An IPA is a legal entity organized and directed by physicians in private practice to negotiate contracts with insurance companies on their behalf. Participating physicians are usually paid on a capitated or modified fee-for-service basis and may also continue to care for patients not covered by the insurers with whom the IPA contracts. Perhaps the most significant function of an IPA is to exert influence on behalf of its members to counterbalance the leverage of health care insurers.

The advantages of an IPA are the functions it performs for medical practices. Using an administrative staff of its own, the IPA organizes the delivery of care. It negotiates contracts with insurance companies; assembles, credentials, and inspects member physicians, institutions and services; constructs authorization and referral processes; establishes primary care provider and specialist responsibilities; disburses payment to physicians; conducts utilization review and quality assurance; and ensures the fiscal integrity of the IPA itself.

Although they are highly variable in sophistication, IPAs are usually capable of assuming greater degrees of financial risks than individual physicians. They offer their members the advantage of strong physician leadership with the drive to develop progressively more mature organizations. IPAs wield far greater bargaining power than individual physicians or "networks," and they are usually able to undertake administrative functions that reduce health care costs.