Promise and Performance of Primary Care Vertical Integration: Effects on Spending, Utilization, and Quality of Care for Medicare Fee-for-Service Beneficiaries

Health care markets in the US are increasingly characterized and dominated by large, integrated health systems. Hospitals have particularly targeted primary care practices for acquisition to form vertically integrated health systems. Proponents of vertical integration in health care have long touted its promise of leading to reduced costs and improved quality. These outcomes could occur as a result of the improved care coordination, deduplication of services, economies of scale, and standardization of best practices that might be afforded by vertical integration between hospitals and primary care practices. On the other hand, integration may be driven by other strategic motivations such as securing a referral base for the hospital, depriving rival hospitals of referrals, increasing leverage with insurers, and/or to generally gain more market power. Despite the promise, the evidence to date on whether vertical integration changes care delivery and associated outcomes is limited and mixed. To fill critical gaps in knowledge, I examine the impact of primary care vertical integration on outcomes for Medicare beneficiaries. In Aim 1, I study the effect of vertical integration on spending and utilization for Medicare fee-for-service beneficiaries. In Aim 2, I study the effect of vertical integration on quality of care for Medicare beneficiaries. And in Aim 3, I study whether the effects of vertical integration vary depending on practice characteristics. Across these Aims, I found that the vertical integration of primary care practices led to increased Medicare spending per beneficiary, driven largely by shifting utilization patterns toward hospital-based and away from physician office-based services. The spending increases were met with no meaningful improvements in quality of care. These effects did not vary by practice characteristics, with one exception: there were no spending increases among practices located in rural areas. Together, these results cast serious doubt on the promise of vertical integration to improve outcomes.Doctor of Philosoph