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To investigate the effects of payor–provider integration on the operational performance of health service provision. The research explores whether integration governs agency problems and tilts the incentives of diverse actors toward more systematic outcomes.

A two stage multimethod case study of occupational health services. A qualitative stage aimed to understand the reasons, mechanisms, and outcomes of payor–provider integration. A quantitative stage evaluated the performance of the integrated hospital against fee-for-service partner hospitals with a sample of 2,726 patients.

Payor–provider integration mitigates agency problems on multiple levels of the service system by complementing formal governance mechanisms with informal mechanisms. Compared to partner hospitals, the integrated hospital yielded 9% lower the total costs of occupational injuries achieved primarily by emphasizing conservative care and faster recovery.

Focuses on occupational health services in Finland. Provides initial evidence of the effects of payor–provider integration on the operational performance.

Vertical integration may provide systematic outcomes but requires mindful implementation of multiple mechanisms. Rigorous change management initiative is advised.

For patients, the research shows payor–provider integration of health services can be implemented in a manner that it reduces care costs while not compromising care quality and customer satisfaction.

This study provides a rare longitudinal analysis of payor–provider integration in health-care operations management. The study adds to the knowledge of operational performance improvement of health services.