Hospital consolidation: Making primary care more integrated — and more expensive

Every few months, another health system acquires a hospital, another physician group enters a "strategic combination," and another news release promises access, coordination and innovation. Nothing reassures a community quite like being told that fewer local decisions will somehow produce more local care. After three decades of building and defending independent primary care, I have learned to read those announcements the way I read a prior-authorization denial: with the expectation that the explanation will be less satisfying than the outcome.

The concern is not that every hospital is bad or every acquisition harmful. It is that our payment system makes owning primary care more valuable than supporting it. Independent primary care is not dead, but the trend should worry anyone who values physicians outside a health system's balance sheet.

The numbers do not flatter us

The decline of physician independence is no longer debatable. The American Medical Association reports the share of physicians in private practice fell from 60.1% in 2012 to 42.2% in 2024. A national analysis in JAMA Health Forum found hospital affiliation among primary care physicians rose from 25.2% in 2009 to 47.9% in 2022. In plain English, nearly half of primary care was hospital-affiliated before most of us finished arguing about whether it would happen. By the start of 2026, the Physicians Advocacy Institute found 82% of practicing doctors were employed by hospitals or corporate entities.

This did not occur because physicians suddenly stopped valuing autonomy. Independence simply became harder to finance. A small practice must support electronic health records (EHRs), cybersecurity, staffing, prior authorization, quality reporting, contracting and analytics, while payment for cognitive care stays flat and labor costs do not. Independent physicians are expected to be clinicians, employers, compliance officers, information technology departments, contracting specialists, data analysts and, when necessary, amateur actuaries.

A large system spreads those costs across an enterprise. An independent practice absorbs them, outsources them, or shares them through a network. Or doctors sell their practices because they cannot afford the infrastructure.

Why do hospitals want primary care?

Hospitals do not acquire primary care because annual wellness visits are a hidden gold mine. They acquire the navigation system.

Consider a community group with six physicians and several advanced practice clinicians. On its own, it produces modest margins from evaluation and management services. To a health system, it represents thousands of patients who will eventually need imaging, laboratory services, specialty consultations, procedures or hospitalization. Once the practice is system-owned, its value is no longer limited to office visits. There will be downstream referrals, attributed lives, leverage negotiations, risk-adjustment opportunities and a stronger position in value-based contracts.

Under consolidation, primary care can start to resemble the entrance ramp to a very expensive highway. This does not mean employed physicians are ordered to refer internally. Many practice excellent medicine, and many systems invest seriously in integration. But no one has to tell a physician where to refer. It is usually enough to make one path easier to find, schedule and defend at the next budget meeting.

The payment system rewards ownership

The strongest accelerant of vertical consolidation is the gap between what payers pay hospital-owned facilities and independent offices. Traditional Medicare can pay more for the same service in a hospital outpatient department than in a freestanding office because billing may include a facility component in addition to the clinician's fee. An acquired office can remain in the same building with the same clinicians, equipment and patients, although the ownership and billing structure change. The result is a higher total payment and higher patient cost sharing without a meaningful change in the encounter.

Imagine two practices across the street from each other. One stays independent. The other is purchased and redesignated as part of a hospital outpatient network. Same service, same complexity, different price. The service did not become more clinically complex. The tax identification number did. In American health care, ownership is apparently a billable clinical finding.

Commercial insurers reinforce the disparity. Large systems command higher rates through networks that health plans believe they cannot exclude. The independent physician may deliver comparable care more efficiently and be paid less for the achievement.

This is why site-neutral payment matters. If a service can be delivered safely in a physician’s office, reimbursement should not rise because a hospital bought the office. Hospitals should be paid appropriately for high-acuity care and genuine standby infrastructure, but routine outpatient services should not carry an ownership premium. Site-neutral payment remains controversial largely because some organizations have grown attached to the idea that a facility fee is a care-coordination strategy.

When ownership itself creates revenue, acquisition stops being a clinical decision and becomes a business plan.

Bigger does not automatically mean better

Consolidation can deliver real benefits. Some practices need capital, technology or relief from administrative burden. Some rural organizations need a larger partner to survive. A well-run system can supply a shared EHR, care management and the balance sheet required to manage downside risk. For physicians who no longer want to run a business, employment offers predictable income and fewer 10 p.m. charting sessions.

Those benefits should not be dismissed. Neither should they be assumed.

Research generally links provider consolidation to higher prices, while evidence of consistent quality improvement remains mixed. The pattern is familiar. A system promises integration and investment. Later, financial pressure produces centralized scheduling, reduced local authority and the closure of facilities newly discovered to be "duplicative."

Consider a small community hospital that joins a regional system after assurances that obstetrics, pediatrics and emergency services will be preserved. The system stabilizes it, then moves selected services to a hub 40 miles away in the name of efficiency. The hospital remains open. The community's access does not.

Centralization is called efficiency until the patient is the one doing the driving. Promises to preserve local services are usually written in ink; the definitions of "local" and "services" tend to be written in pencil.

Under siege, not extinct

Consolidation is hollowing out independence fastest where practices have the least market power: rural communities, small groups, and practices without a differentiated strategy. The most vulnerable practices rely entirely on fee-for-service while competing against a hospital-owned group that negotiates higher rates, bills facility fees and spreads overhead across an enterprise.

Survivors will stop competing on the hospital's terms. Physician-led accountable care organizations, clinically integrated networks, independent practice associations and shared-service organizations can deliver scale without requiring physicians to surrender ownership.

Full-risk and capitated models are the stronger alternative when practices have adequate data, reserves, actuarial support and stop-loss protection. Primary care creates value by preventing avoidable utilization and managing chronic disease. Value-based care is supposed to reward exactly that, which becomes conceptually interesting when the largest organization in town earns its living providing the utilization we are trying to prevent.

A physician-led organization managing the total cost of care does not need to own a hospital to win. Its incentives align more closely with patients and purchasers precisely because it profits when unnecessary hospitalization falls.

What needs to change

First, move toward site-neutral payment for services that can safely be delivered in lower-cost settings. Payment should reflect the service, the patient's complexity, and the resources required, not the owner's tax identification number.

Second, competition policy must look past megamergers. Serial acquisitions of small practices each fall below federal reporting thresholds and collectively remake a local market. Regulators should examine cumulative acquisitions, vertical integration, restrictive contracting and cross-market deals.

Third, pay appropriately for what primary care actually does. Longitudinal care, diagnostic uncertainty, transitions, medication management, prevention and coordination are not side activities. They are work that requires a better valuation.

Fourth, physician-led groups need direct access to capital, data and contracts. No practice should have to sell itself to obtain analytics.

Finally, patients and employers deserve transparency about when an office has become hospital-owned, whether facility fees apply and how prices compare. Competition cannot function when ownership and pricing are hidden.

The choice ahead

Hospital consolidation will not ruin independent primary care on its own. The more serious threat is a policy environment that makes ownership more valuable than care delivery, size more valuable than efficiency, and referral capture more valuable than coordination. The problem is not that hospitals own primary care. The problem is that the payment system keeps sending them an engraved invitation to do so. If the business case for acquisition is stronger than that for independent care, the policy failure is not subtle.

The future should not be a choice between the isolated solo practice and employment by a dominant system. We need a durable middle ground: independent, physician-led practices connected through accountable networks, equipped for population health and shielded from payment rules that reward acquisition over value.

If policy makers fail to build it, independent primary care will not vanish overnight. It will simply become a little less available each year, until patients, employers and communities notice they have lost one of the few parts of the health care system structurally designed to keep them out of the hospital rather than feed them into it.

Robert Resnik, M.D., MBA, is a board-certified internal medicine physician practicing in Cary, North Carolina. He earned his medical degree from Eastern Virginia Medical School and completed his residency at East Carolina University. He also holds an MBA from Duke University.