The American Medical Association calls the trend toward physician employment by hospitals a “dramatic shift,” concluding that 3 in 10 physicians are currently a hospital employee.

There’s no reason to think a slowdown is in sight: The “future state” for independent clinicians is fraught with uncertainty:

  • Will reimbursement rates cover increased overhead costs for operating medical practices?
  • Will licensing and certification require more time and expense and limit scope of practice?
  • Will limitations on physician self-referral become more restrictive, truncating ownership opportunities and sources of passive income?
  • Will private insurers force physicians to assume risk for outcomes and costs? How will these added costs for managing risk be paid for and recaptured?  
  • Will public access to information about the performance of the practice put physicians at a disadvantage in accessing patients or getting paid at or above peer rates? 
  • How will new costs for information technology and data reporting be absorbed?
  • How will the impact of accountable care and value-based purchasing programs impact their practice in coming years?

Understandably, physicians are frustrated and fearful, especially those in midcareer anticipating a bumpy transition to the “new normal.” After all, their social pact in entering the profession guaranteed clinical autonomy, public trust and a handsome income. But this trifecta is in danger in the face of new market realities:


Old Rules

New Reality


An MD/DO, licensed and in good standing, is granted wide latitude to practice as he/she chooses.

Physicians will work in clinically integrated teams and share decision-making with both the team and patients. Individual autonomy is subordinated to team-based application of algorithms and best practices, and adherence is monitored.


Highly individualized:
An M.D. degree commands respect — a distinction that’s trusted above all professions.

As report cards become pervasive, and risks are born by clinically integrated teams of providers, affiliation with a branded entity known for quality and effective service delivery will augment and gradually replace individual recognition for all but a few specialties. Note: increasingly, physician branding will be based on regional and national affiliations.


Median physician income today is 4 to 20 times the average U.S. household income with limited impact of midlevel practitioners.

Median physician income will be 3 to 12 times the average household income, with substantial impact of midlevel practitioners.

Presuming local conditions and personal circumstances are such that a physician is inclined to consider employment, the hospital is among three major options physicians compare:

Employment Options




Security (especially if part of a large, single-specialty or multispecialty group that’s dominant in a market)

Compensation is production-based.

Primary care usually is compensated at a higher rate vs. independent practitioners (in a multispecialty setting).

Referral patterns in the group are standardized.

Infrastructure and management are accessible.

Higher overhead costs

Subordination of individual clinical autonomy to team-based care management




Income may be subsidized with risk-sharing arrangements.

Ability to transition career into administrative leadership


Known branding in local community

Higher overhead costs likely

Potential conflict over compensation in risk-bearing relationships with payers

Subordination of independence in clinical decision-making and referrals

Potential loss of passive income sources from ancillaries, investments that conflict with self-referral limitations


Income security and access to patients (enrollees)

For primary care, gatekeeping authority and access to sophisticated population health management tools

Access to data about practice performance, costs, outcomes

Potential for higher income since hospital overhead not treated as costs in income distribution formula

Clinical autonomy will be somewhat restricted.

Sense of “professionalism” problematic in some communities or plans: e.g., increased use of midlevels with wider scope of practice, et al.

Emphasis on costs in diagnosis and treatment decisions may be uncomfortable for some physicians.


Admittedly, physicians have other options beyond these three, i.e., becoming a corporate medical director on a part-time basis, joining an academic faculty to do research and teach, advising investors about clinical innovations or working for a device or biopharma manufacturer and others. But the big most prominent options for most physicians who choose to be employed are these three.

The reality for hospitals is this: Physicians who are seeking employment have options. The hospital is not the default. Therefore, for a hospital to be a viable choice, its employment strategy must be built on seven pillars:

Vision: A hospital must present physicians with a clear plan for its future in which physician participation is a core element. It must present a compelling plan that resonates with the new realities around the three basic needs of the physician — respect, clinical autonomy and income.

Data: A hospital capable of providing valid and reliable information about individual and aggregated patient safety, costs, outcomes and experiences specific to the information needs of its physicians has a powerful advantage. Essentials are registry functionality, patient monitoring technologies with feedback and certified electronic health records (at Stage 2).

Fair Trade: An attractive employer of physicians will negotiate contracts with payers that share income and financial risk with physicians in an open and transparent way. If the hospital’s overhead is perceived to be wasteful or overstated and, therefore, dilutive to the physician’s income, problems result.

Competitive compensation: Physicians expect to be paid at a level commensurate with their prior earnings and with their peers. The compensation plan should be straightforward, confidential, and adaptive to changes in the payer environment locally and nationally.

Professional collegiality: Physician self-esteem is derived from positive patient relationships and a sense of community with peers. Hospitals that employ physicians must promulgate physician peer relationships.

Branding and marketing: Access to patients is important to physicians. The hospital’s branding strategy and marketing support should be effective and a differentiator in employing physicians.

Physician leadership: Respected physicians with demonstrated competence as leaders and managers should play a prominent role in the employment strategy.

Physicians are adults. They understand that the future of the profession is quite different from what it was in the past. They respond best when treated with respect and in a straightforward manner sensitive to their understandable fears and frustrations. And they can be happy, productive employees in a hospital that has a compelling strategy, healthy culture, modern tools and competent operational support that strengthens the sense of pride and purpose for which they entered the profession.

Hospitals must approach their physician employment strategy carefully. It’s about the marriage, not the ceremony. And divorce can be expensive.

Paul H. Keckley is a health economist and leading expert on U.S. health reform and its impact. He recently retired as executive director for the Deloitte Center for Health Solutions, where he directed the center’s nonpartisan studies that are prominently featured in congressional testimony and industry publications. His H&HN Daily column appears the first Monday of every month.