Hospitals, physicians submit opposing views to FTC ruling on noncompetes

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The Federal Trade Commission's final rule banning noncompetes nationwide has implications for hospitals and physician practices, with representatives from both groups submitting opposing opinions to the decision.

Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business, the FTC said. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.

The American Hospital Association called the FTC ruling, "bad law, bad policy and a clear sign of an agency run amok."

AHA General Counsel Chad Golder indicated legal challenges would be forthcoming, but stopped short of committing the AHA to involvement. 

"The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals' ability to care for their patients and communities," Golder said by statement.

While the American Medical Association has not immediately weighed on the ruling, the American Academy of Family Physicians said it was pleased by the FTC action.

Dr. Steven P. Furr, president of the American Academy of Family Physicians, said, "We are also encouraged to see that the FTC intends for this ban to extend to many nonprofit entities. Nonprofit health systems often have significant financial assets and employ a large portion of physicians and clinicians. They should not be permitted to continue to restrict patient access and physician choice in employment.

"We are hopeful that the elimination of noncompete clauses will encourage employers to pursue more collaborative ways to retain physicians and become employers of choice, while preserving long-term, meaningful patient-physician relationships," Furr said. 

WHY THIS MATTERS

The final rule, issued Tuesday, will promote competition and protect the fundamental freedom of workers to change jobs, the FTC said.

"Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned," FTC Chair Lina M. Khan said by statement. "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market."

Under the final rule, existing noncompetes for senior executives can remain in place, but employers are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

Golder, of the AHA said, "The agency's stubborn insistence on issuing this sweeping rule – despite mountains of contrary legal precedent and evidence about its adverse impacts on the healthcare markets – is further proof that the agency has little regard for its place in our constitutional order. Three unelected officials should not be permitted to regulate the entire U.S. economy and stretch their authority far beyond what Congress granted it – including by claiming the power to regulate certain tax-exempt, non-profit organizations."

Doug Wolfe, managing partner for Wolfe Pincavage, said that without noncompete clauses, hospitals will need to adapt to protect trade secrets and workforce stability. This might involve increased compensation and benefits or alternative strategies.

Also, hospitals will need to review existing contracts and notify employees about unenforceable non-compete clauses, he said.

Patient loyalty could be impacted if patients follow departing physicians, which would affect a provider's revenue stream, Wolfe said.

The FTC said employers have several alternatives to noncompetes that still enable firms to protect their investments without having to enforce a noncompete. Trade secret laws and nondisclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA, according to the FTC.

THE LARGER TREND

In the final rule, the FTC determined that noncompete agreements represent an unfair method of competition, and therefore violate of the FTC Act.

The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. 

An estimated 30 million workers – nearly one in five Americans – are subject to a noncompete agreement.

The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower healthcare costs by up to $194 billion over the next decade, according to the FTC. 

In addition, the final rule is expected to help drive innovation and lead to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.

In January 2023, the FTC issued a proposed rule which was subject to a 90-day public comment period. The FTC received more than 26,000 comments on the proposed rule, with over 25,000 comments in support of the FTC's proposed ban on noncompetes. The comments informed the FTC's final rulemaking process.

Email the writer: SMorse@himss.org