The leaders of four-hospital UCSF Stanford Health Care have thrown in the towel on the 2-year-old merger of their prestigious academic medical centers in Northern California.
After posting an estimated $43 million in losses over its life, the system will dissolve, officials said late last week. The two university systems that made up UCSF Stanford will go their separate ways.
The failed consolidation calls into question the 1990s' dominant hospital financial strategy of merging into ever-bigger systems. It also raises questions about promises merging hospitals make to communities to justify consolidations.
"With great anguish I have concluded that, in our efforts to find bold solutions to the problems of academic medical centers, we have taken on too much," Stanford University President Gerhard Casper said in an Oct. 28 letter to University of California President Richard Atkinson. "We have failed to achieve a new common UCSF Stanford Health Care culture that would provide the wholehearted support needed."
The letter outlined Casper's desire to unwind the financially troubled merger. Representatives from the two universities are expected to meet this week to begin the process. A Stanford spokeswoman said dissolving the merger would likely take several months but less than a year.
The 1997 merger brought under one umbrella four hospitals with a total of 1,350 beds-two hospitals from UCSF and two from Stanford.
They are Lucile Salter Packard Children's Hospital at Stanford in Palo Alto, Calif.; Stanford (Calif.) University Hospital and Clinics; and the University of California San Francisco Medical Center and UCSF/Mount Zion Medical Center, both in San Francisco.
Last week's decision came less than three months after the university presidents sent a joint letter to the system's board challenging the merger and asking for a review. The top two executives at the merged system subsequently resigned, and a state audit outlined the merger's financial shortcomings.
The merger's architects originally predicted the move would result in a $65 million profit in fiscal 1998 and 1999. But in the most recent fiscal year ended Aug. 31, the system incurred an operating loss of $86 million and a net loss of $73 million on operating revenues of $1.5 billion.
Merger-related costs totaled $19 million during the first two years, said a report by California state auditor Kurt Sjoberg (Sept. 6, p. 20).
Instead of reducing its staff, the system added nearly 1,000 employees during its first year and a half of existence, primarily to integrate financial and information technology systems. The cost of merging the two systems' computer networks jumped fivefold, from the original $25 million estimate to $126 million.
David Hunter, chief executive officer and founder of the Hunter Group, a hospital turnaround firm based in St. Petersburg, Fla., became interim chief executive officer of the troubled system when its two top executives left in August. He said he believes the merger's demise should not signal doom to other hospital systems considering a similar bonding.
"A poorly executed merger causes trouble; there's no doubt about it," he said. "I think there were certainly execution difficulties in this one. I think it was a good concept that was not executed as effectively as everybody would have liked it to have been."
Hunter said the projected cost savings were real, but the merger's leaders didn't pursue them hard enough.
Among specific failures were a lack of meaningful consolidation, an unwillingness to cut expenses and expensive corporate overhead, he said.
Hunter has been asked to stay on to see the system through its untangling process. The challenge, he said, will be for both institutions to figure out options for achieving cost savings on their own.
Richard Wade, senior communications adviser at the American Hospital Association, said he sees mergers as intensely local. "Everyone who's watched these mergers across the country has said some of them will work over time and some of them will not," he said. "No two are exactly alike."
California Nurses Association spokesman Carl Bloice said merging a public and a private system was doomed to fail. The CNA opposed the merger from the beginning. Along with other unions representing University of California employees, the CNA sued to block the merger when it was announced in 1996.
"The contentions we had at the time have proven to be correct," Bloice said. "It's basically a mistake to take public facilities, taxpayer-supported and-built facilities, which have a mission not the same as private facilities, and attempt to breed some kind of hybrid out of them."
The issues came to a head over the fate of UCSF's Mount Zion Medical Center, an inner-city hospital the merged system was considering closing or turning into an outpatient facility (June 21, p. 68). Bloice said dissolving the merger might save the hospital.