Integration of Hospitals and Post-Acute Care Providers and the Cost of Care

Abstract

Hospitals are facing incentives to manage the total cost of care for episodes of illness including the costs of inpatient care as well as the cost of care provided by physicians and post-acute care (PAC) providers. PAC is an especially important component of the overall cost of care. One strategy hospitals may employ in managing this cost is vertically integrating with PAC providers. Prior work has isolated the effects of particular combinations of these strategies, primarily the effects of SNF ownership on cost and quality outcomes. In contrast, relatively little research has compared different forms of integration. We examine data from the American Hospital Association for 2013-2014 and find that a majority of hospitals are engaging in some form of vertical integration and many hospitals maintain both ownership and network affiliation relationships with multiple types of PAC providers. Next, we use data from CMS’ Value Based Purchasing Program to examine the relationship between a hospital’s vertical integration choices and the average cost of an acute and post-acute episode of care for a hospital’s patients. We find that costs do not vary consistently by type of vertical integration (network affiliation vs. ownership) or by PAC provider type, but particular combinations of these characteristics are associated with a lower episodic cost of care.