Contemporary Issue

Healthcare industry is based on the demand of people to get proper treatment and health care services. At the same time, demand on the health care market differs from the other markets. It is determined by the fact that consumers of the health care market are responsible for allocating the resources to consume health care services and produce those services. According to the World Health report (2000), people traditionally play four main roles in the health care system, such as contributors, citizens, providers, and consumers (p. 50). In addition, the modern health care industry is divided into several sectors that provide a particular kind of assistance and treatment. In general, the health care system consists of hospital activities, medical and dental activities, and other health treatment, including therapies (United Nations Organization, 2008, p. 252). In addition, the health care industry is characterized by the continuous tendency of the diversification of some companies and the downsizing of the others. Thus, the health care industry represents a unique sphere that requires development and adoption of the suitable corporate growth approach. However, while the transformation of the health care industry into corporate structure generally improves the former, it can also result in the establishment of the monopoly and bureaucracy, as well as damage the relations between patients and doctors. 

The health care industry has become one of the biggest and the fastest growing industries in the world. Indeed, in the developed nations, health care consumes around 10 percent of the gross domestic product. As a result, the health care industry creates an enormous part of the economy (The Henry J. Kaiser Family Foundation, 2006). In addition, the sphere of health care can be divided into two main groups, within which the corporate activities take place. The first group includes the industries related to the production of health care equipment and services. It includes companies and institutions that produce medical equipment, responsible for the supplies of the goods and services, including functioning of hospitals and nursing homes. The second group includes the development of the health care related sciences, such as biotechnology and pharmaceuticals. There are also health care providers and professionals. Heath care providers include institutions and people responsible for the delivery of the medical services on a regular basis. In this regard, health care system remains the largest industry in the terms of a workforce (The World Health Organization, 2011, p. 115). The health care industry also includes the delivery of services, which has different forms, including the delivery of services at home and medical facilities or even with the appliance of the modern telecommunication technologies. Thus, considering peculiarities of the health care industry, major players try to find the proper combination of size and services in order to be compatible on the market. There are few possible scenarios of the further development of the corporate activities in the healthcare sphere. However, analysts predict that increase of the corporate activities will result in the establishment of the domination within the industry. As a result, fewer large corporations will be able to control the industry completely. This can lead to the negative effects, such as discouraging of the innovations. For example, according to J. C. Robinson (1996), “researchers, regulators, and antitrust enforcers must acknowledge the often disastrous effects of well-intentioned but poorly directed meddling in healthcare organization and observe a new Hippocratic oath for healthcare policy: Above all else, do no direct harm” (p.155). 

 

At the same time, there is a continuous debate over the organization of the health care industry. Some the scholars argue that health care should be addressed as a public utility, while others underline the importance of its regulation. The health care industry can experience five main types of the corporate growth. These include horizontal integration within a single geographic market, horizontal integration within different geographic markets, health care diversification within multiple goods and services, diversification within the various distribution channels, and vertical integration with supplies (Robinson, 1996, p. 156). Each type of the corporation growth has its advantages and disadvantages. Some of the structures can operate with the appliance of the contractual means and by establishing of joint ventures, while others tend to pursue internal expansion of the activities. Corporate activity can be aimed at increasing the efficiency by supporting competitiveness or increasing market power and reducing competitiveness. In addition, every type of the corporate growth in the health care industry has its consequence. For instance, horizontal integration within a single market creates the increase of the sharing a particular product within a market. Horizontal integration within a number of markets provides an opportunity to establish some influence in a certain region of the world. Health care diversification leads to the development of new services and goods. Creation of distribution channels facilitates the opening of the new markets and establishment of the effective distribution system. Finally, the vertical integration approach to the corporate growth in the health care industry contributes to the encouraging of the relations between the suppliers. 

Among the other types of the corporate growth in the health care industry, horizontal integration within a single market is considered the least economically important.  It is determined by the nature of the health care industry, which represents a geographically situated integrity of goods and services, delivered to the purchasers through various channels. In addition, the model does not consider the complex of relations between different markets and channels of supplies. However, an opportunity to introduce a monopoly over a particular market is a driving force to the adherence to the discussed model of the corporate growth. The model can be implemented through the internal expansion of a particular company on a market or by the establishment of the joint ventures. The model facilitates the economic growth, eliminates similar facilities, and generally improves the industry. At the same time, this results in the increasing of the monopoly of a health care player. The example of the horizontal integration within a single market in health care is represented by the activities of the hospitals in the small towns (Robinson, 1996, p. 157). For instance, there is a concern about the inclusion of nontraditional services into the hospitals’ activities. While hospitals foresee increasing of the capacity and the economic scales, the consumers are worried about the pricing policies. 

Another model of the corporate growth in health care is represented by the horizontal integration within several markets. Despite the fact that the health care related markets are traditionally geographical local, they are often controlled by the subsidiaries of the regional companies. Among the examples of the horizontal distribution, there are chains of hospitals, medical delivery institutions, and health maintenance organizations (Robinson, 1996, p. 158). The mentioned model has a number of advantages. First, it can increase the efficiency of the local markets by means of extending the overhead expenses. Second, organizational approaches can be easily integrated into other markets that remain in the development phase. Third, integration of several markets facilitates the increase of competition and efficiency within the health care industry. Such integration is determined by the fact that the companies in local markets are more likely to conduct efficient and low price policy when there is a possibility of appearance of new companies from other regions. However, according to the principles of the horizontal integration model, there is a risk that local companies can be consumed by the large firm from another market. 

Health care diversification within multiple goods and services is one of the most efficient forms of the corporate growth in the industry. The existence of a company, which produces single product or a particular service, represents analytic convenience for economists and antitrust agencies. However, this does not meet the reality of the economic world. Traditionally, companies are specialized on the production of the number of goods and services. The health care industry is not an exception. Diversification of the related production provides firms with the competitive advantage, which reflects in the widening of the manufactured goods and services. At the same time, companies usually have difficulties with the diversification of unrelated products, which can lead to collapse of a company and can require the adjustment of a company to narrower production goals. Diversification in the health care industry is most obvious in the health insurance and delivery spheres. There is a tendency of the acquisition of health maintenance organizations by the insurance companies. In addition, there is a diversification process within the hospitals that expand their activity by acquiring diagnostic facilities or home health agencies (Robinson, 1996, p. 159). The model of diversification remains one of the most economically effective ones.  It is determined by the fact that companies do not need to manufacture new goods and services on their own. Instead, they can conclude a contractual agreement with another company. As a result, a firm gets an opportunity to make the supplies of a number of goods and services without the necessity to develop technologies necessary for the manufacturing process. Core technologies are shared within the companies and they eliminate the risks of the in-house production as well as help to reduce the costs. The diversification of production is usually achieved by the establishment of alliances between the companies, introducing of the joint ventures or partial ownership shares. 

Diversification within various distribution channels provides the health care players with an opportunity to increase their revenues. Many companies, which operate in the health care industry, sell goods and provide services within a single channel of distribution. However, they can significantly increase the income with the diversification of their suppliers. Indeed, there is a great number of ways to get manufactured products to the population. If previously, the majority of the companies have relied on the large deliverers, nowadays, small enterprises and individuals provide better growth opportunities. Instead of accepting the services of the integrated health care delivery systems, companies demonstrate increasr of the direct contacts with employers or public sponsors. At the same time, the model is considered procompetitive, as it is able to reduce the boundaries and facilitate the entrance of the new markets. As a result, companies that occupy strong positions on the market can easily come to another market and threaten other players. At the same time, the model of the corporate growth represents a number of opportunities for the small firms in the health insurance market, which can overcome the large companies with the introduction of the one-on-one marketing techniques (Robinson, 1996, p. 160).

The last model of the corporate growth is represented by the vertical integration with suppliers. The health care industry represents a process system that consists of a number of suppliers. For example, during the process of treatment, a patient first goes to a physician’s office, then to a hospital or other nursing facility, and, finally, to a home health agency. However, the existence of a number of the players that duplicate the health care services and operate independently increases the overall costs of the treatment. Thus, corporate initiatives have targeted this division. As a result, hospitals were transformed into complex facilities that provide services from ambulatory surgery to post treatment services. Therefore, the integrated delivery system was established. Integration within the health care industry can involve different spheres such as health insurance or hospital treatment. Appliance of the vertical integration has already demonstrated the efficiency of the clinical services. At the same time, the contractual type of reactions within the vertical integration systems imposes certain drawbacks, such as inability to combine two different segments. 

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At the same time, some researches demonstrate the negative effects of the implementing of the corporate growth effects in the healthcare (Geyman, 2004). One of the disadvantages of the corporation growth is determined by the tendency of the companies to become too large to operate on the market. As a result, companies tend to decrease the innovation activity and they can be replaced by the smaller and more adaptive market players. In order to prevent this, health care industries have to adopt a new approach towards corporate activities. This approach includes delegation of responsibilities within a company, the increase of motivation and coordination among the employees and company’s divisions, and the elimination of the capital investment’s risks through the sharing of the ownership’s reward. However, introduction of the corporate growth in the health care industry has gained its importance with the increase of the technological advancement and subsequent market changes. It is determined by the fact that the unified ownership and managerial hierarchies are not able to compete with the smaller companies and relations based on the contracts (Robinson, 1996. p. 166). Thus, the players of the health care industry have to adopt a strategy that will foster their competencies and allow expanding geographic boundaries, as well as provide diversification of the products’ manufacturing and distribution. 

Thus, each of the forms of the corporate growth within the health care industry provides a number of advantages and disadvantages for both suppliers and producers of the products and services as well as their consumers. In addition, they introduce certain economic effects, such as increase of the competitiveness and efficiency in health care. While each of the type threatens the industry with the establishment of the monopoly, the chances of the achieving this remain low. Such a chance is determined by the nature of the health care market that determines occurrence of the monopoly as a rare case. Firms that occupy leading positions in the health care system in the United States have adopted one of the mentioned strategies of the corporate growth. For instance, Anthem Holding Corporation, former WellPoint Health Networks Incorporation, prevented its bankruptcy by implementing the diversification of distributing channels instead of the diversification of production. Horizontal integration and diversification of the products and services have already proven their efficacy and they can reduce boundaries to entry and increase competitiveness within the healthcare markets. Thus, each of the forms of the corporate growth has to be chosen with the consideration of a particular sphere of interest and aim of the company.

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Jul 10, 2019 in Research
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