Effects of vertical integration on healthcare expenditure, patient outcomes and competition between healthcare providers

• Applicant: Professorin Dr. Biliana Yontcheva
• Subject Area: Economic Policy, Applied Economics
• Term: since 2023
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 521233476

The goal of the present proposal is to evaluate the potential for insurer-provider integration to improve healthcare efficiency in the context of a universal healthcare system with limited price mechanisms. It investigates how common ownership of insurance companies and physicians affects patient-level costs and outcomes, as well as competition between specialists. In doing so, it aims to contribute to the current policy debate regarding the welfare impact of vertical integration on healthcare markets. The proposed empirical analysis relies on a unique panel dataset consisting of all health insurance claims filed in the Slovak Republic between 2013 and 2020. The available transaction-level information allows us to observe patient health outcomes and spending, as well as physician referral behavior over a considerable period of time, which is instrumental in isolating the causal effect of vertical integration. The first part of the project is concerned with evaluating the role of vertical integration in fostering efficient healthcare provision. It evaluates whether patients who visit vertically-integrated practitioners incur lower costs conditional on their health status than patients who are not directly influenced by vertical integration. It investigates the extent to which cost reductions are achieved through changes in the utilization of healthcare at the extensive margin (through a decrease in the volume of physician visits) or at the intensive margin (through a reduction in the costs per visit). The detailed referral data allows us to analyze the substitution patterns in healthcare utilization across different tiers of the system (primary, secondary and tertiary care). The second part of the project shifts its focus to the competitive effects of vertical integration. In particular, it evaluates how physician referral behavior is influenced by integration. It seeks to measure how characteristics such as distance, quality and price influence the joint decision of gatekeeper general practitioners and patients on which provider to visit in order to fulfill a referral, and whether common ownership relationships between providers affect patient flows. We expect that patients visiting integrated general practitioners are less sensitive to distance and quality and more sensitive to cost. This behavior would likely indicate that integrated providers account for insurer interests in the referral process. The results from this analysis will contribute to the ongoing academic and policy debate regarding the role of vertical integration in fostering efficiency, as well as building market power and potentially foreclosing competitors from access to patients.

• DFG Programme: Research Grants
• International Connection: Slovakia
• Cooperation Partner: Jakub Cerveny, Ph.D.