Noncompete clause once again relevant for doctors

March 25, 2012

The rules governing noncompete clauses have been clarified by an advisory opinion from the Centers for Medicare and Medicaid Services. Learn what this legal decision could mean for you.

Key Points

This rule stymied many medical practices, which were reluctant to hire new physicians without noncompete and non-solicitation provisions. In 2011, CMS issued an advisory opinion that changed this provision, however.

PROVIDING GUIDANCE

The practice asked CMS for guidance because the Stark laws suggested that perhaps a noncompete clause could not be contained in the employment agreement of a physician recruited by a hospital to join a local medical practice. In fact, a prior version of the Stark regulations was clear that noncompete clauses were not permitted in the employment agreements of physicians recruited by hospitals.

Hospital recruitment transactions involve bringing a physician into a new area and funding the start-up period, which is usually 1 year.

The nice thing for a medical practice is that the dollars given by the hospital to the practice (the difference between salary and benefits and collections) can run into the hundreds of thousands of dollars.

The downside for the medical practice is that it cannot tie the recruited physician's hands with a noncompete clause or other similar restriction. The advisory opinion is a game changer, however, because it allows the medical practice to impose a noncompete clause on the recruited physician.

As previously mentioned, the practice would not hire the recruited physician without the noncompete clause, which had a 25-mile radius. The advisory opinion cited the following relevant facts:

Based on these facts, the U.S. Department of Health and Human Services' Office of Inspector General permitted a 1-year noncompete clause because it did not "unreasonably restrict the doctor's ability to practice in the recruiting hospital's service area." Certainly, many other medical practices will follow suit.

KNOW YOUR STATE'S LAWS

If you want to learn more about noncompete clauses, you must become familiar with the laws in your state that govern them. In Florida, for example, a noncompete clause is enforceable under the conditions below:

This depends on where the practice draws its patients from. If patients come to the practice from just down the street, a 10-mile radius probably is overbroad.

It can be longer in some limited circumstances, however.

If the employer has breached the contract that contains the noncompete clause, most courts will reject a claim to enforce it.

For example, if the employee is the only person performing toe surgeries, and the practice will not provide these services after he or she leaves, the practice probably does not have a legitimate business interest to protect by enforcing the noncompete clause.

Few practice areas are in such dire straits that the departure of one doctor will adversely affect the provision of healthcare services in the area.