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A systematic review of vertical integration and quality of care, efficiency, and patient-centered outcomes

Machta, Rachel M.; Maurer, Kristin A.; Jones, David J.; Furukawa, Michael F.; Rich, Eugene C.

doi: 10.1097/HMR.0000000000000197
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Background: Small independent practices are increasingly giving way to more complex affiliations between provider organizations and hospital systems. There are several ways in which vertically integrated health systems could improve quality and lower the costs of care. But there are also concerns that integrated systems may increase the price and costs of care without commensurate improvements in quality and outcomes.

Purpose: Despite a growing body of research on vertically integrated health systems, no systematic review that we know of compares vertically integrated health systems (defined as shared ownership or joint management of hospitals and physician practices) to nonintegrated hospitals or physician practices.

Methods: We conducted a systematic search of the literature published from January 1996 to November 2016. We considered articles for review if they compared the performance of a vertically integrated health system and examined an outcome related to quality of care, efficiency, or patient-centered outcomes.

Results: Database searches generated 7,559 articles, with 29 articles included in this review. Vertical integration was associated with better quality, often measured as optimal care for specific conditions, but showed either no differences or lower efficiency as measured by utilization, spending, and prices. Few studies evaluated a patient-centered outcome; among those, most examined mortality and did not identify any effects. Across domains, most studies were observational and did not address the issue of selection bias.

Practice Implications: Recent evidence suggests the trend toward vertical integration will likely continue as providers respond to changing payment models and market factors. A growing body of research on comparative health system performance suggests that integration of physician practices with hospitals might not be enough to achieve higher-value care. More information is needed to identify the health system attributes that contribute to improved outcomes, as well as which policy levers can minimize anticompetitive effects and maximize the benefits of these affiliations.

Rachel M. Machta, PhD, is Researcher, Mathematica Policy Research, Oakland, California. E-mail: RMachta@mathematica-mpr.com.

Kristin A. Maurer, MPH, is Research Analyst, Mathematica Policy Research, Ann Arbor, Michigan.

David J. Jones, PhD, is Associate Director, Mathematica Policy Research, Cambridge, Massachusetts.

Michael F. Furukawa, PhD, is Senior Economist, Agency for Healthcare Research and Quality, Rockville, Maryland.

Eugene C. Rich, MD, is Senior Fellow, Mathematica Policy Research, Washington, DC.

This study was funded by the Agency for Healthcare Research and Quality under contract HHSA-290-2016-00001-C. The views expressed herein are those of the authors and do not necessarily reflect those of the Agency for Healthcare Research and Quality or the U.S. Department of Health and Human Services.

Supplemental digital content is available for this article. Direct URL citations appear in the printed text and are provided in the HTML and PDF versions of this article on the journal’s Web site (www.hcmrjournal.com).

The authors have disclosed that they have no significant relationship with, or financial interest in, any commercial companies pertaining to this article.

Recent policies, such as the Patient Protection and Affordable Care Act of 2010 and the Medicare Access and Children’s Health Insurance Program Reauthorization Act (MACRA) of 2015, place considerable attention on the organization of health care delivery and care delivery models that can reduce costs, improve quality, and promote population health. In response, small independent practices are giving way to more complex affiliations between provider organizations and hospital systems (Burns, Wholey, McCullough, Kralovec, & Muller, 2012). Vertical integration of physician practices via ownership relationships has become the most prevalent hospital–physician affiliation among U.S. hospitals (Scott, Orav, Cutler, & Jha, 2017), and such relationships have been increasing. For example, hospital ownership of physician practices increased from 29% in 2004 to 49% in 2011 (Cutler & Scott Morton, 2013).

The growing proliferation of vertically integrated health systems has been met with enthusiasm for its potential to improve quality and harness organizational efficiencies as well as concern by key stakeholders for the risks inherent to single provider dominance in local health care markets. Accordingly, the impact of vertical integration on quality, efficiency, and patient-centered outcomes has become an important research question, and a growing number of studies are focusing on the impacts of vertical integration on these policy-relevant outcomes (Burns, Goldsmith, & Sen, 2013). But despite these developments, there has been little formal synthesis of studies in this area. Synthesis across studies is critical to developing a more comprehensive understanding of the effects of vertical integration, identifying the gaps in research, and developing practice and policy levers that minimize undesirable outcomes and maximize the benefits of these affiliations.

In this systematic literature review, we synthesize the evidence on the effects of vertically integrated health systems, compared with nonintegrated hospitals or physician practices, in three domains: (a) technical measures of care quality, focusing on disease-specific process measures; (b) efficiency, focusing on utilization, spending, and prices; and (c) patient-centered outcomes, such as mortality and patient satisfaction with care. We defined a vertically integrated health system as a system that includes (a) at least one hospital and (b) at least one group of physicians who provide comprehensive care and who are connected with each other through shared ownership or joint management.

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Defining Vertically Integrated Health Systems

Our definition of vertical integration was developed by a working group of experts for the “Compendium of U.S. Health Systems” under the Agency for Healthcare Research and Quality’s Comparative Health System Performance initiative (2017). This definition relies on common ownership or joint management, which is a longstanding feature of an organized system of care and is pragmatic for conducting research on systems and designing policies that affect how systems operate. As Casalino (2014, p. 1880) noted, “the lowest common denominator structural definition of an integrated delivery system would be that it is an organization that includes one or more hospitals, plus medical groups, within a single ownership structure.” This narrow definition does not explicitly address ownership of other elements across the continuum of care (such as postacute care providers) or health plans, though they may play an increasingly important role in some integration efforts.

Other types of integration between physicians and hospitals do not include employment or ownership relationships and were not considered vertically integrated for the purposes of this review. For example, “virtual” integration of physicians and hospitals via contractual arrangements is another common structure. Virtual integration includes physician hospital organizations, independent practice associations, and management service organizations (Burns et al., 2013). Accountable care organizations and other risk-sharing models may include both physicians and hospitals, but these models do not require shared ownership and thus were excluded from our review.

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Theory

The Comparative Health System Performance initiative and this review are motivated by an interest in understanding health systems and the organizational and environmental factors that facilitate higher-value care. As a result, we adapted a conceptual framework developed by Reschovsky, Rich, and Lake (2015) that identifies the structure of vertically integrated systems and their components and describes the diverse factors influencing clinical decisions made by physicians at the point of care in the context of integration (Figure 1). Broadly speaking, health care delivery systems can be conceptualized as multilayered, multidimensional organizational structures that interact with and are shaped by the external environment. Reschovsky et al. (2015) identified five distinct layers of influence affecting the care patients receive and their eventual outcomes. These include the following:

Figure 1

Figure 1

  • individual physician characteristics, including clinical judgment, training, and specialty;
  • practice sites, including care management infrastructure and leadership;
  • physician practice organizations, including compensation incentives, and organizational culture;
  • hospitals, networks, and other affiliations, including the development of shared specialized clinical programs and insurance contracting; and
  • market environment, including the level of competition between providers and health plans.

In this article, we examine the performance of vertically integrated health systems, wherein care is structurally integrated across three of these levels of influence—the practice site, the physician organization, and the network hospital—through shared ownership or joint management. As noted in this framework, these influences exist within a larger context, which might affect hospitals’ and providers’ decisions to vertically integrate as well as the performance of vertically integrated health systems.

There are several ways in which vertically integrated health systems may be well positioned to improve quality of care, efficiency, and patient-centered outcomes. For example, physician practices owned by hospitals might have greater access to capital to pursue quality improvement strategies or to invest in infrastructure, such as health information technology (IT) or care management support (Casalino et al., 2013). The alignment of incentives between physicians, hospitals, and centralized leadership could also help standardize care, which in turn could improve adherence to evidence-based practices (Enthoven, 2009). Hospitals in a vertically integrated health system might similarly be well positioned to improve patient outcomes. For example, vertically integrated hospitals might be better able to coordinate care across settings or to achieve organizational efficiencies through economies of scale or reductions in unnecessary care (Rodriguez et al., 2016).

Despite these potential advantages, vertical integration can also hinder improvements in patient outcomes. For example, it might result in anticompetitive effects on prices (practices that are owned by hospitals generally create a formal entity for the purposes of joint contracting with insurers; Burns et al., 2013). Increased size or market power might also change clinical service use because patients rely on their providers not only for health care but also for referrals and advice about what services they need (Baker, Bundorf, & Kessler, 2016). As such, vertical integration could create incentives to perform unnecessary tests or provide avoidable or specialized hospital-based services that benefit partner hospitals (Burns & Muller, 2008 ; Reschovsky & Rich, 2015). These systems might also be larger and more bureaucratic and may provide less patient-focused care (Safran, Wilson, Rogers, Montgomery, & Chang, 2002).

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Methods

Data Sources and Search Strategy

We conducted a systematic literature search in Ovid MEDLINE for studies published from January 1, 1996, to November 30, 2016. In the 1980s and early 1990s, a literature focused on integration including a synthesis on the theorized benefits and outcomes of vertical integration (Walston, Kimberly & Burns, 1996). However, to ensure the relevance of our findings to current trends affecting health care delivery in the United States, we limited our search to the last 20 years.

Vertical integration has not been consistently defined in the literature (with terms like “integrated health/delivery system” and “hospital–physician affiliations” often referring to the same or overlapping concepts). We therefore conducted iterative searches to identify a broad set of search terms (e.g., “health system,” “integrated health care,” “health network,” “vertical integration,” “integrated delivery system”) and MeSH headings (e.g., “delivery of health care,” “quality of health care,” “hospital–physician joint ventures”) that balanced search sensitivity and specificity (see Supplemental Digital Content 1, http://links.lww.com/HCMR/A40). Additional studies were identified via hand searches and examinations of the reference lists of key studies and review articles on tangential topics (Burns et al., 2013 ; Hwang, Chang, LaClair, & Paz, 2013 ; Maeda, Lee, & Horberg, 2014).

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Inclusion and Exclusion Criteria

We considered articles for review if they met two main criteria. First, they had to compare the performance of a vertically integrated health system to a nonintegrated hospital or physician practice in the United States. Second, they had to use a quantitative method to examine an outcome related to quality of care, efficiency, or patient-centered outcomes. We excluded (a) government-operated health systems (e.g., the Veterans Affairs or Department of Defense health systems), (b) evaluations of interventions embedded in a vertically integrated health system (e.g., an evaluation of the impact of a new care management approach), (c) head-to-head comparisons of two vertically integrated health systems without a control hospital or practice, and (d) research that was not peer-reviewed. We also excluded studies with insufficient details or specificity to determine whether the systems studied met our definition of vertically integrated.

Given the frequent use of the American Hospital Association’s (AHA) annual survey in studies that identify, characterize, and evaluate health systems, we took special care to categorize which studies using this data source would meet our inclusion criteria. Currently, the AHA survey does not include a field for vertically integrated health systems per se; however, it does capture physician arrangements, of which several represent ownership relationships and meet our criteria. These relationships include integrated salary models, equity models, and foundation models. The AHA survey also includes a “health system cluster,” which characterizes hospitals based on measures of centralization, differentiation, and integration (Bazzoli, Shortell, Dubbs, Chan, & Kralovec, 1999). Using cluster analysis, the AHA survey classifies hospitals into five categories. Although this taxonomy does not provide a one-to-one map to our definition of a vertically integrated system, we consider centralized health systems (CHSs) and centralized physician/insurance health systems (CPIHSs)—which often directly employ rather than contract with physicians (Henke et al., 2018)—as vertically integrated for the purposes of this review.

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Study Selection, Classification, and Data Abstraction

We reviewed all titles and abstracts identified in the literature search for possible inclusion. Two investigators on the research team conducted full-text screenings of studies identified as potentially relevant. We then sorted the articles by outcomes measures into three broad policy-relevant domains: (a) technical measures of care quality, focusing on disease-specific process measures, such as diabetes care or cancer screening; (b) efficiency, focusing on measures of utilization, spending, and prices; and (c) patient-centered outcomes, such as mortality and patient satisfaction with care. We differentiated measures of quality of care from patient-centered outcomes to distinguish technical measures of care quality from outcomes reflecting more typical patient concerns, both because of our overall interest in patient-centered outcomes and because vertical integration may have different effects on process of care metrics than on patient-centered outcomes. One investigator abstracted key information from each article, and a second investigator reviewed the abstractions for accuracy and completeness.

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Quality Assessment of Individual Studies

To evaluate the quality of the evidence in our systematic review, we rated the final set of studies based on the Grades of Recommendation, Assessment, Development, and Evaluation (GRADE) approach (Schünemann, Brożek, Guyatt, & Oxman, 2014). GRADE identifies four quality levels (high, moderate, low, and very low) based on the underlying study methodology; randomized trials without significant limitations provide “high-quality” evidence, and observational studies without significant strengths or limitations provide “low-quality” evidence. Studies can be upgraded or downgraded based on the presence of one or more factors detailed in the GRADE handbook, including risk of bias, directness of evidence, and magnitude of the effect (Schünemann et al., 2014). Observational studies, like the ones we would expect on this topic, are unlikely to be assessed as “high quality” in this rating approach. Two investigators rated each study, with disagreements resolved by consensus among the research team.

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Results

Study Selection and Assessment of Quality

Our search generated 7,559 unique articles. We excluded 7,493 articles based on a review of titles and abstracts, yielding 66 studies for full-text review. We ultimately screened in 29 articles that met the inclusion criteria (Table 1). Studies that were screened out were excluded for a variety of reasons; most lacked data for comparison purposes or did not match our definition of vertical integration (Everson, Lee, & Adler-Milstein, 2016 ; Mehrotra, Epstein, & Rosenthal, 2006). Across the studies included in this review, 10 articles addressed quality of care, 24 addressed efficiency, and 9 addressed a patient-centered outcome (although most of these studies addressed outcomes in more than one domain, such as hospitalizations and cancer screening rates; Figure 2).

Table 1

Table 1

Figure 2

Figure 2

The ownership relationships required to meet our definition of “vertically integrated” were identified using a range of data sources, including AHA data, practice surveys, integrated delivery/health system “top lists,” and Medicare or other health plan claims. Studies evaluated a heterogeneous set of systems, patients, and outcomes, which prohibited meta-analysis. Instead, we produced a descriptive summary of studies by outcome domains. Given the volume of results, we considered p < .05 to be statistically significant unless otherwise noted. When considering the evidence for an outcome, we considered the precision of the findings (including p > .05) together with the magnitude and consistency of the associations within and across studies.

Most study designs were assessed as “low quality” because they reported associations between health systems and performance indicators without addressing the selection of hospitals or practices into integrated configurations. Other studies were assessed as “moderate quality” because they examined within-hospital variation or used other quasiexperimental techniques such as a difference-in-differences. Four studies were downgraded because of “indirectness of evidence.” In most cases, these studies assessed vertical integration at the market level (Baker, Bundorf, & Kessler, 2014 ; Herrel et al., 2017 ; Neprash, Chernew, Hicks, Gibson, & McWilliams, 2015); one study measured vertical integration as the percentage of health plan care delivered by group or staff model systems (Gillies, Chenok, Shortell, Pawlson, & Wimbush, 2006).

In addition, one study was downgraded due to failure to adequately control for confounding factors (Liepert, Bledsoe, Stevens, & Cochran, 2014), and two studies were downgraded because they used proxy measures for our study definition of vertical integration (Crespin, Christianson, McCullough, & Finch, 2016 ; Weeks et al., 2010). Specifically, Weeks et al. (2010) evaluated the performance of the Council of Accountable Physician Practices (CAPP), of which the majority but not all practices met our definition of vertical integration, and Crespin et al. (2016) evaluated the performance of acquired clinics but addressed the dual issues of being acquired and changes to their size postacquisition (many of the acquired clinics came from smaller health systems).

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Studies Examining Quality of Care

Ten studies included in this review examined the relationship between vertical integration and one or more quality-of-care measures (Table 2). Six of these studies showed that, compared with nonintegrated systems, vertically integrated health systems had a favorable relationship with quality of care (Crespin et al., 2016 ; Gillies et al., 2006 ; Herrel et al., 2017 ; Leibert, 2011 ; Rhoads, Patel, Ma, & Schmidt, 2015 ; Weeks et al., 2010). Studies used a range of measures to assess quality, with most studies examining optimal care for specific conditions or cancer screening. Other quality measures included rates of immunization and smoking cessation. In general, studies examined quality of care among Medicare beneficiaries in ambulatory care settings.

Table 2

Table 2

Six studies showed a favorable relationship between vertical integration and optimal care for specific conditions (often diabetes) in a range of health system configurations that met our inclusion criteria (Crespin et al., 2016 ; Gillies et al., 2006 ; Herrel et al., 2017 ; Leibert, 2011 ; Rhoads et al., 2015 ; Weeks et al., 2010). Crespin et al. (2016) examined 100 clinics acquired by health systems mostly in Minnesota between 2007 and 2013 and assessed their diabetes care performance (a composite measure of five treatment goals, including hemoglobin A1c, blood pressure, and low-density lipoprotein cholesterol). The authors found no significant difference in overall diabetes care between acquired and nonacquired clinics until the third year after acquisition. By their fifth year, acquired clinics scored 3.6 percentage points higher in diabetes care than if they had never been acquired.

Among the other studies, Leibert (2011) examined quality at vertically integrated health systems defined as “flagship hospitals” in a top 50 list of integrated health systems, comparing these hospitals with 50 matched control hospitals. The author found higher disease-specific clinical quality for patients with heart attack, heart failure, and pneumonia in vertically integrated systems. Rhoads et al. (2015) examined the delivery of evidence-based care to colorectal cancer patients treated at health systems that were “integrated,” as defined by the Berkeley Forum to Improve California’s Healthcare Delivery System; under this definition, “one organization is responsible for all services, including delivery of care, payment, and risk management” (p. 855). The authors found that treatment at vertically integrated health systems was associated with better adherence to the National Comprehensive Cancer Network’s guidelines on two of three quality measures for colon cancer (no difference for the third measure).

Two studies used indirect measures to define vertical integration (Gillies et al., 2006 ; Herrel et al., 2017), and one examined group practices, in which most but not all the practices met our definition (Weeks et al., 2010). Gillies et al. (2006) found that health plans served by a higher percentage of group or staff models were associated with higher-quality diabetes care. Herrel et al. (2017) analyzed adherence to 12 guidelines for prostate cancer treatment in hospital referral regions that had at least 90% of discharges from a top integrated delivery system, based on Becker’s Hospital Review. Nationally, Herrel et al. (2017) identified three markets that were vertically integrated and found that patients treated in those markets were more likely to completely adhere to their suite of prostate cancer quality measures than those in markets with no vertical integration (odds ratio: 1.38). Weeks et al. (2010) found that Medicare patients assigned to CAPP-affiliated physicians (most of which belong to vertically integrated health systems) received more evidence-based care than those in the same market who were not assigned to CAPP physicians (relative risks [RRs] ranged from 1.05 to 1.08 for hemoglobin A1c, lipid tests, and retinal exams for diabetic patients).

Three studies reported a mixed, small negative, or not statistically significant relationship between vertical integration and optimal care for specific conditions (Kralewski, Dowd, Knutson, Tong, & Savage, 2015 ; Kralewski, Dowd, Savage, & Tong, 2014 ; McWilliams, Chernew, Zasalavsky, Hamed, & Landon, 2013). McWilliams et al. (2013) compared the performance of hospital-based groups to medium and large independent provider groups. Authors defined groups as “hospital based” if 10% or more of a group’s practice sites were at hospitals, which included 94% of groups with at least one hospital location. Compared with small independent groups, hospital-based groups had lower rates of lipid testing for patients with cardiovascular disease (by 0.7 percentage points) but higher rates of three diabetes care services (by 0.8 percentage points). Kralewski et al. (2015) examined differences between physician-owned and hospital-owned practices and found that patients at hospital-owned practices had slightly lower rates of hemoglobin A1c screening for patients with diabetes and lipid screening for patients with cardiovascular disease. The results in Kralewski et al. (2014) were similar.

Six studies examined the impact of vertical integration on cancer screening rates, with varying results (Carlin, Dowd, & Feldman, 2015 ; Gillies et al., 2006 ; Kralewski et al., 2014, 2015 ; McWilliams et al., 2013 ; Weeks et al., 2010). Three of the studies showed a favorable relationship between vertical integration and cancer screening, but two used proxy or indirect measures of vertical integration (Gillies et al., 2006 ; Weeks et al., 2010). McWilliams et al. (2013) found a 2.8 percentage point higher rate of breast cancer screening for hospital-based groups compared with small independent physician groups. Similarly, Weeks et al. (2010) found higher rates of breast cancer screening for CAPP-affiliated physicians (RR = 1.12), and Gillies et al. (2006) found the percentage of health plans served by group or staff models was associated with higher-quality women’s health screening (a composite measure of breast cancer, cervical cancer, and chlamydia screening).

Carlin et al. (2015) examined changes in cancer screening rates after three stand-alone clinic systems were acquired by two local integrated delivery systems in Minnesota. After the acquisition, two of the clinics had higher rates of screening for colorectal and cervical cancer, but changes in breast cancer screening were mixed (one clinic improved, one declined, and one saw no statistically significant changes). Kralewski et al. (2015) found slightly lower rates of colon cancer screening (p < .10) for hospital-owned versus physician-owned practices. No statistically significant differences were found by Kralewski et al. (2014) for cervical cancer screening.

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Studies Examining Efficiency

Twenty-four studies in the review examined the relationship between vertical integration and one or more measures of efficiency (Table 2). Most of these studies (n = 20) showed that vertical integration was associated with lower efficiency or no statistically significant differences in efficiency. Utilization measures focused on ambulatory care-sensitive (ACS) admissions, rates of emergency department (ED) use, and readmissions. Other studies focused on spending, cost inefficiency, or prices. Studies that examined prices generally focused on discounted patient charges (actual charges multiplied by the yearly average discount rate that each hospital grants to private paying patients; Ciliberto & Dranove, 2006). Thirteen studies focused on practices or facilities nationally; the remaining articles focused on smaller regional areas. Whereas quality of care was often measured in ambulatory care settings, efficiency was often measured in hospitals.

Six studies concluded that vertically integrated health systems were associated with lower efficiency, as measured by higher health care utilization (Casalino et al., 2014 ; Henke et al., 2018 ; Koch, Wendling, & Wilson, 2017 ; Kralewski, Dowd, Knutson, Savage, & Tong, 2013 ; Madison, 2004 ; McWilliams et al., 2013). Koch et al. (2017) examined 27 large physician groups that were acquired by hospital systems and found vertical integration was associated with significant changes in acquired physicians’ behavior, with shifts toward physicians delivering more care in their acquiring system’s hospital. On average, the authors found a net increase in utilization for acquiring hospitals after the mergers (the increased utilization of acquiring hospitals’ outpatient departments by acquired physicians outweighed the reductions in utilization by other clinicians; p < .10). McWilliams et al. (2013) found that, compared with smaller independent groups, hospital-based groups were associated with a 1.3 percentage point higher 30-day readmission rate. Casalino et al. (2014) examined hospital-owned versus physician-owned practices and found that hospital-owned practices had higher rates of ACS admissions (5.3 vs. 4.6 ACS admissions per 100 patients) when the authors controlled for a variety of attributes (including pay for performance, public reporting, and patient-centered medical home scores). Kralewski et al. (2013) found a similar relationship; hospital-owned practices had higher utilization rates for nonemergent ED use, ED use for conditions treatable in primary care, and ACS admissions compared with physician-owned practices. Madison (2004) compared hospitals with and without integrated salary models, finding that heart attack patients admitted to hospitals with integrated salary models (a form of hospital–physician affiliation) had higher procedure rates. Finally, Henke et al. (2018) used the AHA health system cluster and found that CHSs and CPIHSs had slightly longer lengths of stay (4.09 days vs. 4.08 days) and higher cesarean section probability (30.2% vs. 29.6%) compared with noncentralized system hospitals.

Seven studies produced findings on vertical integration and health care utilization that were mixed or not statistically significant (Baker et al., 2014 ; Carlin et al., 2015 ; Cuellar & Gertler, 2006 ; Kralewski, Dowd, & Xu, 2012 ; Kralewski et al., 2015 ; Scott et al., 2017). Scott et al. (2017) examined hospitals that switched to an employment relationship (foundation, equity, or group staff models) with their privileged physicians; the authors found that, of eight measures of readmissions and length of stay, seven of the associations were not statistically significant, and one was statistically significant but small (switched hospitals had a 0.6 percentage point lower readmission rate for pneumonia). Carlin et al. (2015) found mixed findings on appropriate health care use and general utilization among three clinics acquired by an integrated delivery system. Cuellar and Gertler (2006) found lower rates of ACS admissions for managed care patients, but not for indemnity patients. Kralewski et al. (2012) found slightly higher rates of avoidable hospital admissions but not in ED visits for conditions treatable in primary care. Other research did not identify statistically significant differences in utilization in vertically integrated versus unintegrated systems (Baker et al., 2014 ; Kralewski et al., 2014, 2015).

Three studies showed that vertical integration was associated with higher efficiency as measured by lower health care utilization (Al-Amin, 2016 ; Liepert et al., 2014 ; Weeks et al., 2010). Al-Amin (2016) found vertical integration was associated with small reductions in 30-day all-cause readmissions. Liepert et al. (2014) studied duplicated computerized tomography scans among 481 trauma patients transferred to Intermountain Medical Center (which is vertically integrated) and University of Utah Medical Center (which is not vertically integrated) and found lower rates of duplicate scans in the vertically integrated system. Weeks et al. (2010) found that patients with CAPP-affiliated physicians had lower ACS admission rates compared with patients with non-CAPP physicians (RR = 0.9).

Nine studies showed that vertical integration was associated with higher spending (Baker et al., 2014 ; Chukmaitov, Harless, Bazzoli, Carretta, & Siangphoe, 2015 ; Henke et al., 2018 ; Kralewski et al., 2000, 2012, 2014 ; McWilliams et al., 2013 ; Neprash et al., 2015 ; Robinson & Miller, 2014). Robinson and Miller (2014) compared physician-owned and hospital-owned practices that served 4.5 million patients in a commercial health maintenance organization in California; they found that, compared with physician-owned organizations, local hospital-owned physician organizations had expenditures that were 10.3% higher per patient (adjusted difference = $435), and multihospital systems had expenditures that were 19.8% higher (adjusted difference = $704). McWilliams et al. (2013) found that total spending per Medicare patient was $849 higher for hospital-based groups than for small independent physician groups. This type of finding was replicated in three articles by Kralewski and colleagues (2000, 2012, 2014) that looked at costs per member per year and in two articles that used the AHA health system cluster (Chukmaitov et al., 2015 ; Henke et al., 2018). Henke et al. (2018) examined hospital inpatient expenditures using a large sample of hospitals and nearly 100 million discharges in 44 states; they found higher total costs per discharge for centralized systems, but the impact was small ($11,416 vs. $11,314).

Two studies involved a market-level analysis of vertical integration and spending, both showing that vertical integration was associated with lower efficiency (Baker et al., 2014 ; Neprash et al., 2015). Neprash and colleagues (2015) examined the share of physicians in metropolitan statistical areas who billed as “hospital outpatient departments”. Hospital outpatient department is a place-of-service code in the Medicare outpatient payment services; it can be billed when the ambulatory care site for physician visits and other professional services is owned by a hospital. The authors found that an increase in physician–hospital integration equivalent to the 75th percentile of changes experienced by metropolitan statistical areas was associated with a mean increase of $75 per enrollee in annual outpatient spending—a 3.1% increase relative to mean outpatient spending in 2012. The authors also found that increases in outpatient spending were driven almost entirely by price increases because associated changes in utilization were minimal. Baker et al. (2014) looked at the share of the market served by hospitals that are vertically integrated and found that an increase of 1 standard deviation in the market share of vertically integrated organizations was associated with a 2.4% increase in county-level spending for hospital services.

Despite some evidence suggesting vertical integration was associated with higher spending, not all articles we reviewed came to this conclusion (Kralewski et al., 2015 ; Leibert et al., 2011 ; Weeks et al., 2010). In contrast to earlier studies by Kralewski and colleagues (2000, 2012), a later study did not show a statistically significant relationship between hospital-owned practices and higher per-member-per-year costs (Kralewski et al., 2015), though the relationship trended toward higher spending. Leibert et al. (2011) examined the hospital cost index to gauge the efficiency of flagship hospitals (determined based on a list of top integrated hospitals) and found no statistically significant difference in cost efficiency between highly integrated and nonsystem hospitals. Furthermore, Weeks et al. (2010) found that patients with CAPP-affiliated physicians had lower physician spending (adjusted difference = −$176), lower inpatient spending (adjusted difference = −$103), and lower total Medicare payments (adjusted difference = −$272) compared with patients who did not have CAPP-affiliated physicians.

Two articles examined the relationship between the AHA health system taxonomy and cost inefficiency, in which inefficiency was defined as the deviation from the minimum feasible cost, controlling for output quantity and for level of quality (Carey, 2003 ; Rosko, Proenca, Zinn, & Bazzoli, 2007). Carey (2003) found no statistically significant relationship between CHSs or CPIHSs and inefficiency. Rosko et al. (2007) examined a national sample of 1,144 short-term urban general hospitals and found that CPIHSs had the lowest inefficiency rates (4.1%; i.e., the highest efficiency among system types) but that CHSs had no statistically significant differences from the overall mean inefficiency estimate (8.8% vs. 8.4%).

Three articles focused on the relationship between vertical integration and prices (Baker et al., 2014 ; Ciliberto & Dranove, 2006 ; Cuellar & Gertler, 2006). Studies that examined prices generally focused on discounted patient charges (actual charges multiplied by the yearly average discount rate that each hospital grants to private paying patients). Ciliberto and Dranove (2006) investigated prices among privately insured patients at 320 short-term general hospitals in California between 1994 and 2000. The authors concluded that hospitals have lower prices when they are vertically integrated; however, considerable variation in price effects and the small sample of vertically integrated systems rendered the authors’ estimates imprecise and not statistically significant in the main model specification. Cuellar and Gertler (2006) examined the relationship between vertical integration and prices and found no statistically significant relationship. The authors did find higher prices for some forms of hospital–physician affiliations, but not for vertically integrated forms that met our definition. Baker et al. (2014) found that an increase of 1 standard deviation in the market share of hospitals that are vertically integrated was associated with a 3.2% increase in county-level indices of prices. In this article, price referred to the actual transaction payments under health plans, including payments made by patients and insurers (the allowed amount, not charges or functions of charges).

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Studies Examining Patient-Centered Outcomes

Nine studies in our review examined the relationship between vertical integration and one or more patient-centered outcomes (Table 2). Most of the patient-centered outcomes centered on measures of mortality (n = 7). Two studies examined patient satisfaction with care, and one study examined surgical complication rates. Although mortality was a common measure, it was defined in a variety of ways (e.g., disease-specific mortality, hospital-wide mortality, and 30-day mortality), and the results were mixed across studies and, at times, within studies. Rhoads et al. (2015) used a more stringent definition of vertical integration (requiring systems to provide delivery of care, payment, and risk management) and found that the vertical integration was associated with better survival for patients with colorectal cancer (hazard ratio = 0.87). Three studies used the AHA health system cluster to examine mortality rates. Chukmaitov et al. (2015) found that CHSs and hospitals that became more centralized during the study period had lower all-cause 30-day mortality than independent hospital systems or freestanding hospitals. Henke et al. (2018) found centralized system hospitals had lower mortality from acute myocardial infarction but higher stroke mortality compared with noncentralized system hospitals. The authors did not find any statistically significant differences for heart failure mortality or pneumonia mortality.

Other studies showed no statistically significant relationship between vertical integration and mortality outcomes (Chukmaitov et al., 2009 ; Cuellar & Gertler, 2006 ; Madison, 2004 ; Scott et al., 2017). Two studies examined patient satisfaction with care using the Hospital Consumer Assessment of Healthcare Providers and Systems measures (Gillies et al., 2006 ; Leibert, 2011). Neither study identified a statistically significant relationship between vertical integration and patient satisfaction with care. Gillies et al. (2006) examined the percentage of a health plan served by group or staff models and found no statistically significant relationship with satisfaction with medical group care, physician care, or health plan care. Similarly, Liebert (2011) found no statistically significant difference between the mean Hospital Consumer Assessment of Healthcare Providers and Systems scores of flagship hospitals (as determined by a list of top integrated hospitals) and nonsystem hospitals.

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Discussion

Vertical integration likely has both positive and negative effects on policy-relevant outcomes. The studies we identified in this review suggest that vertical integration may be associated with improvements in some quality-of-care measures—but with no differences or lower efficiency as measured by avoidable utilization, spending, and prices. Impacts varied by measure and context. Higher performance on quality-of-care measures among vertically integrated health systems might reflect both actual improvements in quality through better coordination as well as better perceived quality through health IT and improved documentation of processes of care. At the same time, decreases in efficiencies (as measured by prices) might reflect the increased market power of larger systems. Furthermore, increases in hospital utilization and spending might reflect differences in clinical service use, which favor hospital-based services. These findings are consistent with the hypothesis that physician behavior is influenced by the Centers for Medicare & Medicaid Services’ location-based billing policy, which provides higher compensation for care delivered in hospital settings than in doctors’ offices (Koch et al., 2017).

There are a variety of factors that could explain the large number of mixed findings both within and between studies. For example, even within our narrow definition of health systems, included studies used a range of data sources and approaches to identify health systems. Also, system attributes and market factors might impact the outcomes of vertical integration. For example, integration with a health plan, duration of provider integration, or existing levels of market consolidation. Thus, more attention on the role of moderating factors is warranted in future research. Furthermore, the cross-sectional design of many of the included studies restricts our ability to say whether or not the outcome is a result of the integration itself or predates when a provider joined or formed a system.

This review did not identify many articles that evaluated a patient-centered outcome. Of the studies that did, most evaluated the relationship between vertical integration and mortality and did not identify any relationship. Future studies should consider additional patient-centered outcomes, particularly given the limitations of mortality as an outcome measure. Specifically, mortality has been shown to have a weak link to quality of care (Shahian, Iezzoni, Meyer, Kirle, & Normand, 2012), particularly for patients with multiple chronic conditions near the end of life (Holloway & Quill, 2007). Only two studies in our review examined the relationship between vertical integration and patient satisfaction with care. Neither of these studies identified any association; however, past studies that examined large-sized or staff/group model health maintenance organizations suggest that large systems sometimes struggle to perform as well on patient satisfaction measures as smaller physician practices (Safran et al., 2002 ; Seibert, Strohmeyer, & Carey, 1996).

Included studies had several common limitations. Most studies were observational and did not address the issue of selection bias—and thus were considered “low quality” according to the GRADE approach. Vertical integration of hospitals and physician practices is not a randomly determined attribute but is a strategic choice by providers, and it is likely that unobservable factors affecting the decision to vertically integrate also affect relevant outcomes. For example, physicians or hospitals with a greater interest in the use of integrated data systems for care coordination or quality improvement might be more likely to join or form systems. Moreover, patients of different characteristics may choose to receive care from different providers based on attributes related to vertical integration. For example, patients with multiple complex conditions might be more likely to seek care from health systems because of their specialty composition and research expertise (Retchin, 1998). Certain studies were better equipped to deal with these selection issues, including studies that focused on changes in the performance of acquired clinics using a difference-in-differences approach or studies that used panel data to examine within-hospital changes for hospitals that switched affiliations during the study period. In addition, many studies put hospitals that have any ownership relationships with physician practices into the same group (without indicating how widespread these relationships were). Despite these limitations, many studies evaluated large samples that were nationally representative, making them well powered to detect small changes in health system performance and to offer generalizable conclusions.

It bears repeating that our definition of vertically integrated health systems focused on form (e.g., practices owned by hospitals), not on function (e.g., degree of clinical integration), and it does not explicitly require a relationship with postacute care providers or health plans. But other definitions of health care systems emphasize key functional aspects, such as the provision of the continuum of health care services. For example, Enthoven (2009) defined an integrated delivery system as:

…an organized, coordinated, and collaborative network that (1) links various healthcare providers, via common ownership or contract, across three domains of integration—economic, noneconomic, and clinical—to provide a coordinated, vertical continuum of services to a particular patient population or community and (2) is accountable, both clinically and fiscally, for the clinical outcomes and health status of the population or community served, and has systems in place to manage and improve them. (p. S285)

This definition emphasizes coordinated care and integration across several dimensions. Burns and Muller (2008) found a weak and inconsistent relationship between clinical integration and economic integration, including the type we investigated here. Achieving better patient care via vertical integration might require hospitals and practices to ensure care is actually integrated from the patient’s perspective.

Given the focus of our review, it was difficult to distinguish the effect of vertical integration per se from the effects of other health system characteristics and the markets in which they develop. Vertically integrated health systems identified in this review vary with respect to size, health IT strategy, or clinical integration, among other health system and market attributes. One attribute that may be particularly relevant is whether systems have a strong payer relationship with non-fee-for-service incentives. Health system attributes and market factors were not always explicitly or clearly documented in the literature we reviewed, and their effects were not easily teased apart. Extending the analysis and synthesis in this article to examine the specific aspects of systems that affect outcomes is an important area for future research.

Our findings should be considered alongside literature on vertically integrated health systems that did not meet the criteria for this review but is nonetheless relevant to understanding how integration influences outcomes. For example, several studies analyze the performance of vertically integrated health systems on measures of financial performance (Burns, Gimm, & Nicholson, 2005) and operating costs (Burns et al., 2015). These outcomes are important to understanding hospital and physician organizations’ decisions to integrate. Other studies consider the relationship between vertical integration and patients’ choice of hospital (Baker et al., 2016), referral patterns (Carlin, Feldman, & Dowd, 2016), adoption of health IT (Everson et al., 2016 ; Lammers, 2013), and care coordination or care management processes (Casalino et al., 2013 ; Rittenhouse, Grumbach, O’Neil, Dower, & Bindman, 2004 ; Rodriguez et al., 2016). These studies might help explain the functional mechanism for the findings we identified in this review. In addition, there is research on the performance of other definitions of integration, such as horizontal integration of hospitals (Ho & Hamilton, 2000) or of physician practices (Mehrotra et al., 2006 ; Rodriguez, Von Glahn, Rogers, & Safran, 2009), as well as literature that examines specific health system attributes, such as volume, teaching status, or nonprofit status (Thornlow & Stukenborg, 2006). This literature is relevant because forms of integration are not mutually exclusive, and other definitions of integration may explain modifiable characteristics of health systems that influence key outcomes.

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Practice Implications

Vertical integration will likely continue to gain momentum, in part through the effects of implementing the MACRA of 2015. This legislation creates strong incentives for physicians and other clinicians paid under Medicare’s physician fee schedule to participate in alternative payment models to earn enhanced Medicare reimbursement. Although the literature debates the nature of the relationship between alternative payment models and vertical integration, recent evidence suggests the trend toward vertical integration will likely continue as providers respond to changing payment models and market factors (Neprash, Chernew, & McWilliams, 2017).

This changing landscape of physician and hospital affiliations has complex implications for payers, professional associations, and policymakers. The mixed findings on utilization and spending found in this review suggest that physicians and practice managers preparing for more population-oriented Medicare payment reforms under MACRA should be prudent when considering the potential benefits of integrating with hospital systems. Specifically, hospital-dominated systems may be organized to enhance system Medicare revenues through provision of inpatient as well as hospital outpatient department services. However, this arrangement may not be preferable to provider entities at financial risk under population-based payment models if it is associated with increased spending. Thus, more information is needed to identify the health system attributes and market factors that contribute to improved outcomes, as well as which practice and policy levers can minimize anticompetitive effects and maximize the benefits of these affiliations. By these means, payers and policymakers can shape more targeted incentives to encourage the development of health systems that deliver higher-value care.

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Keywords:

delivery system; health system; hospital–physician affiliations; vertical integration

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