The Role of Physician Integration in Alternative Payment Models: The Case of the Comprehensive Joint Replacement Program

U.S. health system reform simultaneously promotes alternative payment models (APMs) and integrated provider organizations, where integration is assumed to better enable providers to coordinate and manage the risks introduced by APMs. While the interaction of these two changes has implications for both APM design and regulation of provider integration, it is not well studied. In this paper, we offer empirical evidence on the role of horizontal and vertical integration of orthopedic surgeons in driving heterogeneity in the impact of the Comprehensive Joint Replacement (CJR) APM. Using a quasi-experimental generalized difference-in-differences approach, we find that, relative to similar control hospitals, CJR hospitals with fully horizontally and vertically integrated orthopedic surgeons receive a 5.83% increase in CMS payments to hospitals but do not differ in CJR quality measures. Further analysis shows that the increase in payments stems from changes in physicians’ clinical decision-making that reduce penalties (increase CMS payments) to hospitals for low-value care and reduces CMS payments to postacute care (PAC) providers. Consequently, these hospitals also receive greater CJR reward payments. Overall, our findings suggest that integrated providers are likely to perform better under APMs, providing novel insights for policymakers, payors, and healthcare providers as they design, implement, and evaluate value-based reforms.

This paper was accepted by Carri W. Chan, healthcare management.

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.02547.