Integration and Diversification in Healthcare

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Integration and Diversification in Healthcare

Financial performance and implications for Medicare

Jane Jones
Flinders Business School, Flinders University of South Australia, Australia

Abstract

This exploratory study compares the financial performance of all companies listed on the Australian Stock Exchange pursuing vertical or virtual integration, horizontal integration or diversification in the pathology, diagnostic imaging and general practice sub-sectors over 2001-2005.

Financial ratio analysis indicates vertical integration is the most profitable strategy. Accounting measures of performance also show horizontal integration is profitable; however, recent market developments raise questions about the viability over the long-term of horizontal integration of diagnostic imaging practices as a core business in the context of public corporations.

With one exception, the study also found medical centres yield modest to poor financial performance, suggesting the revenue generated directly by general practice is unlikely to provide sufficient returns for GPs and investors, and is probably a result of cross-subsidies from diagnostic services owned or provided by the corporation. As all firms that provide general practice also provide diagnostic services, collectively, results provide tentative empirical support for the proposition that the value of general practice, at least to some listed corporations, is not in general practice per se, but its ability to generate referrals.

The findings have significant implications for the public financing of health care services. These include: the potential for increased expenditure on healthcare from co-locating general practice with diagnostic services; the extent to which the provision of medical services by listed corporations represents the best use of limited public funds; and the efficacy of the use of Medicare to finance offshore expansion by public Australian companies.

Keywords

sociology, pathology, general practice, hospital ownership, Medicare, health care services financing

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