Ucsf Stanford Healthcare – Why They Merged and Why the Merger Was Unsuccessful

In 1997 University of California, San Francisco (UCSF) merged its two public hospitals with Stanford’s two private hospitals. The two separate entities merged together to create a not-for-profit organization titled UCSF Stanford Health Care. The merger between the health systems at UCSF and Stanford seemed like a good idea due to the similar missions, proximity of institutions, increased financial pressure with cutbacks in Medicare reimbursements followed by a dramatic increase in managed care organizations. The first year UCSF Stanford Health Care produced a profit of $22 million, however three years later the health system had lost a total of $176 million (“UCSF-Stanford Merger,” n.d.). The first part of this paper will address reasons why the two institutions decided to pursue the merger by looking through the theoretical lens of bounded rationality, prospect theory and resource dependence theory (RDT). The second half of the paper will purpose reasons why the merger was unsuccessful by considering key concepts in organizational behavior such as power and culture. The threatening and uncertain fiscal times led the leaders to select the option that they believed maximized their chances for survival. The theory of bounded rationality, proposed by Herbert A. Simon, suggests that people are largely limited by time, information and cognitive limitations(Simon, 1997). The merger between the two medical schools seemed to make sense, both institutions shared a common mission of treating the uninsured, training the next generation of innovative doctors, and remain at the forefront of breaking research and technology. Since both were going to be competing for increasingly scarce resources, joining forces made sense. Together they would be able to reduce spending on administrative costs, and better prepared to negotiate contacts with large insurance companies(“UCSF-Stanford Merger,” n.d.). Simon suggests that people, bounded by time, cognitive ability and

References: Etten, P. V. (1999). Camelot or common sense? The logic behind the UCSF/Stanford merger. Health Affairs, 18(2), 143–148. doi:10.1377/hlthaff.18.2.143 Kahneman, D., & Tversky, A Leading by Leveraging Culture - Harvard Business Review. (n.d.). Retrieved October 16, 2012, from http://hbr.org/product/leading-by-leveraging-culture/an/CMR260-PDF-ENG Pfeffer, J., & Salancik, G Simon, H. A. (1997). Models of Bounded Rationality, Vol. 3: Emperically Grounded Economic Reason. The MIT Press. UCSF-Stanford Merger: A Promising Venture. (n.d.).SFGate. Retrieved October 16, 2012, from http://www.sfgate.com/opinion/article/UCSF-Stanford-Merger-A-Promising-Venture-2975174.php#src=fb UCSF, Stanford hospitals just too different