Are independent contractor physicians really hospital employees?

Before entering into a contractual relationship with a physician, a provider organization must understand whether, according to the IRS, the physician will be considered an employee or an independent contractor. Correct assessment of this relationship is important to avoid penalties for failure to withhold and pay taxes and possible disqualification of employee retirement plans. The IRS's most recent rulings in this area, two technical advice memorandums issued in September 1995, appear to indicate a shift in the agency's approach when defining these relationships--it now seems more likely that contractual arrangements between hospitals and physicians that typically have been treated as independent contractor relationships will be considered employer-employee relationships. The issuance of these memorandums may indicate the IRS's intention to crack down on what it perceives to be abuses of the independent contractor status in the healthcare industry.