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 Complying With Federal Recruiting Regulations

Like most areas of healthcare today, physician recruiting is subject to certain federal laws and regulations. While physicians do not need exhaustive knowledge of these rules, they should be aware of them because non-compliance can lead to potentially serious consequences.

NewPhysician and AMN Healthcare are conversant with these laws based on more than 21 years of physician search experience, but we are not a law firm and the following does not constitute legal advice. Please consult with an attorney conversant with these issues if you require a legal opinion.


The government cares about physician recruiting for two reasons. First, the government wants to make sure that physicians do not profit through their association with not-for-profit entities such as 501(c)(3) hospitals. Second, the government wants to make sure that physicians are not being paid to refer Medicaid patients to hospitals with which they are affiliated.

The Internal Revenue Service (IRS) is concerned about private individuals profiting from their association with not-for-profit organizations, a circumstance known as "inurement." The Department of Health and Human Services (HHS) is concerned about physicians being paid for referring Medicaid patients to hospitals, which is considered Medicaid fraud.

Both the recruiting party (generally, a hospital) and the physician being recruited can be subject to fines and even jail terms for violating IRS and HHS recruiting rules.


In the late 1980s, a not-for-profit hospital asked the IRS whether or not it could offer physicians "income guarantees" as a recruiting incentive. Income guarantees are a common form of recruiting incentive offered by many not-for-profit and for-profit hospitals to physicians in private practice.

Some observers thought that not-for-profit hospitals would violate their tax-exempt status if they offered physicians income guarantees or other recruiting incentives, because to do so would allow private individuals (physicians) to profit from a not-for-profit entity.

But the fact is that not-for-profit hospitals have been recruiting physicians and offering them recruiting incentives for years. Not-for-profit hospitals would not be able to attract physicians without offering incentives, and without physicians they would not be able to carry out their mission of providing care to their communities.

The IRS saw the logic of this argument, and after preliminary statements and private letter rulings on the subject, the agency released its "Final Revenue Ruling on Physician Recruitment" (Revenue Rule 97-21) on April 21, 1997.

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