After the Federal Trade Commission (FTC) proposed a ban on noncompete clauses, several hospital groups have pushed back, arguing that a ban could "upend" the healthcare labor market and create an "unlevel playing field," Harris Meyer writes for Kaiser Health News.

FTC proposes a ban on noncompete clauses

In January, FTC proposed a rule to prohibit companies from including noncompete clauses in employment agreements. Noncompete contracts, which usually prevent employees from seeking employment with a competitor for a certain period after they leave a company, impact roughly one in five American workers.

According to FTC officials, noncompete clauses have a negative impact on both workers and companies.

"Noncompetes are basically locking up workers, which means they are not able to match with the best jobs," said FTC Chair Lina Khan. "This is bad for competition. It is bad for business dynamism. It is bad for innovation."

If FTC's proposed rule is adopted, companies will not be allowed to impose noncompete contracts on new employees or maintain existing contracts. The rule would also prohibit the use of nondisclosure or training repayment agreements if they function as de facto noncompete clauses. Any companies with active noncompete clauses must inform workers that the contracts are void.

FTC estimated that banning noncompete clauses would boost annual employee earnings by up to $296 billion. According to the agency, part of the increase represents an income transfer from firms to workers and consumers to workers, which would occur if firms were compelled to raise prices in response to wage increases aimed at retaining workers.

Ultimately, "[t]he freedom to change jobs is core to economic liberty and to a competitive, thriving economy," Khan said.

Although the initial public comment period for the proposed rule was scheduled to end March 20, FTC has since extended it until April 19.

How physicians have been impacted by noncompete clauses

Research has suggested that at least 40% of physicians are employed under restrictive covenants that often prohibit them from working for competitors within a 30-mile radius for a period of one to two years.

According to some physicians, noncompete clauses have pushed them out of the areas where they initially practiced and led to them not being able to care for their former patients.

Jacqui O'Kane, who worked as the lone doctor in a primary care clinic in a small town in Southern Georgia, said long nights and a heavy workload at the hospital made it difficult for her to care for her two young children. Although she considered opening her own practice in town, her contract included a noncompete clause that prohibited her from practicing within 50 miles of the hospital for two years after the end of her contract.

Instead, she has decided to join a different practice in South Carolina, leaving her established patients behind. "It sucks," O'Kane said. "I know my patients very well, and I feel like I'm being forced to abandon them. But I can't stay in this job because it's unhealthy for me to work this much."

Some physicians also say that noncompete clauses can negatively impact patient care. In a 2022 survey of 117 orthopedic surgeons in Louisiana, almost two-thirds said noncompete agreements force patients to travel long distances to maintain high quality care over time. In addition, over three-quarters of the doctors said they were forced to abandon patients because of noncompete clauses.

Hospital groups push back on the proposal

So far, FTC's proposal has faced pushback from employers from all industries, including hospitals and private equity-backed medical groups.

Last month, the American Hospital Association (AHA) sent a letter urging FTC to withdraw its proposed rule that would ban noncompete clauses in employment contracts. In the letter, AHA argued that the hospital field — or at least doctors and senior hospital executives — should be exempt from the ban.

"The proposed regulation errs by seeking to create a one-size-fits-all rule for all employees across all industries, especially because Congress has not granted the FTC the authority to act in such a sweeping manner," AHA wrote. "Even if the FTC had the legal authority to issue this proposed rule, now is not the time to upend the health care labor markets with a rule like this."

According to healthcare industry groups, banning noncompete clauses would increase care costs since hospitals would have to pay physicians more to retain them. They also said that noncompetes are necessary to protect both proprietary investments and information, as well as prevent employees from taking clients and patients with them when they leave a job.

These groups have also argued that FTC lacks the statutory authority to regulate nonprofit hospitals, which make up almost 60% of all U.S. community hospitals — something the agency acknowledged in its proposed rule.

"The rule would create an unlevel playing field because we compete with nonprofit and public hospitals that wouldn't be subject to it," said Chip Kahn, CEO of the Federation of American Hospitals, which represents for-profit hospital systems.

Beth Vessel, an antitrust attorney at the law firm Waller Lansden Dortch & Davis, noted that the ban could also affect the value of healthcare mergers and acquisitions. According to Vessel, acquirers may pay less if they do not have a guarantee that employees will remain for a certain period after a deal is finalized.

Going forward, business and hospital groups are likely to sue to block if the proposed rule is adopted. "I don't know if it will ultimately survive because it is so broad," Vessel said. "It seems like a pretty steep uphill battle in the courts." (Meyer, Kaiser Health News, 3/27)