The executive order President Joe Biden released last week asks federal agencies to harness their power in regulating competition, nudging the Federal Trade Commission to ban or limit noncompete agreements — including in healthcare.
Roughly half of private-sector businesses require at least some employees to enter noncompete agreements, according to a 2019 study from the Economic Policy Institute.
Such agreements are typically used by employers to protect trade secrets and confidential business information, though they hinder employees from finding work elsewhere, namely at competing companies. In the healthcare sector, physicians regularly sign noncompete agreements that restrict them from leaving, taking their patients and setting up their own competing practice nearby.
It’s unclear how swiftly the FTC will act and how broad the scope of a potential ban could be. Some states already have their own restrictions on noncompetes, though the agreements themselves are seldom one-size-fits-all and can cover some legitimate concerns for healthcare employers in particular.
Most agreements stipulate that a physician cannot offer competitive services for a defined amount of time within a certain geographic area upon leave from their current role. Both of those figures can vary widely though, sometimes restricting physicians from practicing within 50 miles of their previous employer for several years, Ericka Adler, health law practice group leader at Roetzel & Andress in Chicago, said.
But those are valid concerns for employers, especially if they invest heavily in a physician’s training, reputation and other aspects of their career.
“A doctor doesn’t need to take a patient list for everyone to just leave and follow,” Adler said.
That’s true even as hospitals and corporate entities keep gobbling up independent practices. Many practices with private equity owners still operate much like independent practices, and some physicians are still opening their own private practices, Adler said.
Last year was the first in which less than half (49.1%) of physicians worked in a private practice, according to the American Medical Association Physician Practice Benchmark Survey. Another report from Avalere in June looking at ownership by corporate entities outside of just hospitals found 70% of U.S. physicians are now employed by a hospital or a corporate entity.
It’s unlikely the FTC will act on the executive order immediately, and its authority could be challenged in the courts if it does move to ban noncompete agreements.
The agency will most likely target the least controversial aspects of such agreements, such as those covering low-wage workers who are highly unlikely to hold any trade secrets, Jon Nadler, a labor and employment attorney with Eckert Seamans Cherin & Mellott in Philadelphia, said in an email.
“The broader the rule, the more likely an already-skeptical court will reject it as beyond the FTC’s authority,” Nadler said.
At the same time, state bans on such agreements have been steadily increasing and are more likely to survive legal challenges, Nadler said.
A few states and territories already have bans on noncompetes for low-wage workers, including the District of Columbia, which passed a law earlier this year.
D.C.’s ban on noncompete agreements covers nearly all workers, though notably excludes medical specialists making more than $ 250,000 a year. Under the law, prospective employers must show the medical specialist a copy of the proposed non-compete clause at least 14 days before executing the agreement in order for it to be enforceable.
Provider groups are generally opposed to a broad ban on noncompetes for physicians, arguing they’re still needed in certain cases.
“Physicians and medical groups we think should have the ability to engage in these free market negotiations, but that being said we also support sustaining a competitive environment,” Claire Ernst, associate director for government affairs at the Medical Group Management Association, said.
“There are definitely situations where it makes sense for physician practices to try to make sure the doctors that they invested in can continue to treat their patients,” Ernst said.