Integrated Delivery Network

An integrated delivery network (IDN) is a cohesive regional ecosystem of healthcare providers, facilities, and services organized to coordinate care, improve outcomes, and increase efficiencies through population health management and shared protocols. The major components of an IDN include hospitals, physician groups and outpatient facilities. These are typically owned by a single parent organization to ensure alignment and integration.

The guiding business model and philosophical goal of the IDN is to serve as a self-contained healthcare ecosystem, with the ability to contain the entirety of the patient experience to coordinate care and manage population health. Well-known and highly advanced examples of IDNs include Kaiser Permanente, UPMC, Mayo Clinic, Geisinger Health System, and Intermountain Healthcare.

Five Criteria

Debate continues over which healthcare organizations qualify as integrated delivery networks. Some analysts contend a health system must include a health insurance component, or meet a threshold of patient volume or market share, to qualify. A broader definition could include any collection of hospitals and/or providers owned by a single-entity within a geographic region.

Five factors that can be used to assess the advancement level of a particular IDN include provider alignment, continuum of care, regional presence clinical integration, and reimbursement. These five factors are based on the entity’s ability to serve as a self-contained healthcare ecosystem.

Provider Alignment

Provider alignment can be considered the DNA of an IDN. The stronger the alignment and integration, the greater the IDN’s influence and control over provider behavior and, ultimately, patient outcomes. For example, more advanced IDNs gravitate toward standardized clinical protocols and drug formularies, while less advanced IDNs possess a laissez-faire attitude toward physician control.

For-profit systems and prestigious academic medical centers tend to be more hands-off regarding physician controls, while large regional nonprofits are generally more aggressive.

Continuum of Care

An IDN’s ability to serve patients at all care levels from primary and specialty to post-acute defines an IDN’s continuum of care. Many advanced IDNs provide quaternary care, such as organ transplants and Level I trauma care, so that patients requiring complex procedures do not have to seek care outside the system. A notable exception is California-based Kaiser Permanente, which outsources expensive, high-acuity procedures and focuses on lower-cost preventive care instead.

Regional Presence

Physical presence plays a major role in IDN control. IDNs with pervasive consumer touchpoints (such as physician offices and retail clinics) within a cohesive geography can garner a critical mass of patient volume/encounters and contain the patient experience for a large population.

Dominant IDNs within a geography (such as Banner Health in southern Arizona or Atrium Health in Charlotte, NC) have considerable leverage over negotiations with insurers and the potential to start their own insurance divisions.

Clinical Integration

Clinical integration refers to the ability of an IDN to not only share clinical information over a unified electronic health record but also to monitor and influence patient outcomes and physician behavior. Advanced IDNs, such as Vanderbilt Health in Nashville and UPMC in Pittsburgh, use "big data" capabilities to anticipate patient behavior and encourage both preventive and post-discharge behavior, including medication and therapy adherence.

IDNs with fragmented care continuums or smaller footprints may pursue partnerships with other IDNs to form self-contained, regional healthcare networks that can better compete with more advanced IDNs. These networks, which rely heavily on clinical integration to influence patient outcomes, often become narrow networks for major insurers looking to offer consumers a low-cost plan. For example, Vanderbilt Health, an advanced IDN with a robust care continuum but a comparatively small regional presence, operates a 55-hospital network that serves as the backbone for an Aetna Whole Health accountable care product.

Observers note the most successful medical staffs share the IDN’s strategic goals and objectives; physicians need not be employed to be integrated.

Reimbursement

Reimbursement refers to the ability or willingness of an IDN to use financial incentives, such as risk-based arrangements, to influence physician and patient behavior.

An IDN that owns a commercial health plan has incentive to keep overall healthcare costs down to induce lower premiums and attract a sizeable commercial population.

IDNs without major insurance divisions may engage with insurers and employer groups on risk-based contracting, which links reimbursements to patient outcomes. In these cases, the IDN must deliver on promised thresholds of cost and quality to avoid financial penalties. An IDN’s participation in federal, risk-based payment initiatives like bundled payments and the Next Generation ACO program may foreshadow eventual commercial endeavors.

Types of Integrated Delivery Networks

Integrated Payer/Provider Networks

Integrated payer/provider networks own and operate their own health plans with significant commercial enrollment. Ideally, IDNs with their own major health plans keep their insurance premiums down by improving operational efficiency, standardizing practices, and avoiding unnecessary procedures.

Kaiser Permanente in California is widely considered the quintessential fully integrated system, with 39 hospitals across eight states and more than 12.2 million health plan members as of March 2018. Other examples of integrated provider/payer systems include UPMC Health, Baylor Scott & White in Texas, Intermountain Healthcare in Utah, and Geisinger Health in Pennsylvania.

While some safety-net hospitals like Parkland Health in Dallas and NYC Health+Hospitals have large Medicaid health plans, these enterprises are generally an extension of the IDN’s social mission and an effort to ensure reimbursement for care provided to low-income patients.

National/Regional Nonprofits

Large nonprofit IDNs build significant market share regionally or nationally through hospital construction and/or acquisitions and employ a large base of physicians, often complemented by a clinically integrated network that engages with independent physicians.

These IDNs have been at the forefront of linking their care sites through electronic medical records that facilitate improved care coordination and population health management. Large nonprofits generally place greater emphasis on provider control and value-based care engagement than prestigious academic medical centers or national for-profits.

Many large nonprofits explored health plan ownership at the launch of the [[Patient Protection and Affordable Care Act’s Health Insurance Exchange (HIX) in 2013, but unfixed regulatory flaws of HIX reimbursement kept them from entering the fray. Northwell Health in New York designed its CareConnect plan for the HIX but shut the insurance division down at the end of 2017 after owing the federal government risk-adjustment penalties equal to nearly half of all collected premium revenues.

Some large nonprofits have engaged with traditional insurers on joint-venture health plans. Aetna has been particularly active on this front, launching joint venture plans with Inova Health System in Northern Virginia, Texas Health Resources in North Texas, Banner Health in Arizona, and Sutter Health in northern California.

National For-Profits

National for-profit, publicly held hospital chains like HCA, Community Health Systems, and Tenet Health often operate more traditionally than nonprofits. They are less likely to pursue value- and risk-based initiatives and more focused on increasing fee-for-service reimbursements via expanded access to costly specialty care. These systems, especially HCA, tend to have smaller employed physician groups and, accordingly, looser physician control.

Academic Medical Centers

Academic medical centers, particularly the more prestigious ones like Stanford University Medical Center and Johns Hopkins School of Medicine, generally are more focused on research and quaternary care than primary or preventive care. These institutions place enormous value on recruiting high-quality physicians, who, because of their prominent positions, may be less receptive to centralized bureaucratic controls. Some academic medical center IDNs, like University of Pennsylvania Health System, have organized their physician groups into separate faculty and community practices.

Staff Model

Staff model IDNs employ their entire medical staff directly. Some, like Cleveland Clinic, Mayo Clinic, and Kaiser Permanente bucked the trend of fee-for-service long before the prevailing shift to value-based care. Over the years, staff model IDNs have become more popular. These IDNs drive patient outcomes by tying physician pay to factors like individual or group performance, rather than productivity. For example, Cleveland Clinic gives physicians a one-year renewable contract contingent on annual performance reviews.

Because universal data sharing plays an integral role in population health management, IDNs that use a staff model also tend to have more sophisticated electronic health record systems. They also serve as attractive payer partners and participants in risk-based initiatives. For example, the Cleveland Clinic in 2018 began participating in a three-year, MSSP ACO Track 1+ contract that penalizes the IDN with a 30 percent loss-sharing rate if the ACO fails to meet cost thresholds for 105,000 Medicare beneficiaries.

History

Henry J. Kaiser

Texas’ Baylor Scott and White and California’s Kaiser Permanente serve as the nation’s prototypical IDNs, institutions whose focus on integrated care delivery date back to the Great Depression with Baylor’s prepaid hospital insurance plan, the first in the nation. Kaiser Permanente was conceived in the 1940s during a national health insurance debate sparked by the Roosevelt and Truman administrations. Industrialist and entrepreneur Henry J. Kaiser, who was tasked with providing health care to thousands of workers involved in his shipbuilding operations during World War II, envisioned a national health plan based on an integrated medical group structure. Kaiser laid the groundwork for many instrumental health care acts. The realization of KP’s fully integrated model has been a decades-long development.

Rise of For-Profits

After the passage of Medicare and Medicaid in 1965, more Americans had access to health insurance, attracting the attention of for-profit hospital operators. National Medical Enterprises (now Tenet Healthcare) was founded in Los Angeles in 1967. Hospital Corporation of America (HCA), the largest hospital chain in the nation, was founded in Nashville, Tennessee in 1968 and grew rapidly during the 1970s and 1980s, owning more than 250 hospitals at its height. Former HCA executives founded Community Health Systems in a suburb of Nashville in 1985.

The growth of for-profit hospital chains through the 1980s solidified the adversarial negotiating relationships between providers and health insurers. A primary motivation for the growth of these for-profit chains was to gain regional clout as leverage against insurers during reimbursement negotiations. Larger health systems could threaten to leave an insurer’s provider network if higher fee-for-service reimbursements were not tendered.

1980s-90s: HMO Rise & Fall

The signing of the Health Maintenance Organization Act of 1973 helped spur the growth of HMOs through the 1980s. HMOs generally relied on “gatekeeper” primary care providers directing referrals to a narrow network of contracted providers. HMO enrollment grew from 3 million in 1970 to more than 80 million in 1999, although the late 1980s saw a “bust” in the model as customers backlashed at the perceived constrictions of HMOs. Employers began moving away from HMOs and toward broader-network PPOs through the early 2000s, with higher healthcare costs absorbed by employers and contributing to a stagnation of take-home wages by employees.

The growth of the narrow-network HMO model encouraged large regional health systems to start their own HMO plans since these organizations could essentially serve as the provider network. Intermountain Health Care of Utah, for example, formed its own health insurance company in 1983, which was renamed SelectHealth in 2006. Presbyterian Healthcare Services of New Mexico traces its insurance division back to the 1985 founding of the HMO Health Plus of New Mexico.

UPMC of Pittsburgh launched its Insurance Services division in 1998, largely in response to Highmark (the largest insurer in Western Pennsylvania) creating a narrow network product, Community Blue, that largely excluded UPMC hospitals and providers. At the same time, UPMC became independent from the University of Pittsburgh and began consolidating its physician practices under a unified management with the hospitals.

2000s–Present: ACO/Clinical Integration

In 2011, the United States Department of Health and Human Services (HHS) released a much-anticipated final rule as part of the Patient Protection and Affordable Care Act detailing, among other things, the intent of the Medicare Shared Savings Program to incentivize higher-value care through Accountable Care Organizations. In the name of efficiency, hospitals and physicians banded together to experiment with this new kind of top-down payment reform. The shared savings potential of ACOs encouraged both the development of new healthcare models like clinically integrated networks and the evolution of existing IDNs toward goals of higher provider integration and patient coordination. Other initiatives led by the Centers for Medicare and Medicaid Services, like bundled payments, also highlighted the financial importance of tighter physician controls and higher clinical integration capabilities.

Premium Transparency on the Health Insurance Exchange

The launch of the health insurance marketplace in 2013 gave consumers for the first time a direct cost comparison of narrow and broad network options. Many IDNs recognized the potential to gain patient volume and market share clout by signing narrow network agreements with payers eager to offer cost-conscious consumers affordable plans. In Nashville, for example, major player BlueCross BlueShield of Tennessee designed a narrow network plan with Ascension-owned, nonprofit IDN Saint Thomas Health using Saint Thomas’ clinically integrated network and population health company, MissionPoint Health Partners. The plan, which has since been dismantled, was available exclusively on the exchange and cost significantly less than Blue’s broadest provider network.

Impact/Influence

The influx of costly new patients spurred by the Affordable Care Act’s individual mandate and the transition to a value-based reimbursement environment under the Medicare Access and CHIP Reauthorization Act of 2015 has prompted heavy IDN consolidation to improve cost control and clout with payers. As a result, many markets are coalescing into hyper-competitive ecosystems dominated by one, two or three major IDNs. The nation’s largest markets like New York City, Los Angeles, and Chicago—each with more than 30 health systems—are still largely fragmented, though some dominant players are beginning to emerge amid increased merger and acquisition activity.

Two IDN markets

Two-IDN markets often contain IDNs who have built significant market share and patient loyalty through numerous patient access points, a robust suite of services, demonstrated dedication to population health management through clinical integration and/or value-based care. Often, these IDNs will combine to control the strong majority of a market’s patient volume.

Adventist Health’s Florida Hospital and Orlando Health hold more than 80 percent of the market share in Orlando and are investing millions of dollars in new inpatient facilities and freestanding emergency rooms. Florida Hospital, one of the most clinically integrated health systems in the state, offers its own health plan and is quickly evolving into a self-contained healthcare ecosystem.

Pittsburgh’s two top health systems UPMC Health System and Highmark hold nearly 70 percent market share, with the remaining 30 percent sprinkled between smaller facilities. UPMC is a quintessential IDN, possessing its own insurance arm, and it competes fiercely with Highmark. Highmark is one of the few major insurers in the nation that has acquired its own network of hospitals and physicians. The rivalry between UPMC and Highmark has essentially created two mutually exclusive healthcare ecosystems within Pittsburgh.

Cleveland is another example of a two-IDN market dominated by Cleveland Clinic and University Hospitals of Cleveland. Cleveland Clinic is well-regarded as one of the nation’s elite medical institutions and is often seen as a replicable model for population health management and care integration. It is an advanced IDN, although it long lacked the integrated payer component of more advanced institutions. That changed in 2018 when Cleveland Clinic launched a co-branded individual, on-exchange health insurance plan in cooperation with insurance startup Oscar Health. Together, Cleveland Clinic and University Hospitals control 70 percent of the market share.

Three IDN Markets

Nashville, Albuquerque and St. Louis typify the three-IDN market, markets that usually contain a healthy mix of nonprofit, for-profit and academic medical centers. Competition breeds innovation and a fleshing out of services across the three systems to compete for commercially insured patients.

Nashville is dominated by for-profit HCA Healthcare’s TriStar Health, nonprofit Ascension Health’s Saint Thomas Health, and the renowned Vanderbilt University Medical Center.

Albuquerque’s health system sector is tightly consolidated around nonprofit Presbyterian Healthcare Services, academic medical center UNM Health Sciences Center, and for-profit Lovelace Health System, which is a subsidiary of Nashville, Tennessee-based Ardent Health Services. Presbyterian dominates Albuquerque with more than 40 percent market share, thanks in part to its large employed physician group and popular health plan.

St. Louis’s health system sector is led by three nonprofits: BJC Healthcare, SSM Health and Mercy, which together hold 85 percent of the market share. These IDNs are still in the early stages of exploring clinical integration.

Single IDN Markets

Single-IDN markets like Charlotte, Salt Lake City, and Phoenix have one distinct market leader whose numerous hospitals and outpatient access points facilitate new patient capture and retention. These markets are also usually highly receptive to innovation, since the dominant IDN can experiment with new payment models or population health initiatives without risking leading status—and smaller competitors are obliged to follow to remain relevant. Non-dominant IDNs in these markets may be more receptive to M&A activity and value-based deals with payers to position themselves as a viable alternative to the dominant IDN. As healthcare shifts from volume to value, care efficiency more so than sheer size will dictate an IDN’s financial well being and future success.

Nonprofit Atrium Health (formerly known as Carolinas HealthCare System), Charlotte’s largest provider, has more than double the market share of its closest competitor nonprofit Novant Health, and uses a clinically integrated network developed in 2016 to manage patient health. Novant launched its own clinically integrated that same year and has invested millions in physical expansions to increase patient access, but the IDN still has a long way to go to close the market share gap. Novant maintains a commercial contract with Cigna and operates a bundled payments program with Blue Cross and Blue Shield of North Carolina for total knee replacements.

Nonprofit Intermountain Healthcare in Salt Lake City has three times the market share of its closest competitor, for-profit HCA Healthcare’s MountainStar Health. Intermountain Healthcare is one of the country’s most advanced and self-contained health systems with 22 hospitals, a pharmacy benefit manager, a group purchasing organization, and the market’s largest health plan, SelectHealth. Intermountain Healthcare is also a co-founder of the Excelera specialty pharmacy network. More than a third of Intermountain’s care is delivery through population-based payment systems, which has allowed the health system to cut costs without weakening operational margins.

Nonprofit Banner Health takes the lead in Phoenix, distantly followed by nonprofit Dignity Health. Banner Health has engaged in numerous expansion and renovation projects over the years, in addition to a 2015 merger with Tucson-based University of Arizona Health Network, and in 2017 the IDN inked a joint venture with Aetna to offer employer-sponsored HMO plans. Banner is an active participant in risk-based arrangements, with the IDN managing nearly half a million lives through direct employer contracts and value-based contracts. Through Dignity Health’s Arizona Care Network, Phoenix’s largest clinically integrated network and a joint-venture with Tenet Healthcare’s Abrazo Community Health Network, Dignity has built a strong platform from which to challenge Banner Health’s market supremacy.

Controversies & Criticisms

Rampant consolidation among the nation’s IDNs has ushered in critics who say these IDNs, despite incorporating cost-saving measures into operations, may actually be trending the cost curve upward. An open-ended interview of health insurers regarding Partners HealthCare’s proposed acquisition of the Care New England Health System, for example, exposed the trepidation insurers have regarding IDN leverage over payers. Partners essentially calls the shots in Massachusetts and can threaten leaving an insurer’s network entirely if that insurer does not agree to Partners’ reimbursements. Payers, in turn, may tack higher premiums onto patients’ plans to ensure IDN participation in the provider network.

Acquisition of medical groups in pursuit of integrated delivery network status has also raised flags, with critics saying physician/provider consolidation leads to higher patient expenditures, especially from higher utilization of hospital-based ambulatory services rather than independent facilities. As one example, between 2009 and 2012, hospital-owned physician organizations in California noted an increase in expenditures for commercial HMO enrollees as compared to physician-owned organizations.

Proponents of IDN development and associated health system mergers say mergers can provide substantial benefits including increased economies of scale, reduced capital costs, and clinical standardization along with reduced operating expenses and a statistically significant decline in revenue per patient admission.

References

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