A nursing home was founded by four friends contributing money in 1961. They later expanded to 40 facilities. At that time (the late 1960s) this agency was known as Extendicare Inc. (later known as Humana). During this period, Extendicare Inc. was the largest nursing home facility in the United States. This can be seen as the horizontal integration of Humana. Then, when Medicare went into effect, they bifurcated into the hospital sector. So by 1970 they owned ten hospitals. Their hospital business was very successful, so in 1972 they stripped their nursing homes. Later in 1974 the company name was changed to Humana. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay In the United States, Humana became the largest hospital company in the early 1980s thanks to strong cost containment, concentration that led it to increase production to reduce unit costs to achieve greater profits. Humana began providing a health insurance plan when it realized that having its own insurance would help accumulate 70% of referrals. Entering the insurance industry when Humana had its own hospital business can be seen as vertical integration. Clashes arose between Humana's hospitals, insurance branches, and medical staff members, and Humana failed to attract more than 46 percent referrals. During the late 1980s and early 1990s, Humana's net income was declining, which led to the reorganization of Humana's hospital and insurance business; more than $2 billion has been collected in revenue from Humana's managed care plans, resulting in better profits than others. So Humana's hospital facilities were expanded to another company. The issues that led to this are: inconsistent economic objectives of insurance agencies and hospital operations, transfer pricing, Humana's relationship with its physicians, physicians who were not included in Humana's insurance panel, and costs. According to the Business Dictionary (2017), transfer price is: “the price charged for a transaction of goods and services between two divisions of an organization. ”. Transfer prices for Humana's hospitals were higher than market prices for competing hospitals. Then the non-Humana hospitals received reports from Humana's insurance company because the non-Humana hospitals were charging the insurance agency less than Humana. To prevent the transfer pricing problem, strategy is crucial. The Managers' Analytical Plan (MAP) was developed by Robert Eccles to help address transfer pricing depending on the organizational type, the location of the organization and the direction in which the organization intends to move. In a large vertically integrated organization like Humana, transfer pricing is not a good option. Humana should have offered them at discounted prices compared to competitors. Humana did not directly employ physicians, rather its HMOs were organized around the IPA model. Please note: this is just an example. Get a custom paper from our expert writers now. Get a Custom Essay So doctors weren't very keen on referring patients to Humana when they didn't get reimbursements or got reimbursements lower than their expectations, they referred patients to other HMOs they had participated in. Instead of organizing its staff according to the IPA model, Humana should have hired its own doctors so that this.