Question

Please describe the difference between a vertically integrated delivery system and a horizontal consolidation healthcare delivery system.

Answer 1

Vertical consolidation and horizontal consolidation are ways for businesses to reduce competition.

With horizontal consolidation, competing companies merge into one big company.

Vertical consolidation is when one company controls every aspect of a specific industry.

Polishing the supply chain vs. Economies of scale: Vertically integrated system removes middleman which makes it easy for a common man to access the healthcare system more easily in a cost-effective manner, on the other hand, horizontally integrated company can achieve a higher production than the companies merged, at a lower cost thus reducing the cost of treatment.

Makes distribution and after-sales service more efficient by having more chain of stores and pharmacies. Thus making the reach to health care to very remotest of the country. On the other hand, horizontal integration allows healthcare systems to offer more product features to customers thus offering very particular healthcare solutions to individuals.

Increased market share Vs. Increased market power: Because of having greater power over the supply chain, a healthcare system can absorb both upstream and downstream profit for itself thus giving the ability to reduce the profits further for offering services at a reduced price. On the flip side, horizontal integration enables businesses to become a bigger vendor for their old suppliers. Thus, allowing to have higher negotiation price commending much lower purchasing price. The same can be transferred to the consumers reducing the prices of services.

The vertically integrated healthcare system makes an entry barrier for new entrants thus reducing the competitiveness and increasing the monopoly. This can be bad as a monopoly can lead to an increase in the price of services. On the other hand, because of mergers, a horizontally integrated system allows for entry in a new market thus making healthcare service es accessible to more people.