Vertical integration is a strategy in microeconomics which describes about a company to compete with it’s competitors by gaining control over its supplies or distributions and thereby increasing the firm’s power in the marketplace. The more they are integrated the more they are vertically integrated. For a hospital system, when they invest on the physicians who can admit patients directly to their hospitals helps the hospitals with their admissions and census and after they discharge the patients, patients will need multitude of services like medications and pharmaceutical, lab and other test requirements, services like home health , inpatient rehab, outpatient services etc. The more a hospital can provide services the more they can control the market.
Methodist healthcare system and their major competitor in Memphis area, Baptist healthcare, both have invested heavily on their physicians. They both have dozens of outpatient services, surgery centers. They both own home health services. Baptist partners with Nashville-based Centerre Healthcare to service inpatient rehabilitation and Methodist provides this service via Healthsouth a national chain in this area. Providing the services before a patient is admitted to the hospital (backward integration) and the services they require after they are discharged from the hospital like various home-health and outpatient needs (forward integration) is vital for their business.
Cardiocom, explains their vertical integration (http://www.cardiocom.com).
Disclaimer: Opinions expressed are solely personal and do not express the views or opinions of any other person or entity.
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