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Vertical Integration and Cream Skimming of Profitable Referrals: The Case of Hospital-Owned Skilled Nursing Facilities

Author

Listed:
  • David M. Cutler
  • Leemore Dafny
  • David C. Grabowski
  • Steven Lee
  • Christopher Ody

Abstract

We examine whether vertical integration of hospitals and skilled nursing facilities (SNFs) could lessen competition by foreclosing rival SNFs’ access to lucrative referrals. We find that it could: among integrated providers, a one percent increase in SNF reimbursement for a given patient discharged from the upstream hospital increases the self-referral rate to the hospital’s downstream SNF(s) by 1.8 percent. We find no evidence of offsetting benefits for patients and payers: these increased self-referrals have an imprecisely estimated zero effect on patient outcomes and Medicare spending.

Suggested Citation

  • David M. Cutler & Leemore Dafny & David C. Grabowski & Steven Lee & Christopher Ody, 2020. "Vertical Integration and Cream Skimming of Profitable Referrals: The Case of Hospital-Owned Skilled Nursing Facilities," NBER Working Papers 28305, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28305
    Note: AG EH IO
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    Cited by:

    1. Francine Lafontaine & Margaret E. Slade, 2021. "Presumptions in Vertical Mergers: The Role of Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 255-272, September.
    2. Whaley, Christopher M. & Zhao, Xiaoxi, 2024. "The effects of physician vertical integration on referral patterns, patient welfare, and market dynamics," Journal of Public Economics, Elsevier, vol. 238(C).

    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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