On July 1, 2025, Tennessee’s House Bill (HB) 979 took effect, ushering in a significant shift to the state’s corporate practice of medicine (CPOM) framework. The legislation expands the ability of hospitals, particularly those in rural and underserved areas, to directly employ “hospital-based physicians,” marking a departure from long-standing statutory restrictions.
CPOM in Tennessee
Tennessee’s historically robust CPOM prohibition bars unlicensed persons or entities from directly employing physicians to provide medical services without an express statutory exception. Until the enactment of HB 979, Tennessee-licensed hospitals and their affiliates (e.g., entities directly or indirectly controlled by, or under common control with, the hospital, such as a hospital-owned physician practice) were permitted under a statutory exception to directly employ certain physicians. This exception, however, was limited in scope: it applied only to non-hospital-based physicians. On the other hand, hospital-based specialists, such as anesthesiologists, radiologists, pathologists, and emergency medicine physicians, were expressly excluded from this employment authority. As a result, hospitals were compelled to rely on alternative staffing models to secure these services. Over time, Tennessee lawmakers recognized that this restriction contributed to shortages of hospital-based physicians, particularly in rural, underserved, and specialty hospital settings.
Expanding the Hospital and Hospital-Affiliate Exception
HB 979 is a targeted legislative response to physician workforce shortages across the state. The law expands the employment authority of hospitals and their affiliates in most Tennessee counties by introducing a population-based exception to the state’s CPOM prohibition. Now hospitals and their affiliates in counties with populations of 105,000 or fewer – which account for 82 of Tennessee’s 95 counties – may now directly employ physicians across all specialties. Hospitals in the remaining 13 counties with larger populations continue to be governed by the prior CPOM framework, including its restrictions on the direct employment of hospital-based physicians.
HB 979 also establishes a new statutory exception for freestanding children’s hospitals – those hospitals that primarily treat patients 17 years of age or younger and operate a dedicated pediatric emergency department. Under this exception, qualifying children’s hospitals are permitted to directly employ physicians across all specialties. This exception is not subject to the population threshold, allowing children’s hospitals across Tennessee to directly employ hospital-based and other physicians, regardless of specialty.
Future Compliance and Operational Considerations
As Tennessee’s hospitals and health systems consider realigning their physician employment models under HB 979, it is essential to ensure that they are structured in accordance with both federal and state regulatory requirements. While the legislation expands the scope of permissible employment relationships, it does not displace key compliance obligations. Notable considerations include:
- Medical Autonomy. Tennessee’s CPOM exception continues to require that an employing entity not interfere with or limit a physician’s ability to make medically appropriate diagnostic or treatment decisions.
- Referral Restrictions. Tennessee prohibits employer interference with physician referral decisions, except in limited circumstances where certain contractual and statutory safeguards are satisfied.
- Restrictive Covenants. Employers remain restricted from imposing post-employment limitations on a physician’s right to practice medicine unless specific statutory exceptions and safeguards are met.
- Federal Law Compliance. Physician employment arrangements should be structured to comply with the Physician Self-Referral Law, the Anti-Kickback Statute, and applicable state analogs.
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