Planning For Community-Oriented Health Systems - Essay Example

Horizontal integration is a type of integration, which is universal to all the industries, such as basic integration services including transformation, routing, adapters, flow control, etc. Vertical integration strategies are related to higher levels of managed care penetration within the market. Further, hospitals espousal vertical integration strategies reveal that they have more chances of formalization of integration activities than horizontally integrated facilities. An attractive feature of the horizontal model is that it allows one readily to infer the effect of a merger on price and cost.

Horizontal consolidation, by definition, increases market concentration, so one can estimate the impact of consolidation simply by examining the effect of increases in market concentration. Possessing physicians helps a health plan management to achieve better control and stimulus over practice patterns and diminishes the manipulation and utilization of medical resources; possessing hospitals allows an insurer to control medical facility, capacity and generate lower unit costs and combining insurance, physician and hospital components under one entity yields reductions in administrative costs.

All these factors result in cost benefited vertically integrated health plan. Moreover, vertical integration is supposed to facilitate the tighter "coordination of care" needed to deliver differentiated clinical quality.  But, in spite of this fact, there is a paradigm shift from one system to another, for a number of complexities existing in both the type of systems. As a result of this, many organizations follow both the type of integration systems. Excess provider capacity, especially in the form of over bedding and an oversupply of specialists, has established a new market for medical services in which insurers can rent physician and hospital services at the cost which is far less than the average costs associated with them as in case of a vertically integrated system.

Fewer opportunities for expansion in a vertically integrated system diverts the insurers to concentrate on health plan management. The creation of an effective electronic medical record is an extremely messy process. The emergence of new technologies helps the insurers to track and report individual provider performance against a peer group and regional/national norms. Technology has therefore provided an alternative to outright insurer ownership of physicians and hospitals as a means of reducing administrative costs.