MANAGED CARE November 2003. ©MediMedia USA

Case Study of a Failed Merger of Hospital Systems

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MANAGED CARE November 2003. ©MediMedia USA

What went wrong between Penn State and Geisinger, and what lessons should be learned?

Jaan Sidorov, MD

Medical Director-Care Coordination at Geisinger Health Plan, Danville, Pa.


The failed merger between Geisinger Health System and Hershey Medical Center is an instructive case study. The advantages of merging include: 1) support of financially threatened academic health centers, 2) access to greater capital, and 3) integration of managed care principles in the delivery system. Nevertheless, if the leadership of the new organization fails to deal effectively with the inevitable winners and losers, underestimates the role of cultural differences, does not have the management skills necessary to achieve cost savings and address the operational inefficiencies resulting from a larger clinical enterprise, does not anticipate the distrust of other local health care providers, and fails to anticipate the market forces that determine the success or failure of a managed health care system, mergers can fail. Lessons to be learned include: mergers involving health care systems with competing programs need to plan aggressively and execute carefully their clinical consolidation; cultural differences and the impediments they cause can be easily underestimated; health system mergers do not automatically result in economies of scale; and not all stakeholders in the surrounding community necessarily will welcome a merger.

Author correspondence:
Jaan Sidorov, MD
Medical Director-Care Coordination
Geisinger Health Plan
Hughes Office Building North
Woodbine Lane
Danville PA 17821

This paper has undergone peer review by appropriate members of Managed Care's Editorial Advisory Board.