Physician employment is a current and future reality. Hospitals and health systems understandably seek secured referrals, negotiating power with payers, and the flexibility to succeed in an uncertain future payment environment. Employment, as an integration strategy, makes pay-for-performance, bundled, and capitated payments easier by eliminating much of the legal complications present when separate legal entities parse payments. Similarly, information systems that allow seamless movement of patient data across all points of service are far less legally complicated and less costly to implement when the enterprise interfaces with a limited number of employed physician offices’ electronic records.

Physicians are also demonstrating their preference for employment. But the pressure to employ physicians is resulting in the same mistakes observed in the ‘90s: acquisitions above fair market value, lack of clear production expectations, negotiating each hire as a separate agreement, misguided expectations of financial results, and lack of alignment with the organization’s mission. This article describes current challenges for physician employment, and provides some suggestions for successful employed physician relationships.