Vertical Integration and Cream Skimming of Profitable Referrals: The Case of Hospital-Owned Skilled Nursing Facilities

David Cutler, Leemore Dafny, David C. Grabowski, Steven Lee and Christopher Ody

American Economic Journal: Economic Policy, 2026, vol. 18, issue 2, 1-33

Abstract: We examine whether vertical integration of hospitals and skilled nursing facilities (SNFs) could lessen competition by foreclosing rival SNFs' access to lucrative referrals. We find that it could: Among integrated providers, a 1 percent increase in SNF reimbursement for a given patient discharged from the upstream hospital increases the self-referral rate to the hospital's downstream SNF(s) by 1.8 percent. We find no evidence of offsetting benefits for patients and payers: These increased self-referrals have an imprecisely estimated zero effect on patient outcomes and Medicare spending.

JEL-codes: G34 I11 I13 J14 L14 L22 (search for similar items in EconPapers)
Date: 2026
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Working Paper: Vertical Integration and Cream Skimming of Profitable Referrals: The Case of Hospital-Owned Skilled Nursing Facilities (2020)
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DOI: 10.1257/pol.20200892

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