Indiana Gov. Eric Holcomb signed into law a bill expanding the state’s restriction on non-compete clauses in physicians’ contracts with hospitals.
Non-competition agreements can restrict physician access to patient records and contact information and may require a physician to move hundreds of miles away to continue practicing.
Given the shortage of health professionals, and the trend toward the employment of doctors by health care systems, non-compete clauses can drive up health care prices. In 2020, 80 percent of physicians in the Hoosier State worked for a hospital.
‘Bans Are Expanding’
Indiana enacted a law in 2020 that required noncompete clauses in employment contracts with physicians to contain a buyout provision and put some protections in place to preserve the doctor-patient relationship.
The new law, effective July 1, will end enforcement of non-compete clauses for primary care physicians in three situations: if the employer fires the physician without cause, the physician terminates employment for cause, or a contract expires, and the terms have been fulfilled by both parties. It also narrows the use of non-competes for specialists.
The amended law is a huge step forward in making health care more competitive, says Adam Habig, J.D., the president and co-founder of Freedom Healthworks, LLC, a firm that helps physicians set up direct-pay practices.
“I know of one hospital that is already eliminating the clauses,” said Habig. “Hospitals see the writing on the wall. The momentum is there, and bans are expanding state by state. Even at the federal level, it has become a bipartisan issue.”
Options for Physicians
Non-compete clauses have been stretched beyond their original intent, says Habig.
“They’ve been used more as handcuffs to lock physicians into contracts and keep them from leaving because physicians are scarce,” said Habig. “Physicians are difficult to find and expensive to recruit, in many cases.”
Young physicians leaving medical school and clinical training with hundreds of thousands of dollars in debt may be eager for financial security, and working for a large hospital system is attractive, says Habig.
“Many do not realize that independent practice is still an option or a direct care model,” said Habig. “The bans will allow doctors more freedom of movement so that they can pursue models that are innovative and unique, models that may better serve their patients.”
Momentum for State Reforms
Indiana and about a dozen other states have restricted the enforcement of non-compete contracts, but hospitals are resisting.
Members of the South Carolina General Assembly attempted to foil non-competes this year as part of a package of bills that repealed most of the state’s Certificate of Need (CON) laws regulating the opening of new health care facilities.
Due to opposition, the proposal was dropped, says Marcello Hochman, M.D., a Charleston, South Carolina surgeon and president of IndeDoc, a group that promotes independent practice, who lobbied for the reforms.
“We wanted to pursue the non-compete ban this time around,” said Hochman. “We had it as an amendment to the CON repeal bills, but it was dropped because it would have killed everything. It just goes to show that the non-compete clause is more important [to hospitals] than certificate of need. So next year, we’re going to pursue it because the environment is ripe for giving people options to do different things and protect the patient’s right to see whoever they want.”
Federal Rule Proposed
The Federal Trade Commission (FTC) proposed a rule in January that would prevent businesses from adding noncompete clauses in all employment contracts and rescinding such clauses already in place.
According to the FTC, one in five workers is bound by a non-compete clause and the new rule would increase worker earnings by $250 billion to $296 billion a year. The FTC is currently reviewing the 26,813 comments it received and could issue a final rule this year.
In some circumstances, a non-competition provision makes sense, says Hochman.
“I don’t have a problem with negotiated restricted covenants in employment contracts,” said Hochman. “The problem is these hospitals have blanket non-compete clauses for everybody. The hospital may give you $1,000, … but generally, it’s non-negotiable. So, young doctors coming out of training sign a non-compete and five years later want to go off and do something on their own, and guess what, they can’t.”
The legal profession has traditionally avoided non-compete clauses for attorneys because they harm the client, says Habig.
“What does it say when the ‘attorney-client’ relationship is so important that we can’t have them, but the ‘physician patient’ one is not?” asked Habig.
AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News.
