Vertical Integration in Healthcare: Benefits and DOJ Task Force Concerns

The Department of Justice (DOJ) recently announced the formation of the Task Force on Health Care Monopolies and Collusion (HCMC), designed to focus on a variety of healthcare concentration issues, with particular attention to vertical integration (in this case, the combination of payers and providers).  

While there can be real concerns about concentration in certain areas of healthcare, vertical integration should generally be promoted, not discouraged. The apparent misgivings held by the DOJ task force about vertical integration are also incompatible with the shift toward value-based payment mechanisms, a centerpiece of healthcare policy for more than 15 years.

Several years ago, Rahul Rekhi, Counselor for International Affairs at the U.S. Treasury Department, and Peter Orszag outlined the arguments and evidence in favor of vertical integration in healthcare for the New England Journal of Medicine Catalyst. In that article, “The Economic Case for Vertical Integration in Health Care,” they argued that several key benefits include:

• Improved Care Coordination: Vertical integration can promote better coordination of care. By integrating different levels of care—such as primary care, specialty care, and hospital services—healthcare providers can reduce medical errors, improve patient outcomes, and enhance overall patient satisfaction.
• Reduction in Redundant Services: Vertical integration can minimize redundant services and tests, which are often a result of poor communication and coordination among independent providers.
• Enhanced Data Sharing: Integrated healthcare systems can facilitate better data sharing among providers. This can, in turn, improve decision-making and patient care, and facilitate the ability to track and manage population health more effectively.

They also provided a variety of empirical evidence suggesting these benefits are not just theoretical. So it seems particularly odd for the DOJ to be focusing on this aspect of healthcare.

Furthermore, the logic behind vertical integration is precisely the same as that behind value-based payment models. Healthcare policy experts often agree on little, but they are almost universally united in believing we should move toward these value-based payment models and away from fee-for-service reimbursement. As recently noted by a group of leading experts in a National Academy of Medicine publication:

“With fee-for-service (FFS)—the longstanding, traditional payment model used in the US—health care services are paid for individually and aggregate payment is driven by the volume of services rendered. In an effort to rein in health care costs, increase clinical efficiency, encourage greater coordination among providers to better meet the needs of patients, and provide value for true engagement of patients' and family members' care decisions, payment reform efforts are focusing on value-based models of care delivery. These models aim to incentivize providers to keep their patients healthy, and to treat those with acute or chronic conditions with cost-effective, evidence-based treatments.”

It is inconsistent to argue in favor of value-based payment models, which effectively turn providers into ersatz insurance companies, and not also logically favor full vertical integration, in which providers are actually insurance companies (either structured as providers that are accountable for medical utilization cost or as insurance companies that own providers).

Said another way: Today, one arm of government, in the form of the Department of Health and Human Services, is advocating for value-based payment reforms, while another arm of government, in the form of the Department of Justice, is apparently concerned about the logical consequence of those reforms.

This is not the only example of an antitrust effort that is at odds with a broader policy objective, but it may be the most vivid one.

By Peter Orszag , David Gluckman , and Ian Wijaya