INTERNATIONAL JOURNAL zyxwvutsr OF HEALTH PLANNING AND MANAGEMENT, zyxw VOL. zyxw I, 79-101 (1992) DETERMINANTS OF A MERGER IN A PUBLICLY-FUNDED HEALTH SYSTEM: A POLITICAL-ECONOMY PERSPECTIVE JEAN-LOUIS DENIS, FRANCOIS CHAMPAGNE, ANDRJGPIERRE CONTANDRIOPOULOS AND LINDA CAZALE zyx Department zyxwvuts of Health Administration, Faculty of Medicine, University of Montreal, C. P. 6128, Succursale A, Montrkal, QuPbec, Canada H3C 3J7 SUMMARY This article reports the results of a case study, spanning a period of 10 years, of the merger of two hospitals in a publicly-funded health system. A political economy model was used to analyse the determinants of the merger. Results show that external political economy factors, mainly pressure from the state to rationalize health services and the organization’s needs to acquire critical resources, significantly contributed to the merger decision. At the internal political economy level, groups and individual strategies also played a determinant role. Our study suggests that merger in the public sector may not necessarily result from efficiency motives. KEY WORDS: Hospital merger; Interorganizational relations;Political economy; Management INTRODUCTION In order to develop, perform or simply survive, organizations must cope with multiple constraints and contingencies both within and outside of their own boundaries. Organizations can use one of two strategies to deal effectively with situations of complexity and uncertainty: an intraorganizational and an interorganizational mode of adaptation (Cook et al., 1983; Borys and Jemison, 1989; Carter, 1990). The intraorganizational mode implies that an organization bases its strategies primarily on internal resources and assets, to enable it to adapt to or act upon factors of uncertainty and dependence. The interorganiza- tional mode involves linkages with other organizations to foster optimal adap- tation to constraints; or, to modify either the constraints or the opportunities that a given organization is faced with. This latter mode has been described as the third level of strategic planning, after the business and the corporate levels (Bresser and Harl, 1986). In the health care sector, advantages of linkages with other organizations have been classified into three categories (Stark- weather, 1981; Fottler et al., 1982): (1) gains in efficiency in the utilization of resources (e.g. economies of scale, savings on transaction costs); O749-6753/92/02OO79-23$16.50 zyxwv 0 1992 by John Wiley zyxwvu & Sons, Ltd.