Physicia Networks and Their Implications for Competition in Health Care Markets

The physician market is being transformed in dramatic ways. One of the most notable areas of change has been tremendous growth in physician networks, such as independent practice associations (IPAs). As of August 1996, there were approximately 4,000 IPAs with an average of 300 physicians each, up from approximately 1,500 in 1990. Physician networks are made up of otherwise independent physicians that join together to market themselves collectively to health insurers, and in some cases, directly to employers. Normally, independent competitors are not allowed to set prices jointly. The key question here is whether these networks represent an efficient response to the changing structure of health care markets or strategic attempts to increase market power.