Benefits and Reasons for Horizontal Merger in Healthcare Management

This document discusses the benefits and reasons for horizontal merger in healthcare management. It explores how stakeholders benefit from a merger and highlights the importance of growth and diversification in the healthcare sector.

Running head: HEALTHCARE MANAGEMENT 1
HEALTHCARE MANAGEMENT
Name
Institutional Affiliation

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Introduction
Horizontal integration, also known as horizontal merger refers to a combination of two
companies that compete in the similar or in the same industry (Dimopoulos & Sacchetto
2017). It occurs when companies agree to join forces or one company buys out its competitor
and create a new combined company.
It is a business strategy that is used by a firm seeking growth by joint acquisitions. Mostly,
mergers happen in highly concentrated industries where there is low competition by fewer
firms. Since there is competition by two firms on the same level of the supply chain, they are
able to come up with economies of scale through a combination of forces.
Benefits of horizontal merger
Improved market share
The most obvious advantage is the increased market power or market share. When two
health care industries merger, they also combine services that are available and technology.
With more services under a single name, the new company is able to have a solid grip among
the clients.
Improved revenue
By increased number of clients, the revenue of the new company is boosted. Besides, it is
typical that companies that merger gather more revenue compared to if they would have been
independent.
Hospital consolidation also improves efficiency, lower cost because of the more improved
quality care.

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Improved relationship with customers.
Exclusion of service duplication.
Improved achievement of the agreement through discussion or in other words improved
negotiating power.
Reasons why health care organizations merger
Growth
A health care organization may not rapidly grow through internal expansion.
Amalgamation or merger enables balanced and satisfactory growth of an organization (Lyons
2015). Through a merger, it can successfully cross many growth stages at one time. Growth
through merger is also relatively cheaper and less risky.
Diversification
More health care organizations operating in different lines can easily diversify their
activities through a merger. Because different organizations care organizations are already
working in their respective fields there will be reduced risk in diversification.
Elimination of competition
The amalgamation of the two companies will ensure the elimination of competition among
them. The companies will, therefore, be able to save their advertising expenses, therefore,
enabling the reduction of their prices. Patients or customers will also be able to benefit from
cheap services made to them.
Better financial planning

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Resources are better planned for in merged health organization. The utilization and
collective finances of the merged organizations will improve compared to separate concerns.
Economic necessity
Some organizations may be forced to merger due to economic demands. For instance, if
two health care organizations are not doing well, they may be forced to merger to improve
their overall work and position.
How stakeholders benefit from a horizontal merger
The stakeholders benefit substantially from a merger because their holdings reasonably
appreciate in value. A rise in the value of the shares of the company is always reflected in the
exchange ratio or in the price ratio.
When there is a merger between two companies, the stakeholders reap a higher value than
the sum of the wealth of the companies involved before the merger.
Conclusion
Merger should be encouraged in the health sector to ensure its growth and delivery of
quality health care services.

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References
Dimopoulos, T., & Sacchetto, S. (2017). Merger activity in industry equilibrium. Journal
of Financial Economics, 126(1), 200-226.
Lyons, W. E. (2015). The politics of city-county merger: the Lexington-Fayette County
experience. University Press of Kentucky.