Ill-fated hospital mergers have afflicted both the University of California and the city of Berkeley over the last year, raising questions about the way care providers should react to national health care trends.
The creation of UCSF Stanford Health Care, which Stanford University formally terminated Thursday, was originally designed to avoid duplicative costs and negotiate more favorable deals with health plans for care such as cancer treatment.

Proponents of the merger between UCSF and Stanford medical centers touted the partnership as a way to overcome the increasingly competitive national health care market. But the merger was ultimately challenged for the same reasons.

Supporters of the partnership said the merger was needed to cope with the financial crisis sparked by the Balanced Budget Act of 1997.

The federal legislation restructured Medicare, a federally subsidized health care plan for people over age 65, and cut reimbursements to medical care providers, according to policy analysts.

Gerhard Casper, the president of Stanford and former proponent of the merger, said Thursday that high health care costs and difficulty in merging the two institutions contributed to his decision to terminate the deal.

After making a profit in its first year, UCSF Stanford Health Care lost $86 million during the fiscal year ending in August 1999, hospital system officials said. Stanford lost approximately $20 million and the UC system lost approximately $66 million.

Casper cited the same financial constraints originally used to justify the merger’s creation as reasons for the demise of the organization.

“Since the merger, the negative impact of the Balanced Budget Act of 1997 has been much worse than expected, and developments in the managed care market have given no reason for optimism as concerns that marketplace,” Casper said. “For Stanford Hospital and Clinics alone, the impact of declines in federal funding over the next four years will be nearly $85 million.”

Like supporters of UCSF Stanford Health Care, proponents of the consolidation of Berkeley’s Alta Bates Medical Center and Summit Medical Center in Oakland have argued merging the two medical centers is the only way to maintain services during a time when health care costs across the country are on the rise and funding from the federal government is declining.

Summit spokesperson Nancy Happel said over the summer merging Summit and Alta Bates would be the only way to recover from a combined $19.1 million loss over the last fiscal year.

But in August, State Attorney General Bill Lockyer filed an anti-trust suit to block the merger. On several occasions, Lockyer questioned the impact the merger could have on patient care and competition in the medical care industry.

He said in August that he did not want to “add fuel to the fire” created by the financial climate in the health care marketplace.

“In California, we are faced with increasing needs for health care by aging baby boomers and rising health care premiums,” Lockyer said. “This antitrust action is necessary to promote healthy competition needed to keep costs reasonable and bring attention to regional health care planning needs.”