Vertical And Horizontal Integration In Health Management

5 Pages 1178 Words

Distinguish between vertical and horizontal integration

Discussion about the need for improved, integrated health-care services is sweeping the province in the same way that utilization review and management hit hospitals a decade ago. The two are also similar in that they have been driven by the same force - a desire to spend less money while improving, or at least maintaining, health outcomes. Many organizations have embraced the concept of vertical integration, where hospitals, physician groups and health plans are owned and operated by a single entity. The belief is that the integrated delivery system will be able to reduce costs, improve quality and increase market share by owning and coordinating components of the health care system. While certain benefits may be realized through vertical integration, this asset-based method of organizing health care delivery has some drawbacks. According to the Physicians News Digest (1998), purchasing the organizations that make up the system is very costly. Hospitals, medical groups and HMOs will have to spend, on average, the following amounts to purchase components that make up integrated delivery systems: independent practice associations/managed care networks—$ 1.2 million, physician-hospital organizations—$2.2 million, staff-model physician organizations—$7.8 million, management services organizations—$9.6 million, freestanding medical groups—$19.7 million, foundation-model medical groups—$20.0 million. (D. Zimba, 1998)
Another way to look at Vertical Integration is the degree in which a firm owns its upstream suppliers and its down stream buyers. Because it can have a significant impact on a business unit's position with respect to cost, differentiation, and other strategic issues, the vertical scope of the firm is an important consideration in corporate strategy. Expansion of activities downstream is referred to as forward integration, and expansion upstream is referre...