In light of the many trends that have been building over the past decade and the current pressures on the health care system for reform, change is inevitable in the way medical and other health care services are delivered and financed. Regardless of the precise nature of those changes, increased cooperative effort between physicians and hospitals in providing health care at the community level will be critical in ensuring the future success of the health care system. PHOs represent one potential approach to increased health care integration at the local level which can offer significant advantages to patients, physicians, and hospitals. Although PHOs are not a panacea for the ills facing the U.S. health care system or for deteriorating physician-hospital relations, they can be a solid building block for a stronger health care system and for improved, cooperative relations between health care providers.