In recent years direct ownership of physician practices by hospitals and health systems (that is, vertical integration) has become a prominent feature of the US health care system. One unexplored impact of vertical integration is the impact on referral patterns for common diagnostic tests and procedures and the associated spending. Using a 100 percent sample of 2013-16 Medicare fee-for-service claims data, we examined whether hospital and health system ownership of physician practices was associated with changes in site of care and Medicare reimbursement rates for ten common diagnostic imaging and laboratory services. After vertical integration, the monthly number of diagnostic imaging tests per 1,000 attributed beneficiaries performed in a hospital setting increased by 26.3 per 1,000, and the number performed in a nonhospital setting decreased by 24.8 per 1,000. Hospital-based laboratory tests increased by 44.5 per 1,000 attributed beneficiaries, and non-hospital-based laboratory tests decreased by 36.0 per 1,000. Average Medicare reimbursement rose by $6.38 for imaging tests and $0.57 for laboratory tests, which translates to $40.2 million and $32.9 million increases in Medicare spending, respectively, for the entire study period. This study highlights how the growing trend of vertical integration, combined with differences in Medicare payment between hospitals and nonhospital providers, leads to higher Medicare spending.