Integration and Diversification in Healthcare: Financial Performance and Implications for Medicare

By Jones, Jane | Health Sociology Review, April 1, 2007 | Go to article overview

Integration and Diversification in Healthcare: Financial Performance and Implications for Medicare


Jones, Jane, Health Sociology Review


Introduction

In Australia, as elsewhere, the nature and organisation of medical practice is undergoing significant change. Over the past few years, a number of models of corporate medical practice have emerged. These models range from the relatively simple management service model at one end of the continuum, to the actual divestment of medical practice and employment status at the other (AMA 2001). Thus at one end of the continuum, a corporate entity may simply take over the administration of existing medical practices in exchange for an agreed fee. At the other end of the continuum, substantial market penetration has been achieved by large public companies acquiring and integrating general practices, diagnostic imaging and/or pathology practices. In some cases, these services are colocated into multi-purpose healthcare facilities, together with ancillary services, and sometimes, hospitals. This represents the vertically integrated delivery system, consisting of multiple providers covering the full continuum of healthcare.

Although corporatisation of medical services is not a new phenomenon, there has been an accelerating trend in corporatisation in Australia in recent years, with Catchlove (2001:68) concluding '[t]his process appears inevitable and unstoppable'. Yet while there is significant debate occurring within the medical profession, government, media and wider community concerning the rationalisation of healthcare providers and growth of corporatised healthcare, relatively little academic research has focussed on the financial performance of listed corporations pursuing integration and growth in medical services. This lack of work is surprising, given corporatisation of medical practices is seen by some as a more convenient vehicle compared to traditional practice models through which private health commerce may be effectively organised and conducted on a large scale (AMA 2001).

The purpose of this exploratory study is to begin to fill the identified gap by means of an empirical examination of the financial performance of companies listed on the Australian Stock Exchange (ASX) pursuing integration and growth in pathology, diagnostic imaging and/or general practice. The pathology, diagnostic imaging and general practice sub-sectors are the primary focus of this research as, in Australia in 2005, these sub-sectors accounted for $1.52, $1.48 and $2.9 billion respectively, or collectively, two-thirds of Australia's universal health insurance system, Medicare (Quinlivan 2005). Moreover, these subsectors have been the focus of listed corporations pursuing integration and growth. Today, four listed corporations control about 80% of the private pathology market (Quinlivan 2004), while three account for over 50% of the private diagnostic imaging market (Grant Samuel 2006). Industry sources suggest three public companies have a combined 8% of general practice (Parmenter 2006).

This paper proceeds as follows: the central tenets of integration and growth are briefly reviewed and illustrated in the Australian context. Prior research examining the financial performance of these types of growth is then presented. Thereafter, the research design is outlined. The findings of the research are then discussed. The paper concludes with implications and future research directions.

Corporate strategies

Horizontal integration

Horizontal integration refers to two or more separate organisations which produce the same service, combining to form either a single firm, or a strong inter-organisational alliance (Conrad and Shortell 1996). In healthcare, horizontal integration involves affiliation under one management umbrella, firms which provide a similar level of healthcare, or are at the same stage in the process of delivering health services (Gillies et al. 1993).

In Australia, horizontal integration, at both the primary and secondary care levels, has occurred, with the acquisition and integration of general practices in the former case, and diagnostic imaging and/or pathology practices in the latter. …

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