Hospital-physician vertical integration

Vertical integration of healthcare services has been viewed by hospitals as an effective strategy for maintaining institutional viability in the face of increased competitive pressures. This paper examines the effects of vertical integration on hospital utilization and market share, based on the experience of a selected set of hospitals that developed primary care group practices as part of a national demonstration program conducted over the period 1976 to 1982. Inpatient days and admissions for the average hospital increased 9.0 percent and 8.2 percent, respectively, over the initial four-year period of group operation, while average market share of inpatient days and admissions rose by 4.9 percent and 3.6 percent, respectively. The establishment of the group practices also helped most hospitals achieve a more favorable outpatient payor mix.