Vertical integration (VI) is the joining of two firms that are at various stages of the supply chain to improve productivity. The Bible says, “he who supplies seed to the sower and bread for food will supply and multiply your seed for sowing and increase the harvest of your righteousness” (English Standard Version, 2016, 2 Cor. 9:10). During VI, providers usually consider how well they can integrate other value chain participants. Essentially, their direction can be either backward, forward, or balanced. A seamless continuation of medical services that address the whole spectrum of a patient’s demands is possible due to the VI systems.
A major academic medical center, like the University of Iowa, would pursue a backward vertical integration (VIB) by building its acute care hospital and outlying primary clinics. According to Del Prete and Rungi (2019), when it comes to VIB, the purchaser hires the provider of an intermediary input. The patient is distant from the needed service; thus, the college healthcare system will choose a VIB option. Generally, before being referred to a learning medical institution, community hospitals, doctors, and specialists will offer diagnosis, intervention, and primary care. The professional services provided across the chain may be redefined due to the integration.
A five-person general surgery group is directly linked to the patient because no middle person is involved. As a result, they will choose a forward vertical integration (VIF) system since they treat their clients. In the VIF instance, one of the buyers is employed by the provider of the intermediate input (Del Prete & Rungi, 2019). The in-patients can access the five-person surgery group’s services in their facilities. Increasing continuity of care can improve outcomes like quality, efficiency, and outreach or even enable cost containment (Amado et al., 2022). As a result, they might collaborate with a skilled surgical team and refer them to the more complicated cases. Due to the small business size, integration with the hospital and the specialist surgery group would be accomplished through contracts.
A manufacturer of durable medical equipment can use a balanced method or combination of VIB and VIF. Given that the services and activities are located more away from the patients, the producer may want to consider VIB. Using this VIB option, the corporation can integrate with suppliers the materials, tools, and chemicals needed to make indestructible medical devices. Another choice for the manufacturers is the application of the VIF system. Integrating with distributors, including hospitals, clinics, medical schools, and pharmacies, that assist in getting the items to customers can be highly beneficial to the producer. Essentially, this alternative will make it simple to move items from the manufacturer to the consumer, increasing the firm’s profit margins. The company can have control of its warehouses, logistics, product quality, and expenses. For instance, direct sales through a website can be ideal if the equipment is straightforward and has a modest initial cost. However, they might need to recruit after-sales personnel in several locations when it comes to service and small installation issues.
In brief, the VI systems enable a smooth continuation of healthcare that covers the full range of a patient’s needs. In essence, it is clear if vertically integrated healthcare providers favour the system as a whole for care delivery. Generally, the choice to integrate is made for tasks with low replacement elasticity and tends to focus on technologically closer production stages throughout the chain, maybe to increase coordination efforts.
References
Amado, G. C., Ferreira, D. C., & Nunes, A. M. (2022). Vertical integration in healthcare: What does literature say about improvements on quality, access, efficiency, and costs containment?The International Journal of Health Planning and Management, 37(3), 1252-1298. Web.
Del Prete, D., & Rungi, A. (2019). Backward and forward integration along global value chains. SSRN Electronic Journal. Web.
English Standard Version. (2016). Bible Gateway. Web.