Healthcare systems are using vertical integration in their systems for economic, operational and quality incentives. Through these systems of transformations, nurses are required to assume new responsibilities, roles and skills (Newhouse & Mills, 1999). In the contemporary turbulent healthcare environment, alterations in organizational structures through consolidation, merger and redesign are being implemented as way of lowering the costs of care. Vertical integration can be defined as the management of services in the operating units at diverse levels during the practice of patient service delivery (Post, Buchmueller, & Ryan, 2018). It entails grouping organizations that offer diverse levels of care under one managing body. This is done through a reduction of duplicated technology and efforts. Vertical integration has both advantages and drawbacks in the healthcare system in terms of overall strategy.
Pros of Vertical Integration
One of the major importance of vertical integration is that it can provide products and healthcare services to patients at multiple points during the life cycle of a patient. They have a capability of arranging or providing all levels and types of care that is need by their patient population. Studies project that vertically integrated systems are likely to predominate organizational models in future (Newhouse & Mills, 1999). With the success of vertical integration, more healthcare organizations are focusing on quality care to the patients. It also provides acquisitions and alliances, which incorporate healthcare plans, physicians, home care facilities, educational medical centers and long-term care services.
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Vertical integration takes place when different services are administered and care can be provided to the patients through a continuum of services that are governed by the integrated system. Theoretically, vertical integrated systems reduce excess capacity, improve the coordination and quality of services, and ensures cost effectiveness (Robertson, 2001). They also provide multihospital systems that enable manpower, economic and organizational benefits. Some examples of economic benefits include capital sharing and economies of scale. Further, vertical integrated systems provide patients with the benefits of continuity and increased access to care (Newhouse & Mills, 1999). Through a strong system of wide culture, diversification of risks, centralization and effective physician involvement, vertical integration improves the competitive advantage of a healthcare system.
Cons of Vertical Integration
Creation of vertical integrated systems provides challenges not only to nurse administrators but also to the healthcare system at large. First, the costs of purchasing the organizations that make up an integrated system are very costly (Post, Buchmueller, & Ryan, 2018). Medical groups and hospitals have to use large amounts of money in purchasing the components that make up a vertically integrated system. The costs include; physician hospital organizations, managed care networks, freestanding medical groups, management services organizations and foundation model medical groups. Many healthcare systems have been affected as a result of vertical integrated organizations that have taken sizable debts (Robertson, 1996). Due to the different components especially in the system’s core competency, healthcare systems can therefore face significant financial burdens.
Many physician groups that are becoming a part of a larger system are losing their incentives of producing what comes with autonomy. With the evolution of managed care, vertical integrated organizations cannot provide the optimal solution of ensuring cost effective and efficient care (Newhouse & Mills, 1999). Healthcare systems do not have any sense of security especially when owning their physician practices. A vertical integrated healthcare system can lose its clients and patients when it acquires or construct its own health care plan (Robinson & Casalino, 1996). Other competing insurance companies can view the actions of a vertical integrated system as a threat and therefore they may choose to pull their existing contracts for delivery of patient services.
In conclusion, vertical integration presents many benefits that are realized in the healthcare system but this asset-based method also has some drawbacks when it comes to healthcare delivery. Some benefits of vertical integration include reduced costs, provision of quality care at different levels, alliances, coordination, work force and competitive advantages. Vertical integrated systems also present several drawbacks including being costly, sizable debts, financial burdens, reduced incentives, loss of patients and losing insurers. Vertical integration can be very effective if implemented, but healthcare systems should watch out the drawbacks and find effective ways of managing them.
References
Newhouse, R., & Mills, M. (1999). Vertical Stystems Intergration. The Journal Of Nursing Administration , 29 (10), 22 - 29.
Post, B., Buchmueller, T., & Ryan, A. M. (2018). Vertical integration of hospitals and physicians: Economic theory and empirical evidence on spending and quality. Medical Care Research and Review , 75 (4), 399-433.
Robertson, P. L. (2001). Organising Industrial Activities across Firm Boundaries. Journal of Economic Literature , 39 (2), 603.
Robinson, J. C., & Casalino, L. P. (1996). Vertical integration and organizational networks in health care. Health Affairs , 15 (1), 7-22.
