American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Vertical Integration and Cream Skimming of Profitable Referrals: The Case of Hospital-Owned Skilled Nursing Facilities
American Economic Journal: Economic Policy
(pp. 1–33)
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 1 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.Citation
Cutler, David, Leemore Dafny, David C. Grabowski, Steven Lee, and Christopher Ody. 2026. "Vertical Integration and Cream Skimming of Profitable Referrals: The Case of Hospital-Owned Skilled Nursing Facilities." American Economic Journal: Economic Policy 18 (2): 1–33. DOI: 10.1257/pol.20200892Additional Materials
JEL Classification
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- I11 Analysis of Health Care Markets
- I13 Health Insurance, Public and Private
- J14 Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L22 Firm Organization and Market Structure