Do Medicare’s Facility Fees Incentivize Hospitals to Vertically Integrate with Oncologists?

Within the past decade, the U.S. health care market has undergone massive vertical integration, prompting economists to study the underlying causes and consequences of hospital-physician integration. This paper examines whether or not hospitals strategically choose to vertically integrate with clinical oncologists in order to capture facility fees, a commonly cited reason for increased consolidation in the health care market. To address this question, I match data on hospitals’ ownership of clinical oncologists with Medicare payment data disaggregated to the physician and specific service level. I leverage a 2014 policy change that drastically altered the payment structure of Medicare’s facility fees paid to hospitals for evaluation and management services—and yet, it did not alter the direct payments made to physicians. Contrary to popular belief, I find no evidence that the financial incentives of facility fees have an effect on the probability that a hospital and a clinical oncologist vertically integrate.

Vertical Integration and Physician Practice Labor Composition

With the growth of vertical integration among physician practices (i.e., hospital–physician integration), there have been many studies of its effects on health care treatments and spending. It is unknown if integration shapes provider configurations, especially against the backdrop of increasing employment of nurse practitioners (NPs) and physician assistants (PAs) across specialties. Using a longitudinal panel of 144,289 practices (2008-2015), we examined the association of vertical integration with NP and PA employment. We find positive associations between vertical integration and newly employing NPs and PAs within physician practices; however, the relationships differ by practice specialty type as well as timing of vertical integration. Supplementary analyses offer supporting evidence for coinciding enhancements to practice productivity, diversification, and provider task allocation. Our results suggest that vertical integration may promote interdisciplinary provider configurations, which has the potential to improve care delivery efficiency.

Achieving Adherence to Evidence-Based Practices

In response to evolving policies and conditions, hospitals have increased health information technology (HIT) adoption and strived to improve hospital–physician integration. While evidence suggests that both HIT and integration confer independent benefits, when combined, they may provide complementary means to achieve high performance or overlap to offset each other’s contribution. We explore this relationship in the context of hospital adherence to evidence-based practices (EBPs). Using the American Hospital Association’s Annual and IT Supplement surveys, and Centers for Medicare and Medicaid Services’s Hospital Compare, we estimate the independent relationships and interactions between HIT and hospital–physician integration with respect to EBP adherence. HIT adoption and tight (but not loose) integration are independently associated with greater adherence to EBPs. The interaction between HIT adoption and tight integration is negative, consistent with an offsetting association between HIT adoption and integration in their relationship to EBP adherence. This finding reveals the need to be aware of potential substitutive effects from simultaneous pursuit of multiple approaches to performance improvement.