Banning noncompetes: Physicians, hospitals, businesses react

Doctors and hospital leaders had mixed reactions to a proposed ban on noncompete clauses and that continued after the Federal Trade Commission (FTC) voted 3-2 for it on April 23.

The ban will go into effect 120 days after FTC publishes its new final rule in the Federal Register. Until then, physicians, other clinicians, administrators and support staff are considering how the new rule will affect the health care sector, especially workers in nonprofit hospitals and health care systems.

Meanwhile, at least two court cases already were filed to contest the FTC’s newest final rule.

Family physicians speak out

While some doctors noted benefits of noncompete clauses for their practices, physicians and hospitals largely split on noncompetes, and that was clear after the FTC vote.

American Academy of Family Physicians (AAFP) President Steven P. Furr, MD, FAAFP, issued a statement supporting “concrete action to ban noncompete clauses in employee contracts.”

“This decision puts patients first and ensures family physicians can pursue opportunities that value their expertise and continue to provide high-quality care that their communities need,” he said in the statement.

"We are also encouraged to see that the FTC intends for this ban to extend to many nonprofit entities,” Furr said. “Nonprofit health systems often have significant financial assets and employ a large portion of physicians and clinicians. They should not be permitted to continue to restrict patient access and physician choice in employment.

“The AAFP remains committed to creating a level-playing field for family physicians who work in all practice settings, including small and independent practices, who may not have the resources to recruit and retain new physicians,” he said. "We are hopeful that the elimination of noncompete clauses will encourage employers to pursue more collaborative ways to retain physicians and become employers of choice, while preserving long-term, meaningful patient-physician relationships."

Hospitals react

American Hospital Association General Counsel and Secretary Chad Golder called the final rule “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,” Golder said in a statement. “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,” he said.

See you in court

The U.S. Chamber of Commerce announced it would sue the FTC over the Commission’s vote, and on April 24, Reuters reported the lawsuit was filed. The Chamber called it a “dangerous precedent for government micromanagement of business.”

“The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” Chamber President Suzanne P. Clark said in a statement.

“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules,” Clark said. “Noncompete agreements are either upheld or dismissed under well-established state laws governing their use. Yet (April 23), three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.”

Another legal challenge

The Chamber’s court case was the second over the FTC vote. On April 23, Ryan, a global tax services and software provider, announced its federal lawsuit in Texas was the first to challenge the “lawless action, which imposes an extraordinary burden on businesses seeking to protect their intellectual property and retain top talent within the professional services industries.” That case was filed in the U.S. District Court for the Northern District of Texas.

“For more than three decades, Ryan has served as a champion for empowering business leaders to reinvest the tax savings our Firm has recovered to transform their businesses,” said Ryan Chairman and CEO G. Brint Ryan. “Just as Ryan ensures companies pay only the tax they owe, we stand firm in our commitment to serve the rightful interest of every company to retain its proprietary formulas for success taught in good faith to its own employees.”

FTC authority

The FTC’s final rule, a 570-page tome, discusses its authority over health care organizations claiming tax-exempt status as nonprofit entities.

The final rule stated physician groups commented that the impact of a noncompete ban would be limited if nonprofits are not required to comply. They encouraged the FTC to work with other agencies to apply the rule as widely as possible and to monitor health care nonprofits for antitrust violations.

Commenters cited AHA data that up to 58% of all U.S. hospital systems claim tax-exempt status as nonprofits; 24% are for-profit hospitals, and 19% are state and local government hospitals. Up to 78.8% of for-profit hospitals are in the same hospital referral region as nonprofits, thus competing for patients, physicians, other clinicians, and market share.

“In fact, under existing law, these organizations are not categorically beyond the Commission’s jurisdiction,” the final rule said.

Administrative proceedings and court rulings involving the FTC or the Internal Revenue Service have identified conditions that could bring nonprofits under FTC jurisdiction, meaning the FTC noncompete ban would apply to them, the final rule said.

Negative effects

It’s clear physician comments had some influence on the final rule.

“Thousands of health care workers submitted comments supporting a ban on noncompetes,” the final rule said.

“These commenters detailed the negative effects of non-competes on their families, their mental health, their financial health, and their career advancement,” the final rule said. “Specifically, health care workers commented that because noncompetes prohibited them from switching jobs or starting their own businesses, they had to stay at jobs with unsafe and hostile working conditions, to take jobs with long commutes, to relocate their families, to give up training opportunities, and to abandon patients who wanted to continue seeing them.”