A nursing home was established by four friends by contributing money in 1961. They later expanded to 40 establishments. At that time (late 1960), this agency was known as Extendicare Inc. (later known as Humana). At that time, in the United States, Extendicare Inc. was the largest nursing home. This can be seen as the horizontal integration of Humana. Then when Medicare was enacted, they split into hospital operations. So they owned ten hospitals in 1970. Their hospital business was very successful, so they eliminated their nursing homes in 1972. After that, the company name was changed in 1974 to Humana. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the original essay In the United States, Humana became the largest hospital company in the early 1980s due to its strong cost control, focus that led it to increase production while reducing costs per unit to get more profits. Humana began offering a health insurance plan when it realized that having its own insurance would help accumulate 70 percent of referrals. Getting into the insurance business while Humana had its hospital operations can be considered vertical integration. Clashes broke out between Humana hospitals, insurance branches and medical staff members and Humana also failed to attract more than 46 percent referrals. During the late 1980s and early 1990s, Humana's net income was declining, leading to a reorganization of Humana's hospital and insurance businesses; more than $2 billion has been collected in revenue through Humana's managed care plans, allowing it to achieve better profits than others. Humana's hospital facilities were therefore extended to another company. The issues that led to this include: inconsistent economic goals of insurance agencies and hospital operations, transfer pricing, Humana's relationships with its doctors, doctors who were not included in the panel Humana insurance and costs. According to the Business Dictionary (2017), transfer pricing 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. Thus, non-Humana hospitals were recommended by Humana's insurance company because non-Humana hospitals billed the insurance agency less than Humana. To avoid the transfer pricing problem, strategy is crucial. The Managers Analytical Plan (MAP) was developed by Robert Eccles to help address transfer pricing based on the type of organization, the location of the organization, and the direction in which the organization has the intention to evolve. In a large, vertically integrated organization like Humana, transfer pricing is not a good option. Humana should have offered discounted prices compared to its competitors. Humana did not employ physicians directly; its HMOs were organized around the IPA model. Keep in mind: this is just a sample. Get a personalized article from our expert writers now. Get a personalized essay. So doctors were not very enthusiastic about referring patients to Humana, when they didn't get the reimbursements or they got reimbursements lower than their expectations, they referred the patients to..