Advantages Of Vertical Integration In Healthcare

By purchasing the primary care practices, Newland Hospital has created a health system. Health systems (HSs) are formerly associated health services organizations (HSOs) that have joined together for a multitude of reasons. HSs arise from a mutual need and a willingness among the participating HSOs/HSs to share knowledge, capabilities, risk, and costs to leverage innovation, and to take advantage of complementary strengths and capabilities (Longest & Darr, 2000, pg. 609). Additionally, such an integration unifies ownership of tangible and intangible assets, creates economies of scale, and expands the pool of patients. This particular form of integration is referred to as vertical integration, the coordinating, linking, or incorporating within a single organization 's activities or entities at different stages of the production process- in healthcare the process of producing and delivering patient care (Longest & Darr, 2000, pg. 93).
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One of the greatest advantages of vertical integration is supply assurance or in this case patient assurance. By purchasing the primary care practices, the hospital can ensure that the number of referrals increases; a form of supply assurance. Additionally, enhanced care coordination integration of providers across the facilities strengthens and facilitates better communication and information sharing among entities (“The Value of Provider Integration,” 2014). The improved flow of communication between the primary care providers and Newland Hospital can decrease the chance of redundancies which in turn leads to an increase in the level of timely care; reducing overall costs. Furthermore, greater organization size and scope as a result of vertical integration can lead to increased economies of scale. Through vertical integration, the hospital is able to spread their fixed costs over a larger revenue base; the acquired