Impact of Hospital-Physician Vertical Integration on Physician-Administered Drug Spending and Utilization

We estimate the effects of hospital-physician vertical integration on spending and utilization of physician-administered drugs for hematology-oncology, ophthalmology, and rheumatology. Using a 100% sample of Medicare fee-for-service medical claims from 2013 to 2017, we find that vertical integration shifts treatments away from physician offices and toward hospital outpatient departments. These shifts are accompanied by increases in physician-administered drug administration spending per procedure for all three specialties. Spending on Part B drugs also increases for hematologist-oncologists. At the same time, physician treatment intensity, as measured by the number of beneficiaries who receive drug infusions/injections and the number of drug infusions, decreases across all three specialties. These results suggest that the incentives of the Medicare reimbursement system, particularly site-of-care payment differentials and outpatient drug reimbursement rates, interact with vertical integration to lead to higher overall spending. Policies and merger guidelines should attempt to restrain spending increases attributed to vertical integration.