occur? Why did so many mergers occur in a very short time period? One must conclude that a “kind of hysteria” must have swept through the communities, driven by the analyses of the same consultants. Once the conclusion “evolved” that academic medical centers needed to merge to survive, merger mania spread rapidly through the leadership community of the academic medical centers. In the business world in general, only about one-sixth of mergers seem to be successful [7]. Hospitals typically justify mergers by claiming increased efficiencies and cost savings, which are often not realized [7]. Some mergers have failed, at great cost to the parent organizations [7,12]. The outcome of the mergers involving academic medical centers is very variable. Of the 16 mergers we describe, 3 are clearly either loose affiliations or complete takeovers. Of the remaining 13, 3 have failed completely. The remaining 10 all seem to be clinically stable and solvent, but some did not reach this endpoint without a great deal of turmoil and staff turnover. Outcome is not related to the initial status of the merging organizations. Three mergers have dissolved, two of which involved two academic medical centers and the other one academic and one private organization. Failures have a variety of reasons. The merger between Penn State University and Geisinger Health System failed because of the inability of leadership to come together, the merger between UCSF Hospital and Stanford Hospital failed because of large cultural differences, and that between New York University Medical Center and Mt. Sinai Hospital failed mainly because of physician differences. In two of these failures, the merging organizations were separated by a relatively large distance (over 30 miles). This physical separation may have been a factor in the failure. Moreover, outcome does not seem to be related to the final structure of a merger. Three of the least traumatic mergers were all very different in structure. Brigham and Women’s Hospital and Massachusetts General Hospital function independently, North Shore Health System and Long Island Jewish Medical Center have fully merged physician practices but duplicate clinical services,

and Barnes Hospital and Jewish Hospital have integrated physician and clinical services. In all the mergers, there has been rapid integration of key administrative functions, such as CEO, nursing, and purchasing. The operations of clinical services varies widely and does not seem to be a determinant of success. When there have been problems, they have often evolved from friction between physician groups. Stability has been achieved quickly when there have been clear instructions. Brigham and Women’s Hospital and Massachusetts General Hospital function separately. North Shore Health System and Long Island Jewish Medical Center mandated physician group integration. This was made easier because all were salaried. Physician groups are fully integrated in only the mergers between North Shore Health System and Long Island Jewish Medical Center, Beth Israel Hospital and New England Deaconess Hospital, and Barnes Hospital and Jewish Hospital. This has been achieved either easily or with trauma. Final success does not seem to require the merger of all physician groups. Aggressive board action to mandate mergers has a variable outcome. In Nebraska, the board successfully mandated the full merger of the two radiology groups. In the merger between Beth Israel Hospital and New England Deaconess Hospital, the board requirement for complete integration of every physician service caused great trauma, but a similar mandate worked easily for North Shore Health System and Long Island Jewish Medical Center. The long-term outcomes of the mergers of the academic medical centers on the medical schools and their research and training programs are not truly known. With the exception of Nebraska Medical Center and Beth Israel–Deaconess Hospital, all of the merged academic medical centers are now part of much larger, multihospital organizations. Many medical schools report financial difficulty, and affiliation with large, strong, stable clinical organizations may increase cash flow to medical schools and provide expanded opportunities for teaching and the clinical application of research. On the other hand, because the teaching hospitals are now only one of many hospitals in many of the new organizations, their boards may focus even more on the financial bottom line than on the needs of medical schools. With a few exceptions, the impact of the organizational mergers on the academic productivity of their radiology departments is generally perceived as negative to neutral, but generally improving. The advent of centralized purchasing and a greater emphasis on cost have significantly and adversely affected relationships between academic department leaders and major equipment vendors. Some academic programs have done well, but this success seems to be in spite of, not as a result of, the mergers. In all but one of the mergers that originally

182 Journal of the American College of Radiology/ Vol. 2 No. 2 February 2005

contained two residency training programs, the residency programs merged quickly and completely with apparent ease; a single chairperson controls both of the two North Shore–Long Island Jewish Health System residency programs. Massachusetts General Hospital and Brigham and Women’s Hospital retained separate programs. The current status of the two radiology groups is quite varied among the merged organizations and is somewhat dependent on the status of the merger of the parent organizations. The radiology groups at Vanderbilt University Medical Center and Meharry Medical College are stable and completely autonomous, with simple collaboration and no shared financial risk. The radiology groups at Massachusetts General Hospital and Brigham and Women’s Hospital and at Presbyterian Hospital and New York Hospital operate independently in stable situations in which the parent hospitals are likely to continue to operate relatively independently. In two situations (the University of Minnesota Hospital and Riverside Hospital and the University of Cincinnati Hospital and Christ Hospital), the radiology groups operate relatively independently but could be pressured to come together if there is significant future consolidation of clinical services between their two parent hospitals. In Indiana, the two radiology groups are merged for the delivery of clinical radiology services as a new not-forprofit corporation owned by the merged hospitals; there is a separate corporation for academic affairs. In three situations, there has been full integration of the two radiology groups under full control of the original academic organization: Beth Israel Hospital and New England Deaconess Hospital, Barnes Hospital and Jewish Hospital, and the University of Nebraska Hospital and Clarkson Hospital. The radiology groups of Penn State University and Geisinger Health System, UCSF Hospital and Stanford Hospital, and New York University Medical Center and Mt. Sinai Hospital are completely autonomous as a result of the failure of the mergers of the parent organizations. The stories will continue to unfold. It is not possible to know the longer term economic outcome of these mergers. It is also very unclear what the long-term impact on the academic missions of the organizations will be.

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