Impact of Vertical Integration in Healthcare

Today the healthcare industry is going through a transformative change called “Vertical integration” and its popularity is rising continuously over the US. However, it is observed in most cases that such mergers would lead to higher healthcare costs and a low level of patient satisfaction.

As a physician or healthcare organization, you should know about these rising trends and their impact on your practice hence in the article you will learn about Vertical Integration in Healthcare as well as its impacts.

What is Vertical Integration in Healthcare?

Vertical integration can be referred to as the purposeful creation of strategic combinations of alliances to enhance the delivery of health care. Hospital systems, drug manufacturers, wholesale distributors, pharmacy benefit managers (PBMs), retail pharmacy outlets, and medical insurers have all jumped on the bandwagon to form unique synergies across the healthcare industry.

Vertical integration is completely different from horizontal integration, which occurs when entities operating in the same market come together like when one physician group buys another or hospitals merge with other hospitals.

In the dynamic health care industry, the use of traditional horizontal integration for joining forces with another competitor does not guarantee cost savings to the organization or, more importantly, to the patient. In fact, by avoiding a reactive approach with direct competitors or established rivals and instead carefully selecting opportunities that create complementary synergies, health care companies can achieve the upper hand.

After knowing briefs about the current trend of vertical Integration in Healthcare, now you must be aware of its impact so you can decide if it’s suitable for your practice or not.

Impact of Vertical Integration in Healthcare

The rise in referral patterns for common diagnostic tests and procedures

It is observed that after vertical integration, referrals to hospitals increased resulting in millions more in Medicare spending. For example, after vertical integration, the monthly number of diagnostic imaging tests per 1,000 attributed beneficiaries performed in a hospital setting increased by 26.3 per 1,000, and the number performed in a non-hospital setting decreased by 24.8 per 1,000.

Hence it was observed that vertical integration in healthcare impacts referral patterns for common diagnostic tests and procedures and the associated spending.

Anticompetitive behavior

Vertical integrations are categorically safe but can lead to anti-competitive behavior and higher costs and evaluation should be done on a case-by-case basis, especially as health care accounts for such a large part of the economy.

According to a study, Physician groups owned by large hospital systems were more than 50% more expensive than those owned exclusively by physicians, and rising vertical integration in California is associated with higher prices for primary care, higher health insurance premiums, and more expensive specialty care.

Preserving a Competitive Market

When it comes to a proposal of hospital mergers then policymakers and regulators should focus scrutiny on mergers to maintain competition and reduce counterproductive barriers to entry. Currently, both federal and state governments are keeping an eye on vertical integration’s effects on competition.

The Department of Justice and the Federal Trade Commission at the federal level are responsible for investigating antitrust issues. While investigating this regulator should follow expanding and clarifying guidelines but even in the presence of such clear guidelines scarcity of resources couldn’t keep with the pace of vertical integration in health care.

One more important aspect is vertical integration in healthcare i.e. Physicians and hospital mergers threaten competition in local healthcare markets and regulators may want to focus their efforts on identifying vertical mergers and acquisitions that may negatively impact patient satisfaction and costs.

Patient satisfaction

It is an important aspect for every physician but increased market concentration through physician-hospital integration affects patient satisfaction badly. While higher clinical quality and better patient experience cannot be correlated but measuring quality based on patient perception is increasingly important as more consumers use online physician ratings and reviews of patient experience to select providers.

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