Vertical Integration is Hurting Healthcare

Vertical Integration is a fast-growing trend in the healthcare sector. Despite this trend, policymakers have so far lacked evidence on how vertical integration can affect care delivery.

In theory, when physicians work directly for hospitals, rather than in independent practices, there should be greater efficiencies through economies of scale, and better quality of care for patients. In contrast, a new study led by CHDS faculty affiliate Soroush Saghafian and including former doctoral student Lina Song (PhD graduate 2020), finds that in one representative area of medicine, vertical integration is leading doctors to change the way they approach patient care, with consequent adverse effects on patient health, and is also inflating costs.

As reported recently by the Harvard Kennedy School, Saghafian’s study analyzed more than 2.6 million patient visits, and zooming in on a particular specialty and a particular procedure –colonoscopies performed by gastroenterologists in the fee-for-service Medicare program – they looked at millions of randomly selected doctor-patient interactions across a broad geographic spread and across a number of years. They found that when independent physicians integrated with a hospital, they changed their care practices (for example, by reducing the number of patients they put under deep sedation) and increased their throughput. Specifically, the integrated physicians reduced their use of deep sedation by about 3.7 patients for every 100 treated. However, patients of integrated physicians experienced “a significant increase in both major post-colonoscopy complications such as bleeding (3.8 per 1,000 colonoscopies) and other complications such as cardiac or nonserious GI symptoms (5.0 and 3.3 per 1,000 colonoscopies, respectively).” Saghafian and his co-authors found that the reduced use of deep sedation “at least partially explains the increase in adverse outcomes” and that it was “driven mainly by hospitals no longer allocating expensive anesthesiologists to relatively unprofitable colonoscopy procedures.”

Given the rapid speed at which the healthcare industry is being vertically integrated, the study urges policymakers to take quick but suitable actions.

Read more: Harvard Kennedy School article: O’Neill R. Study Finds Vertical Integration in Medicine is leading to Higher Costs and Worse Health Outcomes. Harvard Kennedy School 2023; Mar 2.

Learn more: Read the publication, The Impact of Vertical Integration on Physician Behavior and Healthcare Delivery: Evidence from Gastroenterology Practices