Weighing the Effects of Vertical Integration Versus Market Concentration on Hospital Quality

Provider organizations are increasing in complexity, as hospitals acquire physician practices and physician organizations grow in size. At the same time, hospitals are merging with each other to improve bargaining power with insurers. We analyze 29 quality measures reported to the Center for Medicare and Medicaid Services’ Hospital Compare database for 2008 to 2015 to test whether vertical integration between hospitals and physicians or increases in hospital market concentration influence patient outcomes. Vertical integration has a limited effect on a small subset of quality measures. Yet increased market concentration is strongly associated with reduced quality across all 10 patient satisfaction measures at the 95% confidence level (p < .05) and 6 of the 10 patient satisfaction measures remain statistically significant with a Bonferroni corrected p value (p < .005). Regulators should continue to focus scrutiny on proposed hospital mergers, take steps to maintain competition, and reduce counterproductive barriers to entry.