By Devon Herrick
I know a doctor who relocated to a small town after being recruited to join a new practice and was locked into a contract with a non-compete clause .
He sold his house, bought a new one, and uprooted his family for a move 150 miles away. It turned out that it was not a lucrative move. His schedule was quickly filled with Medicare patients, most of whom required 30-minute visits due to multiple chronic conditions. He remarked that his pediatrician colleague could see two or three privately insured patients during the time it took him to see one (lower paying) Medicare patient.
His income fell far below expectations and he decided to get out. He quickly found a job a few miles away in a nearby town. That was years ago when most physicians were self-employed and noncompete agreements in health care were far less common. Nowadays more than half of physicians are hospital employees or employed by group practices. Many are bound by employment agreements that limit their ability to easily leave a job for a new one.
Kaiser Health News and Fortune magazine told a similar story about a physician named Jacqui O’Kane. She took a job working for a hospital in a small Georgia town. Her patient roster quickly shot up to 3,000 patients. Although not mentioned in the story, 3,000 patients is about the maximum doctors can treat in a full-time practice without working overtime.
Employment Surprises
Physicians whose practice reaches that level sometimes close their practice to new patients. However, Dr. O’Kane was pressed by her employer to continue accepting new patients, even though that would mean working evenings and weekends. She wanted out but there was a problem. She had signed a three-year contract that contained a non-compete agreement that prevented her from working within 50 miles for a period of two years after her contract ended. As a result, she had to move if she wanted to practice medicine away from her hospital employer.
An estimated 30 million employees are locked in by non-compete agreements. That reduces their ability to get a new job, and work in their field and sometimes even requires repaying huge sums in supposed training costs if they leave before a specified time has passed.
Hospitals often require nurses to sign training repayment agreement provisions, called TRAPs, which nursing groups say lock nurses into jobs by demanding they pay as much as $20,000, for what’s essentially job orientation, if they leave before two years.
Hospitals Protect Turf
The Federal Trade Commission (FTC) is proposing to ban noncompete clauses from employment contracts. Yet they face stiff opposition from hospitals and investor-owned practices that employ physicians:
It’s about money for them, too. They say eliminating non-competes would drive up the cost of hospital care because hospitals would have to pay physicians more to keep them. They also say noncompete clauses are necessary to protect proprietary information and investments in employee training and to prevent employees from taking clients and patients with them when they leave.
One problem is whether the FTC has the authority to regulate non-profit hospitals, which are supposedly not engaged in commerce (which of course is a farce). In the absence of FTC authority, Congress could act but so far has not moved forward to ban noncompete agreements in industries where they’re abusive. One of the more egregious examples of noncompete agreements is for hospital-based physicians.
Hospital-based doctors — emergency physicians, anesthesiologists, hospitalists, radiologists, and pathologists — refute the industry’s argument that they would take patients or proprietary information with them.
“We don’t have any trade secrets and we don’t have the capability of stealing patients because we don’t have our own patient referral base,” said Dr. Robert McNamara, the chair of emergency medicine at Temple University.
Instead, he said, noncompetes are a way for the physician staffing firms to lock in their contracts with hospitals. “The private equity group can say to the hospital, ‘You might not like what we’re doing, but if you get rid of us, every single one of your doctors must be replaced,’” McNamara said.
It’s one thing for defense contractors employing engineers to want to guard trade secrets in the process of working on advanced technology projects. It is another issue entirely to lock in doctors and nurses who want nothing more than to change employers and work for a hospital across town. Americans would never tolerate being locked into one grocery store through non-compete agreements. Being locked into one employer is not much different. Just as being locked into one grocer would lead to higher prices, being locked into one employer leads to lower wages.
Devon Herrick, Ph.D. (devonherrick@sbcglobal.net) is a health care economist. A version of this article appeared on March 27, 2023, on the Goodman Institute Health Blog. Reprinted with permission.