The Dynamics of Community Health Care Consolidation: Acquisition of Physician Practices

Policy Points: In order to develop effective policies on the consolidation of community health systems, policymakers must understand both the motivations and processes for consolidation. We found that physician practice consolidation is often a strategic response by providers to public and private cost containment efforts; therefore, it will be difficult to reverse using traditional policy options. Many current health care cost containment policies incentivize continued provider consolidation, which presents a direct challenge to health care reform models that rely on competition among providers to accomplish cost control and quality improvement.Context Health care delivery systems are becoming increasingly consolidated in urban areas of the United States. While this consolidation could increase efficiency and improve quality, it also could raise the cost of health care for payers. This article traces the consolidation trajectory in a single community, focusing on factors influencing recent acquisitions of physician practices by integrated delivery systems. Methods We used key informant interviews, supplemented by document analysis. Findings The acquisition of physician practices is a process that will be difficult to reverse in the current health care environment. Provider revenue uncertainty is a key factor driving consolidation, with public and private attempts to control health care costs contributing to that uncertainty. As these efforts will likely continue, and possibly intensify, community health care systems now are less consolidated than they will be in the future. Acquisitions of multispecialty and primary care practices by integrated delivery systems follow a common process, with relatively predictable issues relating to purchase agreements, employment contracts, and compensation. Acquisitions of single‐specialty practices are less common, with motivations for acquisitions likely to vary by specialty type, group size, and market structure. Total cost of care contracting could be an important catalyst for practice acquisitions in the future. Conclusions In the past, market and regulatory forces aimed at controlling costs have both encouraged and rewarded the consolidation of providers, with important new developments likely to create momentum for further consolidation, including acquisitions of physician practices.