Impact of Horizontal, Vertical, and Virtual Integration on Health Care Systems
Changes in policies governing health care, introduction of new payment modalities such as the prospective payment system, and increased emphasis on the cost-effectiveness and quality of health care services have created an impetus for health care organizations to become part of larger organizations (Proti, 2009). They do this with the hope of shielding themselves from adverse outcomes of these changes, maintaining competitiveness, and expanding their capability to offer comprehensive, continuous, and diverse health care services (Wolper, 2010, p. 82). There are 3 forms of integration, horizontal integration, vertical integration, and virtual integration. The impact of these three forms of integration on health care organizations will be explored below.
Horizontal integration occurs when hospitals or health care organizations at the same level purchase other hospitals/ health care organizations to become a multihospital system. It leads to the alteration of the governance processes and structures of the involved institutions. Multisystem hospitals adopt either a parent holding model, a modified parent holding model, or a corporate model of governance. These 3 models have different levels of decentralization of decision-making. The parent holding company model is the most decentralized whilst the corporate model is the least devolved. Horizontal integration enhances a hospital’s size, access to capital, expertise on regulatory matters, and popularity through name recognition. However, due to limited decentralization of decision-making, multihospital systems are unable to adapt to changes in the local environment. Lack of full integration also limits their ability to benefit from economies of scale (Wolper, 2010, pp. 79-80).
Vertical integration occurs when hospitals or other health care organizations buy or enter into contractual agreements with other health care organizations “upstream” or “downstream” of the parent institution. Vertically integrated organizations are able to offer comprehensive and continuous care because they offer a wide range of health care services. Vertical integration results in a health care system with several subunits such as primary care physicians, hospitals, specialty clinics, and managed care organizations. These units should ideally have centralized planning and resource allocation, unity of purpose, and a hierarchical structure. Due to operational difficulties though, this is not always possible. Vertically integrated institutions are usually large, inefficient, and slow to adapt to innovations (Wolper, 2010, pp. 78-79).
Virtual integration refers to health care systems integrated horizontally or vertically primarily through contractual agreements. Virtual integration allows health care organizations to retain their autonomy and ability to adapt to changes in the environment. They are thus able to offer different health care services effectively and efficiently without merging with larger organizations (Wolper, 2010, p. 82).
In conclusion, all three forms of integration impact on health care organizations positively and negatively. Horizontal and vertical integration results in centralized decision making that is not responsive to changes in local environments. Virtual integration allows health care organizations to offer a broad range of services whilst retaining their ability to adapt to changes in the environment.
References
Proti, D. (2009). Integrated care needs integrated information management and technology. Healthcare Quarterly, 13, 24-29.
Wolper, L. (2010). Health care administration: Managing organized delivery systems (5th ed.). Sudbury, MA: Jones and Barlett Publishers.
