Health Policy$ense

Do Integrated Delivery Systems Deliver on Costs and Quality?

A new study by LDI Senior Fellow Lawton Burns and colleagues challenges the conventional wisdom about the societal benefits and comparative advantages of integrated delivery networks (IDNs).  A literature review and detailed analysis of financial and quality indicators found “scant evidence” of improved quality, lower cost per case, or greater societal benefit.

Last month, Burns, James Joo-Jin Kim Professor of Health Care Management at Wharton,  presented these findings at a joint Federal Trade Commission (FTC) and Department of Justice (DOJ) workshop on health care competition. From the study’s abstract:

Looking at the benefits to society, the authors found that there is evidence that IDNs have raised physician costs, hospital prices and per capita medical care spending; looking at the benefits to the providers, the evidence also showed that greater investments in IDN development are associated with lower operating margins and return on capital. As part of this report, the authors conducted a new analysis of 15 of the largest IDNs in the country. While data on hospital performance at the IDN level are scant, the authors found no relationship between the degree of hospital market concentration and IDN operating profits, between the size of the IDN’s bed complement or its net collected revenues and operating profits, no difference in clinical quality or safety scores between the IDN’s flagship hospital and its major in-market competitor, higher costs of care in the IDN’s flagship hospital versus its in-market competitor, and higher costs of care when more of the flagship hospital’s revenues were at risk.

The study, commissioned by the National Academy of Social Insurance, defined IDNs as vertically integrated health services networks that include physicians, hospitals, post-acute services and/or health plans, or fully integrated provider systems inside a health plan (e.g. with no other source of income than premiums). Prominent examples include Geisinger and Henry Ford Health Systems.

Why have IDNs enjoyed a “halo effect” of perceived higher quality and efficiency from their IDN status?  One reason is their “revenue at risk” payment mechanisms through capitated arrangements, health plan revenue or two-sided ACO models. Conventional wisdom suggests that these risk arrangements create incentives to deliver higher value care. However, Burns and colleagues found no relationship between revenue at risk and the costs of care.

Comparing an IDN flagship hospital and its main in-market competitor on Medicare spending in last 2 years of life, the study found:

  • The IDN flagship hospital with no revenue at risk was 6.8% less expensive than its in-market competitor
  • The IDN flagship hospital with some revenue at risk was 20% more expensive than its in-market competitor
  • No apparent cost of care advantage conferred on IDN hospitals that operate their own health plan
  • No meaningful differences in readmissions, infection rates,  complication rates between the IDN flagship hospital and its in-market competitor
  • No meaningful differences in patient satisfaction scores or Leapfrog Group hospital safety ratings between IDN flagship hospital and its in-market competitor


The authors note the difficulty in obtaining transparent information about IDN financing and resource allocation, and recommend more detailed and routine disclosure of financial and structural practices, as well as a comprehensive, national all-payer claims database to compare rates paid to different kinds of providers for the same services.

Other authors of the report include Jeff Goldsmith, Wharton doctoral candidate Aditi Sen, and Trevor Goldmith. See the authors' commentary in Modern Healthcare here.