The FTC Non-Compete Ban: Impact on Physicians
The Federal Trade Commission voted 3-2 on Tuesday, April 23rd, to ban non-compete agreements. The 570-page Final Rule can be found here. The rule has multiple exceptions, however it generally states that it is an unfair method of competition for a person:
The ban will impact the majority of physicians who are now employed by health systems, academic centers, private equity groups and other corporations. If you are wondering how the new rule may affect your job and would like some clarification on all that the large Final Rule document includes, here are the details you need to know as a physician.
Did the FTC understand the impact this would have on physicians?
In short, they 100% understood how this rule would affect physicians. The proposed rule, issued over one year ago, received thousands of comments. Some of the comments suggested the FTC should not apply this ban to the healthcare industry or physician employment. The eventual ruling unequivocally dismissed that notion, “[t]he Commission has specific, long-time expertise in the healthcare market … [and] has sufficient understanding of healthcare markets and that the evidence supports the final rule’s application to the healthcare industry.” Understanding that the new rule will cause a major shift in many employment settings, including physician employment, “the Commission notes that it has assessed the benefits and costs of the final rule and finds that the final rule has substantial benefits that clearly justify the costs.”
The FTC specifically cited healthcare workers as a key example of why non-competes should be overturned when voting in favor of the rule. “These are doctors who had to move their families or move out of the state just so they could practice medicine. A pandemic killed half a million people in this country, and there are doctors who cannot work because of a non-compete,” Commissioner Alvaro Bedoya said.
Hospitals under scrutiny
Many comments suggested that the FTC does not have jurisdiction over non-profit entities, and therefore this rule will be generally inapplicable to 58% of hospitals that claim tax-exempt status. The FTC disagreed and provides, “hospitals claiming tax-exempt status as nonprofits are under increasing public scrutiny … [p]ublic and private studies and reports reveal that some such hospitals are operating to maximize profits, paying multi-million-dollar salaries to executives, deploying aggressive collection tactics with low-income patients, and spending less on community benefits than they receive in tax exemptions. Economic studies by FTC staff demonstrate that these hospitals can and do exercise market power and raise prices similar to for-profit hospitals.”
“[T]he final rule will increase competition and efficiency in healthcare markets, as workers at for-profit healthcare entities will be able to spin off new practices or work for different employers where their productivity is greater. This is true even if the Commission does not reach some portion of healthcare entities.”
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Non-competes rather than a stark violation
Interestingly, the FTC also made strong statements about Hospitals potentially attempting to circumvent the requirements of the Stark Laws prohibiting payment for physician referrals. “The Commission notes that patient referrals are a valuable asset, but buying or selling those referrals is illegal, so non-competes are a secondary method of protecting that asset.”
Effects on employers
Physician employers will need to decide how to react to this new rule quickly, and legal challenges are coming. Chad Golder, American Hospital Association general counsel and secretary, said, “For all of the reasons the AHA explained in its comment letter, the FTC’s final rule banning non-compete agreements for all employees across all sectors of the economy is bad law, bad policy, and a clear sign of an agency run amok. The agency’s stubborn insistence on issuing this sweeping rule — despite mountains of contrary legal precedent and evidence about its adverse impacts on the health care markets — is further proof that the agency has little regard for its place in our constitutional order. Three unelected officials should not be permitted to regulate the entire United States economy and stretch their authority far beyond what Congress granted it — including by claiming the power to regulate certain tax-exempt, non-profit organizations. The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities.”
The FTC counters that employers concerned about retention have tools other than non-competes for retaining physicians, including fixed duration employment contracts, for example, forgoing at-will employment and implementing contract commitments for a fixed period of time with significant financial penalties attached to a breach of the term. The other option, however, would be to simply provide improved pay and benefits and compete on the merits of the organization to retain physicians. The FTC states, “increased job-switching will likely lead to more efficient matching between workers and employers overall.”
Recommended next steps
This rule is not effective until late August or early September of 2024 and will likely face multiple legal challenges (the US Chamber of Commerce has also already filed a lawsuit). A physician’s best course of action today is to educate yourself on the new ruling, stay up to date with the latest developments to the new rule, and to demand the removal of a non-compete from your contract if you are in current negotiations.
If you have specific questions about your situation, please make sure you are engaging with a healthcare attorney, as this article is for informational purposes only and does not constitute legal advice. In lieu of the non-compete ban, many physicians may be considering the switch to a different employer. Employers could also try amending existing contracts to make leaving your position less enticing, even without the use of a non-compete clause.
Resolve offers many resources to help you understand your current or prospective employment contract and conduct negotiations with your employer if necessary. Receive assistance from a specialized attorney who can review any contract in full and answer any questions you have about next steps. Then you can make informed decisions on whether to change employers, negotiate any sort of amendment, or remain where you are.