Lawton Robert Burns is the James Joo-Jin Kim Professor at the University of Pennsylvania. He is a professor in the Departments of Management and Health Care Management at the Wharton School. Healthcare systems in the United States have engaged in multiple strategies of diversification over the past four decades. These strategies include horizontal integration, vertical integration, market diversification, unrelated business diversification, and financial risk contracts. Most of these strategies have not worked well. A growing number of these systems have already gone bankrupt, while others are teetering on bankruptcy. This volume depicts the strategies undertaken, the difficulties encountered, and the ensuing financial tragedy at three prominent systems: Allegheny Health Education and Research Foundation (AHERF), Jefferson Health System, and Steward Health Care. It also develops a grounded theory of how and why such bankruptcies occur.

The grounded theory identifies the main drivers of bankruptcy. These include forces at work in the executive suite, such as self-interest, self-preservation, and mimicry of other firms. Executives are also encouraged by investment bankers to enter into diversification strategies that involve acquisitions of other companies and grow the footprint of their organizations. In sum, executives are driven by personal ambitions and aspirations for their firms. Another set of drivers include lack of oversight exercised by the firm's board of directors, the speed with which diversification is undertaken, the lack of due diligence in reviewing other firms that are acquired, the failure to learn the historical lessons of other companies that have undertaken diversification, the failure to undertake strategies that are rooted in empirical evidence, the inability of diversifying firms to manage the complexity of the diverse operations they undertake and the diverse markets into which they diversify, the choice of the wrong markets to diversity into and the timing of these choices, and the failure to consider whether such strategies can succeed in an industry as complex as healthcare. If that were not enough, other forces can doom diversification efforts. These include the lack of sufficient capital to sustain diversification, the resulting reliance on debt capital which often swamps firms, and the many mistaken beliefs and assumptions held by executives. Finally, environmental changes and unforeseen events severely challenge corporate strategy.

Such changes often plague efforts to undertake risk contracting. None of these changes or events are considered in strategic planning.