The alchemists: a case study of a failed merger in academic medicine

The changing environment in health care delivery and reimbursement in the United States in the late 1980s and 1990s caused a massive overhaul in the organizational structure of health care institutions. Hospital mergers were commonplace. Physician practices were bought and sold. Once stand-alone institutions developed integrated delivery systems. The academic medical community investigated and pursued a number of strategies to address changes in the marketplace, including streamlining and reengineering business practices; centralizing and integrating operations and decision making; creating separate clinical enterprises; creating new public authorities or nonprofit corporations to govern hospitals; building networks of providers; and acquiring physician practices. Perhaps the most hyped strategy was consolidation. In 1997, Pennsylvania State University's Hershey Medical Center and Geisinger Health System in Danville, Pennsylvania, announced plans to merge into one large clinical enterprise. The merger unwound three years later. Based on extensive interviews and document analysis, this case study examines six aspects of the merger and de-merger between Pennsylvania State University and Geisinger: (1) the environment and historical context that preceded the merger; (2) the reasons for the merger; (3) the structure of the merged system; (4) the outcomes for the new organization; (5) the reasons for the dissolution; and (6) the lessons learned from this series of events.