Vertical integration in healthcare linked to higher costs and poor health outcomes

MedTech & Diagnostics News: Australia’s healthcare system is at a crossroads, drawing parallels to the United States’ vertical integration and managed care model. The shift from passive payer to active funder by private health insurers is sparking concerns among stakeholders.

The Australian Medical Association (AMA) has warned about the aggressive pursuit of vertical integration by private health insurers “in an attempt to gain greater control of treatment costs”.

Drawing lessons from the United States where rapid consolidation has reshaped healthcare delivery, concerns have been raised about the impact of vertical integration on costs and patient outcomes.

A recent study led by Soroush Saghafian from Harvard University found that vertical integration in medicine is leading to higher costs and worse health outcomes.

“Analysing more than 2.6 million patient visits, we found that physicians significantly alter their care process after they vertically integrate. Although integration improves operational efficiency measured by physicians’ throughput, it negatively affects quality and overall spending.

“What is more, this results in a substantial increase in patients’ post-procedure complications,” stated Saghafian.

The latest development fuelling concerns is Bupa’s announcement of acquiring healthcare centres that will offer integrated GP, allied health, and pathology services.

Efforts to counteract this trend have been ongoing. Despite lobbying efforts by the AMA and the Australian Society of Ophthalmologists (ASO) against US-style managed care, the ACCC authorised Honeysuckle Health and nib private insurer to form a health services buying group in 2021.

Cost pressures facing private hospitals led to a five-year agreement between national private hospital operator, Healthscope, and Honeysuckle Health in 2023.

Saghafian further added, “We provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behaviour, since it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures.

“There should be measures to monitor post-integration behaviour and quality, and align with post-integration incentives. Given how fast vertical integration is happening, it’s important for lawmakers to take quick, logical action now.”

A study commissioned by Bupa revealed widespread frustration among Australians with accessing healthcare due to complexities, wait times, limited appointments, and costs.

Nick Stone, CEO for Bupa APAC, stated “Access to clinicians and services will be supported by technology and underpinned by safe, secure, and intelligent data for a more seamless and less confusing health experience.”

However, critics argue that reconciling the inherent conflicts of interest in vertically integrated organisations, which span both funding and care provision, remains a daunting challenge that impacts patient care.

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