Vertical integration the answer to health care costs

Summary:It has to be carefully regulated, and it falls outside the current health reform debate, but vertical integration in health care is an idea whose time has come.

What do the Veterans Administration and WalMart have in common?

Both are vertically integrated. They control their supply chains. They also deliver great value to their customers.

Thanks to vertical integration, WalMart can use the data it collects at a cash register in Atlanta to control its relationship with Chinese suppliers, just it could with their Mexican and American predecessors.

The VA can get the best deal possible on drugs, on wheelchairs, and on supplies because it, too, is vertically integrated. This integration helped motivate the creation of the VA's VistA system which, while decades old, still delivers value newer computer systems can't.

So what is it the American health care system does not have, that every other system around the world has?

Vertical integration.

Much of the present debate in the Senate, the concern over a "government takeover" of health care, is based on a fear of vertical integration. Insurers don't think they will be able to compete with a "public option" where government can buy in bulk, gaining the benefits of integration.

The answer is to let insurers integrate vertically.

Some already do, in limited ways Intermountain Healthcare in Utah owns hospitals, clinics, even hospices. Kaiser Permanente offers integrated services as an HMO. CIGNA is among the insurers offering its own Internet pharmacy.

But these are relatively modest steps. They are hampered by the fact that insurance companies are regulated by states, not the federal government. Imagine if WalMart had to get separate licenses, and run separate operations, in all 50 states? Think its smiley faces would still be rolling back prices?

Health care reformers who know what works, like Dr. Ralph Snyderman, say that coaching and medical home plans -- where patients and the medical system engage in a full relationship -- are key to controlling costs and improving outcomes.

So both sides of the balance sheet -- the supply side and the demand side -- are in fact arguing for integration. You control costs by buying in bulk. You control costs by engaging in a deep, single-source relationship with each patient.

My best friend, Tommy Bass, is a veteran. He knows the VA has many faults. But he also knows it's a good deal. So do Medicare clients. So do Medicaid clients.

We can make those deals better, and expand their reach to everyone, by allowing vertical integration. Buying in bulk and controlling the relationship. It has to be carefully regulated, and it falls outside the current health reform debate, but vertical integration in health care is an idea whose time has come.

So long as patients have choices I see no problem with it. If I don't like WalMart I can try Target. If you don't like CIGNA you should be able to try Kaiser.

This post was originally published on

Topics: Innovation


Dana Blankenhorn has been a business journalist since 1978, and has covered technology since 1982. He launched the Interactive Age Daily, the first daily coverage of the Internet to launch with a magazine, in September 1994.

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