The performance of physicians in their day-to-day clinical practices has become an area of intense public interest. Both patients and health care purchasers want more effective means of identifying excellent clinicians, and a variety of organizations are discussing and implementing plans for assessing the performance of individual clinicians. In this article, we review the current state of physician clinical performance assessment with a focus on its usefulness for competency assessment. We describe recommendations for a physician clinical performance assessment system for these purposes, and identify ways in which current methods of performance assessment fall short of these. We conclude that important technical barriers stand in the way of using physician clinical performance assessment for evaluating the competency of individual physicians. Overcoming these barriers will require considerable additional research and development. Even then, for some uses, physician clinical performance assessment at the individual physician level may be technically impossible to accomplish in a valid and fair way.