Vertical Integration: Hospital Ownership of Physician Practices

The share of physicians working in practices that are owned by hospitals has increased dramatically over the last decade. On the one hand, vertically integrated provider organizations may promote better care coordination and drive more efficient allocation of resources within health care organizations. On the other, vertical integration may afford health care organizations market power to raise prices, allow physicians to steer patients towards high cost hospital-based care, and create incentives that influence physicians’ treatment decisions. Up until now, the literature on vertical integration has been mixed both because of a lack of data on integration across providers and because of a lack of causal research designs. In this work, we construct a database of vertical integration (i.e., hospital acquisition of physician practices) and assess how this vertical integration influences the pricing and clinical practices of physicians.