What physicians need to know about restrictive covenants

July 25, 2013

The mention of restrictive covenants provokes an almost visceral reaction among most physicians. They temporarily control how physicians can practice, and how they can obtain new patients. But keep in mind these covenants are, for the most part, enforceable.

Roy W. BreitenbachThe mention of restrictive covenants provokes an almost visceral reaction among most physicians. But keep in mind these covenants are, for the most part, enforceable.

Non-competition covenants prevent a physician who leaves a practice from providing services in close proximity to his or her former practice for a set period of time. Non-solicitation covenants preclude a physician who leaves a practice from soliciting patients to join the physician’s new practice. These covenants also restrict physicians from soliciting his or her former practice’s referral sources or employees.

Restrictive covenants temporarily control how physicians can practice, and how they can obtain new patients. Most courts have recognized that reasonable physician restrictive covenants serve an important purpose and therefore are, for the most part, legally enforceable in most states.

States that are willing to enforce physician non- competition covenants typically will only do so if the covenant is reasonable in scope, duration, and geographic area. The covenant also cannot unduly burden the general public or the individual physician.

A non-competition covenant is considered reasonable in scope if it
is limited to the services that the physician actually provided while employed by the practice.

With regard to the reasonableness of duration requirement, the non- competition covenant should last only as long as is needed to ensure that the departing physician
is competing on the basis of his or her own skill and efforts, and not on the basis of material that he
or she had access to while employed by the former practice. Generally, the covenant should last either the same length of time as the term of the contract containing the covenant or 3 years, whichever is shorter.

Turning to geographic reasonableness, the non- competition covenant should only prohibit a physician from continuing to provide services in the same general area as he
or she provided services before leaving the old practice. The restricted area should be no larger than the area from which the old practice draws 80% of its patients. Finally, it must not unduly burden the physician subjected to it.

Enforcement

The enforceability of a non-solicitation covenant primarily depends on the definition of solicitation. Generally, solicitation means purposeful contact with patients in an attempt to convince them to receive services from the physician’s new practice. Typically, any contact initiated by the patient does not constitute solicitation, as long as the physician does not disparage his or her former practice. Courts often require, for a non-solicitation covenant to apply, that the physician have treated the patient while working at his or
her former practice. Thus, the covenant cannot prevent the physician from soliciting patients he or she never treated at the old practice.

Most courts make
a distinction between covenants that prevent a physician from soliciting former patients-which typically are enforceable- and covenants preventing a physician from treating former patients-
which typically are
not enforceable. Thus, regardless of the existence of a non-solicitation covenant, a physician almost always can treat former patients who
come seeking his or her services so long as they are unsolicited.

 

Roy W. Breitenbach is a partner/director of Garfunkel Wild, PC, in Great Neck, New York. Send your practice finance-related questions to medec@advanstar.com.

 

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