The physician noncompete tug-of-war

Many physicians and organizations are fighting to get noncompete agreements — which prohibit them from seeing patients for one to two years within a geographic region if they are fired or quit their job — banned or restricted. 

In January 2023, the Federal Trade Commission proposed a rule that would ban noncompete contracts for full-time employees and independent contractors, but there has yet to be a final ruling. The FTC has argued that noncompetes, which aim to protect an employer's interest when hiring a new employee, inhibit competition and lower wages for workers. The proposal has an exception applicable to the sale of a business where the person subjected to the noncompete has an ownership interest of at least 25%. About 87% of physicians support the FTC's proposed noncompete ban, according to a poll conducted by Doximity.

Physician noncompetes are common from large health systems to small physician groups and are included in an employment agreement, according to a March 6 post from VMG Health. The American Medical Association estimates that between 35% and 45% of physicians in the U.S. are bound by noncompete clauses of some kind, a figure that has increased as more physicians move to employed models over private practice. 

Physician noncompetes can become "cyclical" as competing practices are subject to the same risk of physicians leaving "to another competing practice around the corner," according to the VMG report. 

As health systems expand geographically and physicians flock to employed models, noncompetes make it more difficult to practice if they choose to leave their employer, according to Marsha Haley, MD, a clinical assistant professor of radiation oncology at the University of Pittsburgh.

"Many large health systems have a footprint that spans several states," Dr. Haley told Becker's. "If a physician is let go or leaves the practice, this requires the physician to move a long distance to meet the noncompete clause. Given the size and vertical integration of health systems, they are in no danger of losing a significant number of patients to the departing physician. The physician, however, is now required to move a great distance away from children's schools and extended family to make a living."

Practice owner and cardiologist Rishin Shah, MD, on the other hand, opposes the proposed FTC rule. 

"As a small practice owner, I am personally against this," he recently told Medscape. "The noncompete helps me take a risk and hire a physician. It typically takes two to three years for me to break even. I think this will further consolidate employment with large hospital systems unfortunately." 

Some states have taken matters into their own hands. California, Washington, Indiana, Connecticut and Maryland have passed laws adjusting their respective noncompete policies in the last year. And physicians in Georgia, Indiana and Ohio have all sued to get noncompete statutes changed in their state. 

Other states have been less successful in moving the needle. In March, the Florida Legislature declined to pass two laws banning noncompetes for physicians and doctors of osteopathic medicine. And in January, New York Gov. Kathy Hochul vetoed a proposal to ban noncompetes. 

"It absolutely causes strife and stress in physicians' lives and limits fair market competition," John Nelson, MD, a pathologist at Merit Health Biloxi (Mo.), told Becker's. "Physicians are not versed enough coming out to realize these issues."

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