Employers will no longer be able to require doctors and other health care workers to sign non-competition agreements (NCA) after a Federal Trade Commission (FTC) rule banning all NCAs takes effect on September 4.
NCAs prevent physicians, nurses, and therapists employed by large health care providers and hospitals from moving to a competitor or establishing independent practices in the same market. Increased competition and efficiency in labor markets from eliminating NCAs “is expected to lower health care costs by up to $194 billion over the next decade,” states the FTC, in a press release.
“By design, non-competes often close off a worker’s most natural alternative employment options: jobs in the same geographic area and professional field,” said FTC Chair Lina M. Khan, in the press release. “These restrictions can undermine core economic liberties, burdening Americans’ ability to freely switch jobs.”
Medical Industry Non-Competes
The FTC ban on non-competes will be a boon to both physicians and patients, says Adam Habig, president and co-founder of Freedom Healthworks.
“There is a clear benefit to the rule, especially with regard to doctors,” said Habig. “Innovative practice models are emerging, but many doctors find themselves locked into hospital employment by a noncompete clause, contributing to record levels of physician burnout and stifling consumer choice.
“Eliminating non-competes and restoring doctors’ professional mobility should accelerate innovation in health care delivery, leading to falling prices and increased access,” said Habig. “Does anyone believe the prevailing health care system delivers good value? Americans deserve an array of better options, which are only possible if doctors are free to innovate.”
Ban Benefits Doctors, Patients
South Carolina physician Marcelo Hochman, M.D., president of IndeDocs, who attempted to get NCAs for physiciansbanned in his home state, says he supports the FTC ban for medical professionals.
“I very much welcome the FTC’s recent rule announcement regarding non-compete agreements specifically as it relates to health care,” Hochman said. “NCAs typically prevent doctors from providing care within a geographic area for a period of time after they leave a practice of employment. This contractual arrangement between the doctor and the practice they are exiting fails to consider the impact on a critical third party—the patients.”
Patients are harmed by the lack of provider choices in health care due to NCAs, says Hochman.
“The geographic restrictions of medical NCAs result in hardships for patients which can make it impossible for them to continue receiving care from their chosen physician,” said Hochman. “Not only does this cause injury to the doctor and also to a potentially uprooted patient whose rights are abridged, it also deprives the public of services and choices in health care matters. These all constitute more than a mere ‘contractual’ problem—it is unethical.”
Legal Challenges Ahead
Ryan LLC, a Dallas-based tax service, the U.S. Chamber of Commerce, and other business groups filed lawsuits in federal courts to block the FTC rule, saying the commission exceeded its legal authority.
“The FTC’s ban on noncompete agreements is another attempt at aggressive regulatory proliferation,” said the chamber, in a statement. “That’s why we’re suing the FTC to block this unnecessary and unlawful rule. … Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules. This decision sets a dangerous precedent for government micromanagement of business.”
The chamber of commerce joined the Ryan lawsuit in the U.S. District Court for the Northern District of Texas, in May. Legal challenges could result in delay or modification of the rule, says Habig.
“Confronted with a potentially seismic shift in regulation (especially in an election year), I expect the courts to pump the brakes,” said Habig.
‘Ending the Widespread Abuse’
Many businesses have information they want to keep confidential and pay to recruit, relocate, and train employees, but they have other tools to safeguard their interests, according to the FTC.
“The Commission found that employers have several alternatives to non-competes that still enable firms to protect their investments without having to enforce a noncompete,” the FTC press release states. “Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA.”
Habig says NCAs are sometimes useful, but are applied overbroadly.
“Although abuse is rampant, noncompete clauses do have a legitimate purpose when used properly,” said Habig. “The ‘goldilocks’ solution is somewhere between the status quo and a blanket noncompete ban—ending the widespread abuse while permitting legitimate usage.”
Is Health Care Different?
If the general application of the FTC rule to all employment contracts is struck down by the judiciary, an exception could be carved out for health care practitioners, says Habig.
“With respect to treating the health care industry different from businesses at large, there’s a clear precedent in the legal profession,” said Habig. “Both involve highly personal relationships —lawyer/client vs. doctor/patient, and professional services delivered confidentially to customers.
“The legal profession essentially bans noncompete clauses for lawyers, recognizing that the lawyer/client relationship outweighs the business interests of the law firm. However, in health care, non-competes are widely abused to handcuff key personnel—especially doctors—into employment simply because they are valuable or difficult to replace.”
Kevin Stone (kevin.s.stone@gmail.com) writes from Arlington, Texas.
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