The Impact of Vertical Integration on Physician Behavior and Healthcare Delivery: Evidence from Gastroenterology Practices

Soroush Saghafian (), Lina Song (), Joseph Newhouse, Mary Beth Landrum () and John Hsu ()
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Soroush Saghafian: Harvard Kennedy School, Harvard University, Cambridge, Massachusetts 02138
Lina Song: School of Management, University College London, London E14 5AA, United Kingdom
Mary Beth Landrum: Department of Healthcare Policy, Harvard Medical School, Boston, Massachusetts 02115
John Hsu: Massachusetts General Hospital, Boston, Massachusetts 02114

Management Science, 2023, vol. 69, issue 12, 7158-7179

Abstract: The U.S. healthcare system is undergoing a period of substantial change with hospitals purchasing many physician practices (“vertical integration”). In theory, this vertical integration could improve quality by promoting care coordination but could also worsen it by impacting the care delivery patterns. The evidence quantifying these effects is limited because of the lack of understanding of how physicians’ behaviors alter in response to the changes in financial ownership and incentive structures of the integrated organizations. We study the impact of vertical integration by examining Medicare patients treated by gastroenterologists, a specialty with a large outpatient volume and a recent increase in vertical integration. Using a causal model and large-scale patient-level national panel data that includes 2.6 million patient visits across 5,488 physicians, we examine changes in various measures of care delivery. We find that physicians significantly alter their care process (e.g., in using anesthesia with deep sedation) after they vertically integrate, and there is a substantial increase in patients’ postprocedure complications. We further provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behavior because it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures. We also find that, although integration improves operational efficiency (e.g., measured by physicians’ throughput), it negatively affects quality and overall spending. Finally, to shed light on potential mechanisms through which policymakers can mitigate the negative consequences of vertical integration, we perform both mediation and cost-effectiveness analyses and highlight some useful policy levers.

Keywords: vertical integration; healthcare operations management; healthcare quality; provider payment (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Impact of Vertical Integration on Physician Behavior and Healthcare Delivery: Evidence from Gastroenterology Practices (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:12:p:7158-7179

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