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Reconfiguring Services - Pros and cons of vertical integration

Would merging GP, community and in-patient services be a risk or an opportunity? By Dr David Jenner.

Dr David Jenner, GMS/PMS lead, NHS Alliance
Dr David Jenner, GMS/PMS lead, NHS Alliance

There has been a lot of debate recently in England over the benefits and risks of integrating services, either vertically or horizontally.

The debate was largely triggered by the Transforming Community Services programme launched in 2009 under Labour. This was designed to stimulate PCTs into shedding their role as community service providers leaving them as commissioning-only organisations.

Vertical integration describes a process through which organisations merge at different levels in the chain of purchase and supply. In the health sector, this could mean GP services, community services and in- patient care all being part of the same organisation, as with health maintenance organisations in the US.

Horizontal integration is the merger of organisations delivering similar aspects of care, such as a number of GP practices working together with community services and possibly pharmacy as well. Health centres are a good example of such integration.

In particular, vertically integrating community services with acute trusts has been much talked about. Why? Reasons include PCTs diverted from their core commissioning role by providing community services and conflicts of interest.

Integration types
  • Vertical Integration

This is a process through which organisations merge at different levels in the purchase and supply chain. In the NHS this would mean GP, community and in-patient services all being part of the same organisation, such as a health maintenance organisation in the US.

  • Horizontal Integration

This is the merger of organisations delivering similar aspects of care, such as a number of GP practices services working together with community services and possibly pharmacies. Health centres are a good example of such integration.

Vertical integration impact
An advantage with just one organisation is there would be a single staff team and records system, which would be responsible for patients with fewer gaps in care at the time of discharge or admission to hospital.

Vertical integration would enable the optimal and most cost-efficient path of care for a patient to be agreed and implemented within a single management structure.

Commissioning such care pathways would be easier and there would greater potential for performance management of Payment by Results (PbR) rather than just activity.

There would also be fewer perverse incentives in funding terms for hospitals to admit patients unnecessarily or discharge them too early.

In rural areas where there is little choice of hospital providers, it would allow for a single, joined up system that can adapt to the local geography. Lastly, but not least, it is easier to control NHS costs with fewer and simpler contracts for PCTs to place.

But there is a major downside in cash limited healthcare environments. There is always a tendency for cash to be diverted to those services providing the most immediate benefits to life, for example intensive care.

This is the case even if more health gain could be achieved through investment in low-cost interventions in preventive services, such as smoking cessation.

Public and local political opinion usually compounds and drives the above model meaning investment is driven away from primary care into secondary care elements within a healthcare organisation.

Vertical integration can reduce the choice for patients - unless there are several local providers - and create local provider monopolies.

Market system
In a market system it can produce 'provider capture' where hospital providers acquire primary care services, such as GP practices to ensure the practices refer to them, as seen with health maintenance organisations.

Unless costs are fixed, providers can increase activity. In the UK we have the oddity of an acute hospital service paid on piece rate or a 'pay as you go' tariff (through PbR), whereas mental health care, primary care and community care are paid on largely a block or fixed rate tariff.

Unless vertical integration is truly a partnership between primary, community and secondary care, rather than an enforced or aggressive takeover by the last, expertise and skills in providing community care could be lost.

Health secretary Andrew Lansley has stopped plans for 'Darzi' polysystem expansion. However, where polyclinics are working, the idea is to vertically integrate GP services and specialist services while also horizontally integrating GP practices and community services.

For GPs, the risks are of losing their single practice identity and 'possibly' their services being acquired either through competitive tender or take over by large corporate providers - either private companies or NHS foundation trusts.

With the change in government, there is now uncertainty as to whether the Transforming Community Services programme will still be pursued with as much vigour, though calls for efficiency savings undoubtedly will.

  • Dr Jenner is a GP in Devon and policy adviser and GMS/PMS lead for NHS Alliance
Why Consider Vertical Integration?
PCTs are diverted from their core role of 'world class commissioners' by having to provide community services.
  • There is a conflict of interest between PCTs acting as both commissioners and providers. Lacking a clear market or business model, community services have not developed as rapidly as acute foundation trusts.
  • There is no national tariff or Payment by Results for community services and PCTs have often placed poorly defined block contracts with them that fail to specify activity volumes or even basic quality markers.
  • PCTs have used their provider arms as a way to manage deficits in their commissioning budgets, often using recruitment freezes and activity moderation allowed by the poorly specified contracts they hold with themselves.
  • Patients report consistent levels of dissatisfaction with gaps between GP care and community nursing or social care.
  • The plurality of provider organisations has often impeded development of clear care pathways from hospital to community care to ensure timely and efficient discharge.

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