Can Vertically Integrated Health Systems Provide Greater Value: The Case of Hospitals Under the Comprehensive Care for Joint Replacement Model?

Objective

We aim to assess whether system providers perform better than nonsystem providers under an alternative payment model that incentivizes high‐quality, cost‐efficient care. We posit that the payment environment and the incentives it provides can affect the relative performance of vertically integrated health systems. To examine this potential influence, we compare system and nonsystem hospitals participating in Medicare's Comprehensive Care for Joint Replacement (CJR) model.

Data Sources

We used hospital cost and quality data from the Centers for Medicare & Medicaid Services linked to data from the Agency for Healthcare Research and Quality's Compendium of US Health Systems and hospital characteristics from secondary sources. The data include 706 hospitals in 67 metropolitan areas.

Study Design

We estimated regressions that compared system and nonsystem hospitals' 2017 cost and quality performance providing lower joint replacements among hospitals required to participate in CJR.

Principal Findings

Among CJR hospitals, system hospitals that provided comprehensive services in their local market had 5.8 percent ($1612) lower episode costs (P = .01) than nonsystem hospitals. System hospitals that did not provide such services had 3.5 percent ($967) lower episode costs (P = .14). Quality differences between system hospitals and nonsystem hospitals were mostly small and statistically insignificant.

Conclusions

When operating under alternative payment model incentives, vertical integration may enable hospitals to lower costs with similar quality scores.