The Changing Landscape of Physician Noncompete Agreements

Published September 15, 2023

Industry experts estimate that at least 37% of American physicians have signed noncompete agreements as part of their employment. While these agreements have typically forced doctors to relocate when taking a new job, a wave of new legislation is poised to change how physicians navigate the industry.

The end of noncompetes?

Noncompetes have been a common requirement in certain, specialized areas of the workforce, including medicine. Originally, they were intended to protect employers from competitor poaching and prevent employees from  starting their own businesses, but attitudes toward the noncompete agreement are changing. Now, there is substantial support behind the legal perspective that noncompetes unfairly infringe on the employment and earning potential of American workers.

As Becker’s ASC Review reports, legislative efforts to ban noncompete agreements are popping up all over the US. In June, New York passed a bill that will completely ban noncompete agreements. That same month, Connecticut passed legislation that amended its current law on physician noncompete agreements, specifically. Under Connecticut’s new law, physician noncompetes can last no longer than a year or extended beyond a 15-mile radius of a practice.

This year, Indiana passed its own ban on noncompete agreements for primary care physicians, but excluded speciality physicians. In July, this new law was put to test when pediatric intensivist David Lankford, DO, brought a suit against the Fort Wayne, IN-based Lutheran Health Network after the hospital laid off non-intensive pediatric hospitalists and transferred their caseload to Dr. Lankford and other intensivists . He subsequently quit when he and the employer could not come to an agreement over caseload — but was still bound by his non-compete agreement.

“When the hospital decided to let go of all of the pediatric hospitalists,” argued Dr. Lankford’s attorney, “they asked Dr. Lankford to provide care outside of his subspecialty and outside the scope of his contract." As of this writing, Dr. Lankford’s case has still not yet been resolved.

FTC proposes nationwide ban

These recent moves to restrict noncompete agreements at the state level have all happened in the shadow of potential federal ban. At the beginning of 2023, the Federal Trade Commission (FTC) proposed a nationwide ban on noncompete agreements, citing that they both hurt workers and harmed competition. 

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina M. Khan said in a press release. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

In the same release, the FTC estimates that eliminating noncompete agreements will positively impact roughly 30 million American workers and could raise wages by $300 billion per year. The regulator also estimates that a ban would fight against consolidation and increased costs, saving roughly $148 billion a year in healthcare costs.

Speaking from the Office of Policy Planning, Director Elizabeth Wilkins said, “​​The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”

If you’re a physician who may have more career mobility given these changes to noncompete agreements, you may want to evaluate the financial impact of a career change with the help of an Earned advisor. At Earned, our experienced advisors have decades of experience in providing streamlined, stress-free financial planning solutions to physicians and can help you weigh the pros and cons of a potential career change. Contact our team today to learn more about your options. 

The healthcare industry’s response

Eliminating noncompete agreements in the healthcare industry has wide support among physicians. The American Medical Association (AMA) — which estimates between 37 and 45 percent of American doctors work under noncompete agreements — supports the end of most of these agreements for physicians. Citing its own Code of Medical Ethics, the AMA maintains that “covenants not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care.”

The AMA sheds further light on the changing perspective on these agreements by recalling the height of industry turbulence during the COVID-19 pandemic. The Association notes that noncompete agreements made it difficult for many physicians to effectively advocate for healthcare worker safety during the pandemic because doing so often meant being threatened with termination. During an already uncertain time, many doctors could not risk the chance of being out of a job and then not being able to find a new position unless they relocated.

The American Academy of Family Physicians (AAFP) also supports the FTC’s proposed rule. In April, the Academy wrote a letter to the FTC urging it to finalize the rule, saying that the recent surge in hospital mergers and encroaching marketplace threats to small, independent practices makes a ban essential to providing accessible care. The AAFP’s letter also notes that, in a third-party review of physician contracts, more than 90 percent of them included noncompete agreements.

“The AAFP firmly believes that everyone should have affordable, equitable access to comprehensive, person-centered primary care,” the AAFP letter states, “and we are therefore concerned that noncompete clauses may be undermining progress toward improving individual and population health.”

Of course, healthcare employers have struck a different tone when it comes to noncompete agreements. As Rollcall reports, large lobbying groups like the U.S. Chamber of Congress and the American Hospital Association say that a ban on noncompete agreements would hurt their ability to retain talent and capitalize on their investments in recruitment and training.

How Earned can help

The FTC’s proposed rule is not yet law, but as more states continue to pursue and pass legislation that limits physician noncompete agreements, it’s fair to say that we’ll continue to see significant changes in the industry. Many doctors in “noncompete states” like California and Colorado have already begun enjoying new levels of career freedom and earning power. 

If you are considering a career change given the changes related to noncompete agreements, Earned can help by evaluating the financial implications of another job opportunity. Our expert advisors specialize in wealth management for physicians and can present tailored options to help optimize your financial health and well-being.

It all starts with a conversation. Contact Earned to schedule a complimentary consultation today.

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