Background

In April, the FTC voted 3-2 to approve a rule banning noncompete agreements. Under the rule, which will take effect in September, companies won't be able to issue noncompete agreements and will be required to inform employees with existing noncompete agreements that they will not be enforced.

According to FTC Chair Lina Khan, noncompete agreements restrict workers' opportunities and infringe on their fundamental rights by preventing them from changing jobs.

"Robbing people of their economic liberty also robs them of all sorts of other freedoms, chilling speech, infringing on their religious practice, and impeding people's right to organize," Khan said.

FTC estimates that 18% of the American workforce, or around 30 million people, are covered by noncompete agreements. Currently, noncompete agreements are used in an estimated 40% of physician employment contracts and are used by many hospitals, health systems, physician groups, insurance companies, and pharmacy benefit managers.

According to FTC estimates, banning noncompetes will increase employees' earnings by up to $488 billion over the next decade and will lead to the creation of over 8,500 new businesses each year. The agency also noted that the rule could lower healthcare costs by up to $194 billion over the next decade.

"No one should be trapped in an unsafe job by onerous contracts that prevent them from taking another job," said Brynne O'Neal, a regulatory policy specialist at National Nurses United.

Nonprofit hospitals are excluded from the rule

The rule contains several notable exceptions, including for senior executives or those who hold a policy-making position and earn more than $151,164 a year. It also makes exceptions for nonprofit companies.

Currently, almost 64% of U.S. community hospitals are either nonprofits or government-owned and employ many of the country's healthcare workers. As of 2022, data shows that almost 75% of U.S. physicians were employed by both nonprofit and for-profit hospital systems or other companies.

According to physician and nursing groups, it doesn't make sense for FTC to treat nonprofit hospitals differently. Instead, the groups say that patients will benefit if providers can call out unsafe conditions and change their jobs.

"Giving physicians freedom of movement will force hospitals to compete to improve working conditions," said Jonathan Jones, immediate past president of the American Academy of Emergency Medicine.

Separately, Chad Golder, general counsel and secretary of the American Hospital Association, said the noncompete rule would lead to hospital bidding wars for physicians, which could then increase healthcare costs and reduce patient access.

"All it would do is increase the price of labor in a field that already has labor shortages and thin margins," Golder said.

Chip Kahn, president and CEO of the Federation of American Hospitals, agreed. "The nonprofit hospital across the street could pursue our employees, while their employees would be protected, and that's a basic fairness issue," he said.

Kahn also noted that some nonprofit hospitals have joint ventures with for-profit hospitals and medical groups, which could lead to confusion about which employees would be affected by the noncompete rule.

According to Golder, FTC may try to apply the rule to both nonprofit and for-profit hospitals. In fact, FTC noted in the rule that, if a tax-exempt company is organized in a way that seeks to drive profit to its members, the agency can treat that company as a for-profit entity and therefore subject it to the noncompete ban. FTC also said that "some portion" of the 58% of tax-exempt hospitals and 19% of government hospitals will likely be affected by the rule.

"They aren't saying exactly what they'll do, but it's a pretty significant move for them to say we'll apply our own test to determine if we can regulate a nonprofit," Golder said. "Nonprofit entities now will need to be extra careful."

Advisory Board's resources on physician employment

For more insights on physician employment, check out these Advisory Board resources:

In this expert insight, our researchers outline three things that physician  employers should do right now in response to FTC's noncompete rule.

We have also synthesized some of the best, up-to-date data sets on providers to highlight what you need to know about the physician workforce. This research reveals key data points about the physician workforce's demographics, employment, well-being, and turnover — and the implications for the future.

Similarly, we offer resources on how you can become the physician employer of choice by providing physicians with meaningful autonomy, ample time, and seamless support that helps them thrive as both doctors and people.

Finally, we also offer an expert-facilitated workshop on how to develop your employee value proposition. The workshop will explore the forces shaping employee expectations and help you and your colleagues create a unique employee value proposition to position your organization as an employer of choice. (Meyer, KFF Health News, 6/5)