Using the universe of patient transitions from inpatient hospital care to skilled nursing facilities and home health care in 2005, we show how integration eliminates task misallocation problems between organizations. We find that vertical integration allows hospitals to shift patient recovery tasks downstream to lower‐cost organizations by discharging patients earlier (and in poorer health) and increasing post‐hospitalization service intensity. Although integration facilitates a shift in the allocation of tasks and resources, health outcomes either improved or were unaffected by integration on average. The evidence suggests that integration solves coordination problems that arise in market exchange through improvements in the allocation of tasks across care settings.