Healthcare Quarterly

Healthcare Quarterly 1(1) September 1997 : 23-31.doi:10.12927/hcq..16609

Vertical Integration: '80s Fad or Healthcare's Future?

David G. Knott

Abstract

As medical inflation soared throughout the 1980s, a new form of "conventional wisdom" began to take hold in the healthcare industry - the best way to control costs and improve quality was to "vertically integrate" insurance, physician and hospital functions under one company. Convinced of the underlying economic logic, industry players scrambled to figure out the best way to assemble the requisite pieces. But in the 1990s, the industry appears to be reversing course, pursuing horizontal/sector consolidation - payor to payor and provider to provider - over vertical integration between payors and providers (with some vertical integration continuing within the provider sector between physicians and hospitals). The result has been the creation of large and rapidly growing companies focused on discrete pieces of the healthcare value chain. Is this a fundamental reorientation of the "tectonic plates" in the industry, or are we still ultimately headed toward a vertically integrated healthcare financing and delivery system in America?

 

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