Together, we will improve patient health and experiences while lowering costs across the continuum of care.” This quote, from Andrew Witty, CEO of US health services management company Optum, after the company sealed its acquisition of DaVita Medical Group in 2019, encapsulates the oft-declared goals of vertical integration: efficiencies, improved quality of care, reduced costs. But is this the reality?
Vertical integration – broadly defined as the combination of entities at different levels of the health care supply chain, such as when hospitals acquire physician practices or health plans acquire pharmacy benefit managers – is certainly on the rise.
Around half of all primary care physicians in the US are now affiliated with vertically integrated health systems, up from 38% in 2016. And that number is likely to keep rising. The focus of US policymakers is on improving health outcomes and championing patient-centeredness as a core element of health care value and on the surface of it, vertical integration supports this drive. The COVID-19 crisis only increases the rationale for a better organized health care system achieving higher value care.
With much of the supply chain already integrated and more mergers on the horizon, are we starting to see some of the stated benefits of vertical integration? And what do these expanding entities mean to the pharmaceutical companies trying to engage with them?
Patient View: Theoretical Benefits Not Being Realized
Is vertical integration having an impact on patient outcomes?
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An Executive Insight survey of leading US health care experts, including health insurers, PBMs and providers, found that only half (49%) of respondents felt that US patients are benefitting from better health care as a result of such mergers.
In the recent literature, a systematic review by Machta et al in 2018 found that vertical integration in the US was associated with improvements only in a few measures of quality around specific conditions. While a 2019 study from Rice University’s Baker Institute for Public Policy revealed that vertical integration in health care has little to no impact on care quality across a range of performance measures, including hospital readmission rates, length of stay and patient satisfaction. There were exceptions, but these were a limited set of processes such as continuation of beta blockers for surgical patients.
Horizontal integration – where the same types of entity merge, whether hospitals or physician practices – has been proven to reduce costs, due to factors such as central purchasing and investments, and better negotiation position with suppliers. But with vertical integration it is less clear; efficiencies are more difficult to disentangle across the value chain. There are certainly cost efficiencies to be gained – health insurer Cigna claimed its purchase of PBM Express Scripts will generate $625 million in administrative cost savings alone over the next three years. But who is benefitting from these efficiencies beyond shareholders?
Reports on vertical integration in the US have found that the mergers have not yet introduced significant reductions in cost. While Goldsmith et al in 2015 found little evidence that hospital-physician structural integration was able to yield improved cost outcomes.
Source: Invivo Pharmaintelligence