Horizontal and Vertical Integration-Diversification in Rural Hospitals: A National Study of Strategic Activity, 1983-1988 zy Stephen S. Mick, PhD, Laura L. Morlock, PhD, David Sulkever, PhD, Gregory de Lissovoy, PhD, Faye E. Malitz, MAS, Christopher G. Wise, MHSA, and Alison S. Jones, PhD zyxwvu ABSTRACT This study examines both the magnitude of and factors influencing the adoption of 13 horizontal and vertical integration and diversification strategies in a national sample of 797 US. rural hospitals during the period 1983-1988. Using organization theory, hypotheses were posed relating environmental and market factors, geographic location, and hospital characteris- tics to the adoption of horizontal and vertical integration and diversification. Results indicate that only one of 13 strategies was adopted by more than 50 percent of all rural hospitals during the study period, and that most of the directional hypotheses were not confirmed using Cox’s proportional hazards models. In particular, environmental and market factors were unrelated to the strategies studied. Issues of methodology and theory are discussed; however, during an historically turbulent period, both relatively zyxwvu low levels of rural hospital strategic activities and lack of predictive power of the theory suggest caution in relying heavily on a policy for rural hospital survival that is dependent on individual market-oriented strategic behavior. n view of the well-publicized difficulties of US. rural hospitals (Congressional Budget Office [CBOI, 1991; Ermann, 1990; Hart, Amundson, zyxwvutsr & Rosenblatt, 1990; Merlis, 1989; I Moscovice, 1989; Office of Technology Assess- ment [OTA], 1990), widespread opinion exists that strategic activity, particularly horizontal and vertical integration, on the part of rural hospitals may im- prove both their financial performance and their chances of survival (Buada, Pomeranz, & Rosenberg, 1985; James Bell Associates, 1991; Weiss, Phillips, & Schuman, 1986).Indeed, great hope has been placed in individual rural hospital adoption of these strate- h,lick, Morlock, Sulkever, de Lissouoy, Malitz, Wise, and /ones gies to reverse declining performance, and, in this vein, the professional and trade literature contains literally hundreds of articles promoting one kind of strategic remedy or another (Mick & Morlock, 1990). Yet, the extent to which rural hospitals have heeded this advice and what factors are associated with rural ~____ ~~~~~ The research for this paper was funded by grant no. ROI-HS 05998-02, Agency for Health Care Policy and Research, Department of Health and Human Services. An earlier version of this paper was presented at the annual meeting of the National Rural Health Association, May 7,1992, in Washington, DC. For further information, contact: Stephen S. Mick, PhD, Department of Health Services Management and Policy, School of Public Health, University of Michigan, 1420 Washington Heights, Ann Arbor, MI 48109. 99 Spring 1993