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Noncompete rule puts doctors, hospitals at odds

Doctors say the clauses limit career growth, but hospitals say they need them to retain workers

A Federal Trade Commission rule banning noncompete clauses has doctors and hospitals at odds, with doctors saying the clauses limit career growth and hospitals saying they need the language to retain workers.
A Federal Trade Commission rule banning noncompete clauses has doctors and hospitals at odds, with doctors saying the clauses limit career growth and hospitals saying they need the language to retain workers. (AFP via Getty Images)

Hospitals and physicians are squaring off over a proposed Biden administration rule that would ban noncompete agreements — contractual clauses common in the health care industry that prevent workers from working for a competitor for a certain amount of time after leaving a company. 

Lobbying giants like the American Hospital Association and the U.S. Chamber of Commerce argue that a ban on noncompete clauses would make it difficult for employers to retain workers and protect their investments in recruiting and training. 

But physicians say the clauses are so common that they have no option but to sign them, limiting their career growth, contributing to burnout and forcing them to leave their communities for other jobs. 

The rule proposed by the Federal Trade Commission in January would prohibit employers from using noncompetes in contracts with employees, require they void existing clauses and inform workers they are no longer in effect. The FTC estimated the proposed rule could reduce health care spending by $148 billion annually, arguing that noncompete clauses increase costs and consolidation in the industry. 

Hundreds of physicians have filed comments with the FTC supporting the rule, detailing stories of being locked into jobs they didn’t want to be at anymore because they were restricted from working at “competitors” within the same city, county or even state for a certain amount of time after their departure. 

Others said they missed out on opportunities that would have made them feel more fulfilled or had to move their families to accept a job outside of the noncompete zone.

“It actually traps an unhappy workforce, and it negatively impacts patients,” said Erik Smith, a clinical assistant professor of anesthesiology at the University of Southern California’s Keck School of Medicine. 

“There’s an extraordinary amount of burnout, fear and dissatisfaction with the way that health care workers are being treated. Part of that is because of noncompete agreements,” said Smith, who was under a noncompete agreement while working in Maryland. 

But groups like the AHA and the Federation of American Hospitals — which represents for-profit health systems and hospitals — want the FTC to back off the rule entirely, arguing Congress didn’t give them the authority to issue it. 

At the very least, the FTC should carve out an exemption for hospitals in the final rule, the organizations say.  

“We really did try to take this seriously and be reasonable in our approach in carving out highly skilled, highly compensated workers,” said Chad Golder, AHA’s deputy general counsel, referring to physicians.  

Because of their “power and training,” physicians are “differently situated” from “hair stylists, restaurant workers and retail workers” who might face noncompetes, Golder said, adding that doctors can negotiate their contracts. 

AHA also cited a study in its comment letter claiming physicians under noncompetes make more money than doctors not under those agreements.

There is limited data showing how many physicians are in noncompete agreements. But a 2018 study found about 45 percent of primary care doctors in group practices were under such agreements. 

Melissa Duxbury, a physician in New Hampshire, said she worked for 19 years at a health system under a noncompete agreement that prevented her from working for a competitor within a 25-mile radius for one year. 

She had considered leaving for a competitor and was assured by peers that her noncompete was likely unenforceable. 

“But family-wise, I couldn’t risk not having a job and not having health insurance,” Duxbury said, noting that her daughter had a rare disorder that requires medical care. “Leaving would put myself and my family at risk. I wasn’t willing to do that.” 

State laws

In 2016, New Hampshire enacted a law prohibiting noncompetes in contracts with physicians, allowing Duxbury to take a job with a health system in the same city training new family medicine doctors. 

Delaware, Massachusetts and Rhode Island are among the states that forbid physician noncompetes. Other states, like California, ban noncompetes more broadly, also in physician contracts.

That is one reason the AHA says it opposes the federal rule; it argues that the matter should be left to the states. 

Hospitals also argue now isn’t the time to revoke noncompetes because of workforce shortages exacerbated by the pandemic, especially in rural areas. 

But doctors say the best way to keep physicians, including in rural areas, is to treat and pay them better — not force them to stay.

Luis Garcia, chief medical information officer for Family First Health, a community health center in York, Pa., said burnt-out peers working at local health systems have approached him over the years about joining his clinic.  

But they realized their contracts prevented them from working at another facility in the area for two years. They all decided to stay at their jobs.

“Noncompetes maybe at some point had merit when most of health care was private practice — you don’t want to hire a new doctor and then they go down the street and open up their own practice and take your patients,” Garcia said.

But now, about 75 percent of physicians work for hospitals, health systems or a corporate entity, according to an Avalere Health study commissioned by the Physicians Advocacy Institute.

Noncompetes also make it difficult to recruit physicians locally, Garcia said, noting a 2016 survey finding 70 percent of community health centers had at least one physician vacancy.  

Emergency medicine

Emergency doctors have also become vocal in support of the noncompete ban. 

Because emergency physicians are increasingly employed by staffing firms — some which are owned by private equity firms — noncompetes have become widespread in the specialty, said Jonathan Jones, president of American Academy of Emergency Medicine, which represents 8,000 emergency physicians. 

Jones said a recent survey of AAEM’s members showed half of its members were in noncompetes. Of those who had signed noncompete agreements, most were employed by staffing agencies, especially those owned by private equity firms. 

He said he has turned down jobs that had noncompete clauses in their contracts and twice had employers try to add clauses to contract renewals before he pushed back and threatened to leave. 

But for some people, that might not be an option. 

“These large contract management groups are so pervasive, your only option is to work for one of them unless you’re going to move,” Jones said. 

Nonprofit hospitals 

It’s unclear whether the rule would apply to nonprofit hospitals, which make up about 58 percent of hospitals. 

Typically, the FTC can’t regulate nonprofits, but the AHA said the agency should explicitly state in its final rule if that is the case in this instance.

But some doctors say the rule should specifically include bans at nonprofit hospitals, which have been accused of acting like for-profit institutions in the way they treat patients and employees.

About 58 percent of hospitals are nonprofit and 24 percent are for-profit. The remaining are owned by state and local governments. 

The AHA and FAH also argue that if nonprofits are exempt, for-profit hospitals would no longer be able to use noncompetes while their nonprofit competitors would.

“We would be put at a tremendous disadvantage in terms of holding on to people because other hospitals would be enabled to continue with noncompete clauses,” said Chip Kahn, president of FAH. 

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