Vertical Integration in Healthcare: Why It has Failed and What to Do Instead By Jeff GoldsmithThanks for reading Jeff’s Substack! Subscribe for free to receive new posts and support my work. While it has been with us for decades, the concept of vertical integration has recently revived in healthcare both as a solution to maturing demand for healthcare organizations’ traditional products and as a vehicle for ambitious outsiders to “disrupt” care delivery. Unfortunately, vertical integration is being misunderstood by many healthcare CEOs, investors and analysts. Pursuing it may end up wasting billions of dollars as well as damaging organizations and health professionals alike.
Those are valid points. It MIGHT be more efficient to outsource all the contracting complexity to Agilon or Privia than building their own rev cycle/contracting apparatus. I am advocating virtual linkages in this piece rather than having a vast complex bureaucracy doing everything. I am not a fan of VBP because of the invasion of MD workflows, where the value of the physicians' time spent documenting all those core measures and jumping thru hoops is always costed at zero.
"These organizations have billion-dollar valuations. So add together the losses on physicians’ employment contracts, the hospital’s administrative overhead for managing them, the operational costs of participating in ACOs and other value-based care models, consulting services and the fees and margins of the MSOs, employing physicians has simultaneously increased cost to the community and damaged hospital financial performance."
While you are characterizing the costs to hospitals as bloat and inefficiency for taking on providers, the counterfactual is a universe in which the practices would be investing in data systems, third parties to manage their operations, vendors to link them to hospitals and do all the things hospitals are attempting to do. That might be more efficient in the end. Still, I envision a writer in that counterfactual world publishing an analogous piece in the service of VBP and lamenting the inability of physician groups to tame outsourcing and wasteful spending--the expenses large systems are pouring drain the now. These expenses are going to get spent, and vendors are gonna vend in a vertically integrated world or not.
Those are valid points. It MIGHT be more efficient to outsource all the contracting complexity to Agilon or Privia than building their own rev cycle/contracting apparatus. I am advocating virtual linkages in this piece rather than having a vast complex bureaucracy doing everything. I am not a fan of VBP because of the invasion of MD workflows, where the value of the physicians' time spent documenting all those core measures and jumping thru hoops is always costed at zero.
Jeff
Can you elaborate on below:
"These organizations have billion-dollar valuations. So add together the losses on physicians’ employment contracts, the hospital’s administrative overhead for managing them, the operational costs of participating in ACOs and other value-based care models, consulting services and the fees and margins of the MSOs, employing physicians has simultaneously increased cost to the community and damaged hospital financial performance."
While you are characterizing the costs to hospitals as bloat and inefficiency for taking on providers, the counterfactual is a universe in which the practices would be investing in data systems, third parties to manage their operations, vendors to link them to hospitals and do all the things hospitals are attempting to do. That might be more efficient in the end. Still, I envision a writer in that counterfactual world publishing an analogous piece in the service of VBP and lamenting the inability of physician groups to tame outsourcing and wasteful spending--the expenses large systems are pouring drain the now. These expenses are going to get spent, and vendors are gonna vend in a vertically integrated world or not.
Thanks
Brad