Predictors of Hospital-Physician Vertical Integration

Hospitals are increasing their ownership of physician practices. This uptick in vertical integration has been associated with rising prices and increased health spending. There have been several hypotheses regarding the factors that drive integration, including younger physicians’ work-life balance preferences, the costs of electronic health records (EHRs), size of practice, provider-based reimbursement discrepancies, and the relative market power of providers and insurers. However, there is little empirical work about the factors that lead to vertical integration in the provider sector. We use data linkage that, to our knowledge, is novel in this literature. We combine detailed physician-level characteristics from the American Medical Association with Medicare claims to derive a physician-level measure of integration. In addition, we draw information from PhysicianCompare and Medicare payment rates to create a rich panel dataset. Our treatment variable, integration status, is measured by Medicare billing patterns, which allows us to avoid relying on survey data. We conduct a multivariate logistic regression of vertical integration to examine the relative importance of physician characteristics, hospital characteristics, market competition, and provider-based reimbursement rates. Our findings inform the ongoing antitrust policy debate as well as the small but growing literature on the causes and consequences of changes in provider markets.