Docs Fervently Hope Federal Ban on Noncompete Clauses Goes Through

Amanda Loudin

May 16, 2023

The Federal Trade Commission's (FTC) proposed regulation that would ban noncompete agreements across the country seems like potential good news for doctors. Of course, many hospitals and employers are against it. As a result, the FTC's sweeping proposal has tongues wagging on both sides of the issue.

Many physicians are thrilled that they may soon have more control over their career and not be stuck in jobs where they feel frustrated, underpaid, or blocked in their progress.

If passed, the proposed ban would allow physicians to get a new job with a competing organization, bucking a long-standing trend that hospitals and healthcare systems have heavily relied on to keep staff in place. As of 2018, as many as 45% of primary care physicians had inked such agreements with their employers.

Typically, the agreements prevent physicians from practicing medicine with a new employer for a defined period within a specific geographic area. No matter how attractive an alternate offer of employment might be, doctors are bound by the agreements to say no if the offer exists in that defined area and time period.

The period for public comment on the proposed regulation ended on April 19, and as of this time, there is no set date for a decision.

In a Medscape poll of 558 physicians, more than 9 out of 10 respondents said that they were either currently bound by a noncompete clause or that they had been bound by one in the past that had forced them to temporarily stop working, commute long distances, move to a different area, or switch fields.

The new proposal would make it illegal for an employer, such as a hospital or large group, to enter a noncompete with a worker; maintain a noncompete with a worker; or represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

It also would not only ban future noncompete agreements but also retroactively invalidate existing ones. The FTC reasons that noncompete clauses could potentially increase worker earnings as well as lower healthcare costs by billions of dollars. If the ruling were to move forward, it would represent part of President Biden's "worker-forward" priorities, focusing on how competition can be a good thing for employees. The President billed the FTC's announcement as a "huge win for workers."

In its statements on the proposed ban, the FTC claimed that it could lower consumer prices across the board by as much as $150 billion per year and return nearly $300 million to workers each year.

However, even if passed, the draft rule would keep in place nonsolicitation rules that many healthcare organizations have put into place. That means that if a physician leaves an employer, he or she cannot reach out to former patients and colleagues to bring them along or invite them to switch to him or her in the new job.

Within that clause, however, the FTC has specified that if such nonsolicitation agreement has the "equivalent effect" of a noncompete, the agency would deem it such. That means, even if that rule stays, it could be contested and may be interpreted as violating the noncompete law. So there's value in reading all the fine print should the ban move forward.

Could the Ban Bring Potential Downsides?

Most physicians view the potential to break free of a noncompete agreement as a victory. Peter Glennon, an employment litigation attorney with The Glennon Law Firm in Rochester, New York, says not so fast. "If you ask anyone if they'd prefer a noncompete agreement, of course they're going to say no," he told Medscape Medical News. "It sounds like a restriction, one that can hold you back."

Glennon believes that there are actually upsides to physician noncompetes. For instance, many noncompetes come with sign-on bonuses that could potentially disappear without the agreements. There's also the fact that when some physicians sign a noncompete agreement, they then receive pro bono training and continuing education along with marketing and promotion of their skills. Without signing a noncompete, employers may be less incentivized to provide all those benefits to their physician employers, according to Glennon.

Those benefits — and the noncompetes — also vary by specialty, Glennon said. "In 2021, Washington, DC, banned noncompetes for doctors making less than $250,000," he said. "So, most generalists there can walk across the street and get a new job. For specialists like cardiologists or neurosurgeons, however, advanced training and marketing benefits matter, so many of them don't want to lose noncompetes."

Still, most physicians hope that the FTC's ban takes hold. Manan Shah, MD, founder, and chief medical officer at Wyndly, an allergy relief startup practice, is one of them.

"Initially, it might disincentivize hospital systems from helping new physicians build up their name and practice because they might be concerned about a physician leaving and starting anew," he said. "But in the long-term, hospitals require physicians to bring their patients to them for care, so the best hospitals will always compete for the best physicians and support them as they build up their practice."

Shah views noncompetes as overly prohibitive to physicians. "Right now, if a physician starts a job at a large hospital system and realizes they want to switch jobs, the noncompete distances are so wide they often have to move cities to continue practicing," he said. "Picking up and starting over in a new city isn't an option for everyone and can be especially difficult for someone with a family."

Where Glennon argues that a physician leaving a team-based practice might harm patients, Shah takes a different perspective. "Imagine you have a doctor whom you trust and have been working with," he said. "If something changes at their hospital and they decide to move, you literally have to find a new doctor instead of just being able to see them at another location down the street."

Another potential burden of the noncompete agreements is that they could possibly squelch doctor's desires to hang up their own shingle. According to Shah, the agreements make it so that if a physician wants to work independently, it's nearly impossible to fly solo. "This is frustrating because independent practices have been shown to be more cost effective and allow patients to build better relationships with their doctors," he claimed.

A 2016 study from the Annals of Family Medicine supports that claim, at least for small general practices. Another study appearing in a January issue of JAMA concurs. It does point out, however, that the cost equation is nuanced and that benefits of larger systems include more resilience to economic downturns and can provide more specialized care.

Will Nonprofit Hospitals Be Subject to This Noncompete Ban?

Further complicating the noncompete ban issue is how it might impact nonprofit institutions vs their for-profit peers. Most hospitals structured as nonprofits would be exempt from the rule because the FTC Act provides that it can enforce against "persons, partnerships, or corporations," which are further defined as entities "organized to carry on business for their own profit or that of their members."

The fallout from this, said Shah, is that it "would disproportionately affect healthcare providers, since many hospital systems are nonprofits. This is disconcerting because we know that many nonprofit systems make large profits anyway and can offer executive teams' lucrative packages, while the nurses, assistants, and physicians providing the care are generally not well compensated."

So far, about nine states plus Washington, DC, have already put noncompete bans in place, and they may serve as a harbinger of things to come should the federal ban go into effect. Each varies in its specifics. Some, like Indiana, outright ban them, whereas others limit them based on variables like income and industry. "We're seeing these states responding to local market conditions," said Darryl Drevna, senior director of regulatory affairs at the American Medical Group Association (AMGA). "Healthcare is a hyper-local market. Depending on the situation, the bans adapt and respond specific to those states."

Should the federal ban take hold, however, it will supersede whatever rules the individual states have in place.

Some opponents of the federal ban proposal question its authority to begin with, however, Glennon included. "Many people believe the FTC is overstepping," he said. "Some people believe that Section 5 of the FTC Act does not give it the authority to police labor markets."

Drevna notes that the FTC has taken an aggressive stance, one that will ultimately wind up in the courts. "How it works out is anyone's guess," he said. "Ideally, the FTC will consider the comments and concerns of groups like AMGA and realize that states are best suited to regulate in this area."

In general, the ban's supporters are employees/physicians; those who oppose it are their employers. Joining the AMGA in speaking out against the noncompete ban is the American Hospital Association, whereas the American College of Emergency Physicians has come out largely in support of the ban.

Still, doctors like Shah remain hopeful. "I am optimistic that perhaps my colleagues will not continue to be stuck in over-restrictive noncompetes, but I am also realistic," he said. "Hospital systems are already coming out strongly against this and they have deep pockets, so I won't be surprised if it does not come to pass."

Follow Medscape on Facebook, Twitter, Instagram, and YouTube


Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.