Economics Harvard Case Solution & Analysis

Part 1: Hospital Mergers

A.  There are basically two forms of consolidation, which are the horizontal and the vertical consolidation. Horizontal consolidation basically occurs when hospitals merge with other hospital whereas vertical consolidation occurs when hospitals consolidate with the other health care entities that provide health care services. In this case, vertical consolidation has occurred as a large hospital system has acquired three additional hospitals in the Boston area.

B. The first challenge that is faced in this type of consolidation is the concern regarding the increasing prices. The price increases that have been shown by the recent studies show that the increases in the prices have been in the range of about 10% to 40%. The empirical study also supports this as it could be seen in one of the study that the prices of the medical services had increased substantially across all the health care centers and the hospitals. Another harm caused by this type of consolidation within the hospitals is the lack of innovation in the processes and products of the company. It has been found by most of the studies that it is the profits to which the investment in technology is directly related. As the market power is consolidated in just a few institutions, therefore the process innovation declines.

C. The consolidation of the above type also has many benefits. The first and the most important benefit of consolidation is that higher quality services could be provided to the public. A significant relationship has been show between the outcome and the volume for most of the surgical procedures. The quality is significantly improved and the volume for the specialized services has also increased significantly. The financial burden which is caused as a result of the high cost investments is also spread across many constituent members. Furthermore, cost savings are also occurred as a result of the consolidation. The planning and the duplication of many procedures could also be avoided across the health care systems when different practitioners with a shared medical record work together. All the settings across the hospitals are then made more efficient and as a result, the costs of the drugs and admission to the hospitals are also reduced significantly.

D. If one of the hospitals wants to form a responsible care organization, then that organization would encourage vertical integration because if there is a single parent organization that has the sole responsibility for controlling and overseeing the continuum of care, then the provision of the care would become more efficient. For instance, when integration takes place there are many different practitioners that meet together and most of them have the same medical record. Therefore, this avoids the planning that has to be done and also the duplication across all the different settings is avoided as a result of this. Furthermore, due to this enhanced efficiency, most of the costs for the patients are reduced significantly. This is the reason due to which, most of the least resource intensive health care centers across one country become integrated.

E. One of the potential benefits of vertical integration across the organization is that this strategy enables the hospitals or other organizations to invest in greatly specialized assets for the organization. On the other hand, one of the potential harms of vertical integration is that the flexibility is decreased and the business as a whole might face capacity balancing problems such as developing upstream capacity to balance the operations in the downstream area to balance out the supply with the demand.

F. In order to measure the hospital competition and vertical integration of a country, Baker, Bundorf and Kessler had constructed country level indices of volumes, prices and the spending. These were then adjusted according to the sex and age of the enrollees. The information was collected from the American Hospital Association and that information was used in order to study about the integration of the different physicians of the hospital. This was done to show what kind of relationship the physicians have with the hospitals. Furthermore, the data was collected from Truven Analytics MarketScan. This comprised data of about 2.1 million hospitals and it was used to identify the vertical integration and hospital competitions by first forming an index of price per admission in each hospital. In the second index, the numbers of the admissions per enrollee were measured. The scholars had used the county level regression models to determine the significant of vertical integration and hospital competition in the country................

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