Can vertically integrated health systems provide greater value: The case of hospitals under the comprehensive care for joint replacement model?

Abstract

Objective: We aim to assess whether system providers perform better than nonsystem providers under an alternative payment model that incentivizes high-quality, cost-efficient care. We posit that the payment environment and the incentives it provides can affect the relative performance of vertically integrated health systems. To examine this potential influence, we compare system and nonsystem hospitals participating in Medicare's Comprehensive Care for Joint Replacement (CJR) model.

Data sources: We used hospital cost and quality data from the Centers for Medicare & Medicaid Services linked to data from the Agency for Healthcare Research and Quality's Compendium of US Health Systems and hospital characteristics from secondary sources. The data include 706 hospitals in 67 metropolitan areas.

Study design: We estimated regressions that compared system and nonsystem hospitals' 2017 cost and quality performance providing lower joint replacements among hospitals required to participate in CJR.

Principal findings: Among CJR hospitals, system hospitals that provided comprehensive services in their local market had 5.8 percent ($1612) lower episode costs (P = .01) than nonsystem hospitals. System hospitals that did not provide such services had 3.5 percent ($967) lower episode costs (P = .14). Quality differences between system hospitals and nonsystem hospitals were mostly small and statistically insignificant.

Conclusions: When operating under alternative payment model incentives, vertical integration may enable hospitals to lower costs with similar quality scores.

Keywords: bundled payment models; cost of care; hospitals; quality of care; vertical integration.

FIGURE 1

Illustration of locally and nonlocally integrated system hospitals and nonsystem hospitals [Color figure can be viewed at wileyonlinelibrary.com] Note: A comprehensive set of physicians is defined as 50 or more total physicians including 10 or more primary care physicians. In MSA 1, hospitals A and B are part of a vertically (and horizontally) integrated system in the context of their local market and thus are locally integrated system hospitals. Hospital C in MSA 1 is associated with a parent system that also owns hospital D in MSA 2. Hospital D has a comprehensive set of physicians within its market and thus is classified as a locally integrated system hospital, whereas hospital C does not have a comprehensive set of physicians in its market and thus is classified as a nonlocally integrated system hospital. Finally, Hospital E in MSA 2 is a nonsystem hospital as it fails to meet system criteria within its local market and is not part of a parent system