The effect of hospital-physician integration on hospital costs

This study evaluates whether hospital costs are lower when hospitals integrate with physician practices. It addresses a common element in policy attempts to contain healthcare costs, which is to encourage greater coordination in healthcare delivery. Despite a clear trend toward greater hospital-physician integration, there is little direct evidence about whether integration lowers hospital costs. The results in this paper show that hospital costs increase by one to three percent after hospital-physician integration. We also do not find consistent evidence that hospital-physician integration is associated with higher quality but potentially more costly hospital care. The modest increase in hospital costs appears to derive from an increase in outpatient visits, rather than from higher costs of inpatient care. These findings do not support the hypothesis that increased coordination between hospitals and physicians has led to lower hospital costs.