The impact of vertical integration on health care delivery and costs: Evidence from physician–pharmacy integration

Abstract

Vertical integration among health care providers is an increasingly common feature of U.S. health care. This study investigates the impact of vertical integration in the context of oncology practices launching in-house pharmacies dispensing high-cost oral cancer treatments using a stacked event study design. I find physician–pharmacy integration lowers point-of-sale drug prices paid by plans due to 1.0% lower prices at in-house pharmacies. I also find physician–pharmacy integration increases the number of patients filling new prescriptions by 6.2% and reduces time-to-fill for new prescriptions requiring prior authorization. These effects may arise because in-house pharmacies individually have limited bargaining power and because vertical integration decreases coordination costs, reflected by faster prior authorization.