Most Americans enter the health care system through their local physician's office, which is the setting for 84% of primary care visits. Historically, physicians have operated in what the American Medical Association and others have called a "cottage industry" of small or solo practices around the country. Even now, the majority of the approximately 972,376 doctors and residents in the United States work mainly from smaller, office-based practices. This decentralized network has served to deliver medical services to most Americans, but it has also been cited by analysts as a reason that the health care market is inefficient, with patients seeing duplicate providers who may prescribe overlapping treatments or deliver widely divergent, uncoordinated care. During the past several years, however, physician practices appear to be changing, as a number of doctors merge their offices into larger practices; sell their practices to hospitals, insurance companies, and physician management firms; contract to provide exclusive services to providers such as hospitals; or go to work for larger providers as salaried employees. While there are no definitive statistics, a 2011 American Hospital Association (AHA) survey found the number of doctors on hospital payrolls had increased by 32% from 2000 to 2010, with the rate of increase accelerating after 2005. According to the AHA, about 20% of practicing physicians now work for hospitals. The Medical Group Management Association (MGMA), which represents larger medical practices and outpatient clinics, has noted an increase in the share of medical groups owned by U.S. hospitals, while other surveys have also found rising hospital employment of doctors, with some regional variations. For example, an American College of Cardiology survey found the share of physician-owned cardiology practices declined to 60% in 2012 from 73% in 2007, while the share of such practices owned by hospitals grew from 8% to an estimated 24%. The changes appear to be the result of a number of factors, including broad consolidation in the overall health care industry that has created dominant hospitals and insurers in many areas. In order to gain negotiating leverage with large providers and payers, a number of physicians have merged their practices into larger groups or entered into business arrangements with them. Lifestyle preferences are at play, with younger doctors more willing than their predecessors to work for an outside institution to secure a set schedule and salary; about half of doctors hired out of residencies or fellowships in 2010 took jobs at hospitals. Physicians may be having a harder time finding doctors to buy or join a small practice, as management becomes more complex and average compensation declines. At the same time, hospitals and insurers are eager to hire doctors, given forecasts of a pending physician shortage by the end of the decade (see " Physician Supply "). The shortfall is predicted to occur in the midst of rising demand for medical services by aging baby boomers and millions of Americans who could gain insurance coverage under the 2010 Patient Protection and Affordable Care Act (ACA, P.L. 111-148 as amended). According to some experts, financial incentives in the ACA may provide further incentives for consolidation and integration of services. For example, the health care law creates integrated delivery systems called Accountable Care Organizations (ACO) that contract with payers who agree to be responsible for the entire continuum of care provided to a group of patients. If the treatment costs less than set targets, and certain quality measures are met, the ACO and the payer share in the savings. Hundreds of physician practices, insurers, and hospitals have announced financial and clinical integration to quality as ACOs. The ongoing changes in practice organization—if they alter the way that physicians deliver care—could help determine whether the U.S. health care system expands access, improves quality of treatment, and addresses the growth of government and private health care spending, according to analysts. Though physician payments account for about 20% of medical spending, studies suggest that physicians direct as much as 90% of total health care spending through referrals, tests, hospital admissions, and other actions. Congress is playing dual roles regarding the consolidation. On the one hand, lawmakers designed the ACA in part to reduce health delivery fragmentation and help control government and private spending. In addition, Congress and federal regulators have been monitoring, and continue to monitor, the health care system for signs that mergers and acquisitions may be having negative effects on costs, competition, and consumer access such as distorting prices or creating conflicts of interest in provision of services. Analysts and lawmakers are aware that the health care sector went through a similar round of restructuring during the 1980s and 1990s, as physicians sold their practices and managed care insurance plans expanded. The changes ultimately prompted a consumer backlash, and many of the deals were dissolved. In contrast to the previous round of consolidation, where doctors were seen as gatekeepers for managed care plans that attempted to limit services, the ACA envisions "patient-centered" care where doctors and other providers are rewarded for necessary treatment that improves quality of outcomes. Still, it is not clear how the new round of changes ultimately will play out. This report provides background on factors contributing to changes in physician practice organization, including physician supply, lifestyle changes, and government incentives. Next it examines different types of integration, the legal intricacies of affiliation, and the possible implications for consumer and federal policy. Most U.S. physicians are MDs, or doctors of medicine, who have completed four years of medical school and a minimum of three years of residency, with specialists undergoing additional training. About 7% of the more than 972,376 physicians and residents are osteopaths, who have completed medical education and additional training in areas including the musculoskeletal system. The physician population is about one-third primary care physicians and two-thirds specialists, a distribution that some experts suggest is not optimal. A quarter of U.S. doctors are graduates of international medical schools. The ratio of physicians to the population varies across the country, with New England and the Middle Atlantic regions having the highest number of doctors per capita, and the West South Central and Mountain regions having the fewest. Rural areas are struggling to attract enough physicians. In the 1980s, after a congressional effort to fund an expansion of U.S. medical education, experts forecasted a possible surplus of doctors. More recently, however, analysts have predicted that the country faces a potential shortage, particularly in primary care. The federal Health Resources and Services Administration in 2006 predicted a shortfall of 55,000 to 150,000 physicians by 2020, while the nonprofit Association of American Medical Colleges (AAMC) in 2008 said there could be a dearth of 130,600 patient care physicians by 2025. Following up in 2012, the AAMC found that 33 states had documented current physician shortages or were anticipating shortages. Adding to concerns, nearly a third of physicians are age 55 or older and nearing retirement. In addition, studies indicate that doctors of both sexes and from varying backgrounds are working fewer hours each week, a change more pronounced among younger doctors. A 2010 study found a nearly 6% decrease in hours among nonresident physicians from 1996-1998 to 2006-2008. The reduction in hours was akin to a loss of 36,000 doctors, had the number of hours worked not changed. Some analysts have suggested that the combination of retirements and lifestyle changes will put a tremendous stress on the system and hasten the need for doctors to find more efficient ways to practice. The forecast supply shortage and changes in work patterns are already having impacts, according to analysts. For example, some hospitals have been having increasing difficulty finding physicians to take voluntary duty and have hired more full-time staff doctors, including hospitalists, who oversee patient care in hospitals, and emergency room physicians (see " Hospital Affiliation and Employment "). A number of hospitals are seeking to hire or affiliate with primary care physicians, to ensure supply, staff outpatient centers, gain access to referral networks, and form ACOs. A 2010 survey by the American Hospital Association found 80% of hospitals were looking to hire primary care physicians. Mitigating the projected physician shortage somewhat is the growing use of professionals who are not doctors but who have specialized training and can perform some basic functions of physicians, including nurse practitioners and physician assistants. In 2009, nearly half of all office-based physician practices included nurse practitioners, certified nurse midwives, or physician assistants. However, state laws vary in terms of the scope of services that nurse practitioners and physician assistants are allowed to provide. Nurse practitioners must complete graduate education beyond the bachelor's degree needed to become a registered nurse. They can work with physicians or separately in such areas as taking case histories, performing basic exams, ordering lab work and prescribing some medications, and providing health education and counseling. There are approximately 155,000 active U.S. nurse practitioners. Physician assistants complete at least two years of college courses in basic science and behavioral science before applying to one of the 170 accredited physician assistant programs. Most physician assistants have a bachelor's degree, another 27 months of specialized training, and 2,000 hours of clinical rotations. Physician assistants, once licensed by state boards, generally can take patient medical histories, examine patients, treat minor injuries, order and interpret laboratory tests, and make rounds in medical facilities. There are about 86,000 certified physician assistants in the United States. Historically, physicians have operated in small or solo practices, with a number of factors limiting integration with other health care providers. In states such as California, laws designed to bar the corporate practice of medicine complicated efforts at affiliation between physician practices and insurance companies or hospitals. Doctors and hospitals have been paid separately for services, minimizing the need for tight coordination, though physicians benefited from access to and affiliations with hospitals, including serving on voluntary staff or taking call. There has long been a debate about the efficiency of the decentralized physician practice structure. During the 1930s, for example, a health sector-created blue ribbon "Committee on the Costs of Medical Care" suggested improving health care by moving toward a more coordinated system centered on hospitals, including affiliation between doctors and hospitals.