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The Temple of Lord Baijnath is situated in Bihar. Deoghar is the place where this ancient Temple is situated. (Some schools of thought believe Vaidyanath near Parali in Andhra Pradesh to be the Vaidyanatha Jyotirlingam.)
The legend of Vaidyanathan goes something like this. With the burning desire for power and strength Ravana started worshipping Lord Shiva with mind and soul. Even after long penance when Lord Shiva did not appear Ravan attempted to lift Mount Kailash and take it with him to his capital in Sri Lanka. However, Lord Shiva crushed him with his finger. Ravana prayed to him and sought his mercy, after which Shiva gave him one of the twelve Jyotirlingams with the condition that if it was placed on the ground it would take root immediately. Varun Dev(the God of water), entered his belly, and caused him to feel the need to relieve himself. He gave the linga to a small boy standing by the side and told him to hold it. The small boy could not withstand the weight of the linga and he kept it on the ground. No sooner he had done so the linga affixed itself strongly to the ground for eternity. Despite all his efforts Ravana could not lift it. A disappointed Ravana offered severe penances to Shiva here, and cut off nine of his heads. Shiva revived him and joined the heads to the body, as if by the work of a Vaidya(physician), hence this Jyotirlingam goes by the name Vaidyanath.  
 Vaidyanath is also considered to be one of the 52 Shakti Pitha shrines of Sati. It is believed that the heart of Sati fell here.