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The effect of integration of hospitals and post-acute care providers on Medicare payment and patient outcomes

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  • Konetzka, R. Tamara
  • Stuart, Elizabeth A.
  • Werner, Rachel M.

Abstract

In this paper we examine empirically the effect of integration on Medicare payment and rehospitalization. We use 2005–2013 data on Medicare beneficiaries receiving post-acute care (PAC) in the U.S. to examine integration between hospitals and the two most common post-acute care settings: skilled nursing facilities (SNFs) and home health agencies (HHA), using two measures of integration—formal vertical integration and informal integration representing preferential relationships between providers without formal relationships. Our identification strategy is twofold. First, we use longitudinal models with a fixed effect for each hospital-PAC pair in a market to test how changes in integration impact patient outcomes. Second, we use an instrumental variable approach to account for patient selection into integrated providers. We find that vertical integration between hospitals and SNFs increases Medicare payments and reduces rehospitalization rates. However, vertical integration between hospitals and HHAs has little effect, nor does informal integration between hospitals and either PAC setting.

Suggested Citation

  • Konetzka, R. Tamara & Stuart, Elizabeth A. & Werner, Rachel M., 2018. "The effect of integration of hospitals and post-acute care providers on Medicare payment and patient outcomes," Journal of Health Economics, Elsevier, vol. 61(C), pages 244-258.
  • Handle: RePEc:eee:jhecon:v:61:y:2018:i:c:p:244-258
    DOI: 10.1016/j.jhealeco.2018.01.005
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    References listed on IDEAS

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    1. Cuellar, Alison Evans & Gertler, Paul J., 2006. "Strategic integration of hospitals and physicians," Journal of Health Economics, Elsevier, vol. 25(1), pages 1-28, January.
    2. Rahman, Momotazur & Norton, Edward C. & Grabowski, David C., 2016. "Do hospital-owned skilled nursing facilities provide better post-acute care quality?," Journal of Health Economics, Elsevier, vol. 50(C), pages 36-46.
    3. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    4. Robinson, James C, 1996. "Administered Pricing and Vertical Integration in the Hospital Industry," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 357-378, April.
    5. Ciliberto, Federico & Dranove, David, 2006. "The effect of physician-hospital affiliations on hospital prices in California," Journal of Health Economics, Elsevier, vol. 25(1), pages 29-38, January.
    6. Guy David & Evan Rawley & Daniel Polsky, 2013. "Integration and Task Allocation: Evidence from Patient Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 617-639, September.
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    Citations

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    Cited by:

    1. Daifeng He & Peter McHenry & Jennifer M. Mellor, 2020. "Do financial incentives matter? Effects of Medicare price shocks on skilled nursing facility care," Health Economics, John Wiley & Sons, Ltd., vol. 29(6), pages 655-670, June.
    2. Noa Zychlinski, 2023. "Applications of fluid models in service operations management," Queueing Systems: Theory and Applications, Springer, vol. 103(1), pages 161-185, February.
    3. Subodha Kumar & Liangfei Qiu & Arun Sen & Atish P. Sinha, 2022. "Putting analytics into action in care coordination research: Emerging issues and potential solutions," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2714-2738, June.
    4. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2024. "Competition, quality and integrated health care," Journal of Health Economics, Elsevier, vol. 95(C).
    5. R. Tamara Konetzka & Fan Yang & Rachel M. Werner, 2019. "Use of instrumental variables for endogenous treatment at the provider level," Health Economics, John Wiley & Sons, Ltd., vol. 28(5), pages 710-716, May.
    6. Atul Gupta & Guy David & Lucy Kim, 2023. "The effect of performance pay incentives on market frictions: evidence from medicare," International Journal of Health Economics and Management, Springer, vol. 23(1), pages 27-57, March.
    7. Stephen McCarthy & Damien Sheehan‐Connor, 2022. "The effect of hospital‐physician integration on hospital costs," Health Economics, John Wiley & Sons, Ltd., vol. 31(11), pages 2333-2368, November.
    8. Burns, Lawton R. & Nembhard, Ingrid M. & Shortell, Stephen M., 2022. "Integrating network theory into the study of integrated healthcare," Social Science & Medicine, Elsevier, vol. 296(C).

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    More about this item

    Keywords

    Post-acute care; Vertical integration; Medicare;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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