The Federal Trade Commission’s (FTC) announcement that it plans to ban noncompete agreements in all industries is a welcome relief to many professionals in health care.
Two physicians in my family relocated to small towns after they were recruited to join other practices. Both uprooted their families to move hundreds of miles away. Ultimately, neither move worked out.
One of the physicians was my uncle. Once settled into the new practice, my uncle’s schedule was quickly inundated with Medicare patients. Many of his elderly patients had multiple chronic conditions requiring 30-minute or longer office visits to address their health problems.
My uncle soon realized he would have to work twice as many hours or accept an income only about half the norm for his level of training. He resigned from the practice and found a job a few miles away in a nearby town.
That was years ago when noncompete agreements in health care were uncommon.
Loss of Independence
Nowadays, nearly three-quarters of physicians are hospital employees or employed by investor-owned group practices. Many are bound by employment agreements that limit their ability to leave a job for a new one.
An underappreciated problem with non-compete agreements between doctors and hospitals is the additional strain they place on the doctor/patient relationship.
Dr. Jacqui O’Kane had an experience similar to my uncle’s. Dr. O’Kane took a job working for a hospital in a small Georgia town. Her patient roster quickly shot up to 3,000 patients, about the maximum a doctor can treat in a full-time practice without working overtime.
When physicians can no longer squeeze more patient exams into a workday, many close their practice to new patients. O’Kane’s hospital employer would not allow that. The hospital wanted her to expand her office hours to work evenings and weekends if needed.
O’Kane wanted to quit, but she had signed a three-year contract that included a noncompete agreement. She was not allowed to work within 50 miles for two years after the end of her contract.
Not Just Doctors
Doctors are not the only health care professionals who face noncompete agreements while working for hospitals. Hospitals often require nurses to sign training repayment agreement provisions (aptly called TRAPs) which lock nurses into jobs.
Nurses leaving within two years are expected to repay hospitals for training expenses, which is little more than job orientation. These supposed training fees can reach as much as $20,000.
The FTC’s planned ban will apply to most employees other than senior executives. The U.S. Chamber of Commerce is suing to block the ban.
The FTC commissioners took note of comments on the Final Rule that were submitted by people in the medical field, according to Healthcare Dive. The FTC stated non-compete agreements increase health care prices.
About 18 percent of the total U.S. workforce is covered by noncompete clauses, reports Becker’s Hospital Review
“The American Medical Association estimates that between 35% and 45% of physicians are bound by noncompete clauses,” Becker’s notes. “Existing noncompetes for most workers will no longer be enforceable once the rule takes effect, but there are exemptions.”
Health Care Alarm Bell
Noncompete agreements have always been common in high-tech industries with significant intellectual property. The FTC says it is increasingly alarmed that more employers are using noncompete agreements to restrain competition for workers who have no access to trade secrets.
For instance, a cosmetologist working in a salon reported being asked to sign a non-compete agreement restricting her right to change.
There are now discussions that nonprofit hospitals may not be within the FTC’s authority and may still be able to compel nurses and doctors to sign noncompete agreements as a condition of employment.
“Though the FTC recognized that it does not have jurisdiction over nonprofit entities, it reserved the right to evaluate an entity’s nonprofit status, which would include a significant portion of the 6,120 hospitals in the U.S,” Becker’s reports.
“Specifically, the agency said that ‘some portion of the 58% of hospitals that claim tax-exempt status as nonprofits and the 19% of hospitals that are identified as state or local government hospitals in the data cited by [the American Hospital Association] likely fall under the commission’s jurisdiction and the final rule’s purview.’”
The FTC decision which came down to a 3-2 approval for a ban is expected to result in lawsuits that may take years to resolve.
Devin Herrick, Ph.D. (devonherrick@sbcglobal.net) is a health care economist. An earlier version of this article was published on the Goodman Institute Health Blog. Reprinted with permission.