Effects of vertical integration on providers’ billing and practice patterns in ESI (2018-2022)

Vertical integration in healthcare has increased since 2012, with more physicians and allied providers moving from independent practice into employment by hospitals and health systems. While this shift may improve care coordination and efficiency, it also creates incentives for higher revenue generation through increased service intensity, referrals within health systems, and greater negotiating power with insurers. Prior evidence links higher levels of integration to increased healthcare prices and spending.

Analysis of employer-sponsored insurance claims from 2018–2022 shows that providers bill higher-intensity Evaluation and Management (E&M) visits after being acquired by health systems. The share of the most complex (Level 5) visits rose from 4.3% before acquisition to 7.1% after, as shown in the chart on page 3, alongside a decline in mid-level visits. This shift suggests changes in coding behavior rather than patient complexity, as similar patterns were not observed across the broader insured population.

There are also significant shifts in where patients receive follow-up diagnostic care. The charts on pages 4 and 5 show that laboratory tests conducted in non-facility settings dropped from 68% before acquisition to 35% after, indicating a move toward hospital-based services. Imaging services followed a similar but smaller trend, with facility-based imaging increasing from 29% to 42%. Because hospital settings often charge substantially higher prices—sometimes triple those of independent providers—these changes likely contribute to higher overall healthcare costs.

Facility fee billing for office visits remains relatively uncommon, with only a small increase after acquisition that appears consistent with broader trends rather than a direct result of integration. Overall, the observed changes in billing intensity and site of care point to reduced competition and higher spending following provider acquisition, though the analysis cannot definitively establish causation due to limitations such as the absence of a control group and potential pandemic-related effects.