Integration and Task Allocation: Evidence from Patient Care
We are grateful to Iwan Barankay, Avi Dor, Silke Forbes, Vit Henisz, Mireille Jacobson, Raffaella Sadun, Aly Shogan, Brian Silverman, Tim Simcoe, Pai-Ling Yin as well as participants at the 2010 Foundations of Business Strategy Conference at Washington University, the Third Biennial Conference of the American Society of Health Economists at Cornell University, the 2010 NYU Economics of Strategy Conference, the 2010 Institutions and Innovation Conference at Harvard Business School, the 2011 DRUID conference, the 2011 SRF workshop in Annapolis, the Bowman Seminar at Wharton, the 2011 Academy of Management conference, and the International Health Economics Association 8th World Congress in Toronto for helpful comments and suggestions. Mike Punzalan and Jianing Yang provided excellent research assistance. This work is supported by NIH/NHLBI grant # R01 HL088586-01.
Using the universe of patient transitions from inpatient hospital care to skilled nursing facilities and home health care in 2005, we show how integration eliminates task misallocation problems between organizations. We find that vertical integration allows hospitals to shift patient recovery tasks downstream to lower-cost organizations by discharging patients earlier (and in poorer health) and increasing post-hospitalization service intensity. Although integration facilitates a shift in the allocation of tasks and resources, health outcomes either improved or were unaffected by integration on average. The evidence suggests that integration solves coordination problems that arise in market exchange through improvements in the allocation of tasks across care settings.