Vertical Integration of Hospitals: Patient Steering or Integrated Delivery of Care?
When a tertiary care hospital acquires a non-tertiary care hospital, referrals from the target to the acquirer sometimes increase. This paper studies whether the increase is based on an effort to boost referrals to low quality hospitals (patient steering) or instead reflects quality improvement (integrated delivery of care). I develop a model in which reputation influences patients' preferences toward hospitals, so that a target hospital attaches greater importance to its patients' satisfaction when it faces greater competitive pressure. Based on this model, I estimate the referral choice for cardiac surgery. The results suggest that mergers of monopolistic targets and low or average quality acquires lead to patient steering, while those of competitive targets and distinguished acquirers seem to be motivated by integrated delivery of care.