Doctors and other clinicians could easily terminate contracts and change jobs under proposed new FTC regulation that would prevent companies from limiting employees’ ability to work for a competitor.
The proposed rule seeks to prevent companies from imposing incomplete clauses in employment contracts, a practice that represents an “unfair method of competition” with “exploitative and widespread” effects, including suppression of wages, innovation and entrepreneurship, the FTC said. The public has 60 days to provide comments on the proposal before the FTC issues the final rule.
Employers often include incomplete clauses in doctors’ contracts because they want to avoid patients leaving their healthcare system and following a competing physician. A 2018 survey of primary care physicians found that about half of physicians working in offices and 37% of physicians working in hospitals or free-standing care centers were bound by restrictive covenants.
“Federal bans on incomplete agreements will ensure that physicians across the country can finally change jobs without fear of being sued,” Eric B. , Tell Medscape Medical News.
Many doctors would like to see imperfect agreements fade away, but some doctors still prefer it.
“As a small clinic owner, I’m personally against it. Not being able to compete helps me take a risk and hire a doctor. It usually takes two to three years for me to break even. I think this will boost hiring with unfortunately large hospital systems,” Doctor Texas cardiologist Rishin Shah, MD, PhD. tweeted recently In response to the FTC’s announcement.
As a small practice owner I am personally against this. The non-compete helps me take a risk and hire a physician. It typically takes 2-3 years for me to break even. I think this will further consolidate employment with large hospital systems unfortunately.
— Rishin Shah MD (@DrRishinShah) January 6, 2023
Smith, who has advocated for incomplete reform, says about half of states currently allow the controversial provisions.
However, several states have recently passed laws restricting their use. California, North Dakota, and Oklahoma prohibit non-compete, although there are still some narrowly defined exceptions, such as the sale of a business.
Other states, such as Colorado, Illinois, and Oregon, ban incomplete clauses broadly, except for workers paid above a certain threshold. For example, in Colorado, incomplete agreements are allowed for highly paid employees who earn more than $101,250.
Despite the additional restrictions on non-compete agreements for workers in the District of Columbia, the new legislation does not apply to physicians who receive total compensation of $250,000 or more. However, employers must specify geographic parameters for the ineligible and limit post-employment restrictions for two years.
Restrictive covenants “pose a unique challenge to family medicine’s focus on longitudinal care and the patient-physician relationship,” says Tochi Iroko Malise, MD, MPH, president of the American Academy of Family Physicians. The limitations imposed by imperfect agreements, she said, “potentially reduce patient choice, reduce quality of care for patients, and ultimately damage the very foundations of family medicine — our relationships with our patients.”
Although the proposed rule is in line with President Biden’s executive order promoting economic competition, Smith says a national ban on imperfect deals could push the limits of the FTC’s authority.
“This new rule would certainly lead to a challenge to the ‘principal questions doctrine’ before the Supreme Court,” says Smith, and perhaps be invalidated if the court decides on administrative overreach in areas of “significant economic or political importance.”
The American Medical Association’s (AMA) Code of Ethics discourages covenants that “unreasonably restrict” physicians’ ability to practice after contract termination. And last year, the AMA cited “excessively loose” incomplete language as a red flag that young doctors should watch out for during contract negotiations.
But in 2020, the AMA asked the FTC not to use its rulemaking power to regulate incomplete clauses in doctors’ employment contracts, and instead move enforcement of such agreements to each state. The American Hospital Association has expressed similar views.
However, the FTC says eliminating partial clauses would increase annual wages by $300 billion, allow 30 million Americans to pursue better job opportunities, and encourage competition in hiring among employers. It will also save consumers up to $148 billion in healthcare costs annually.
FTC Chair Lina M. Khan said in a press release about the proposal.
A national ban on non-competitors, Smith says, would keep more physicians in the industry and practicing in their communities, which is a win for patients and providers. It could also force employers to offer more competitive recruitment packages, including fair wages, better working conditions, and a culture of well-being and patient safety, he says.
“Whatever the final rule is, I am certain it will be legally challenged,” says Smith, adding that the nation’s most prominent trade lobby group, the US Chamber of Commerce, has already issued a statement calling the rule “flagrantly illegal.”
Steve Weber is a freelance journalist based in the Midwest who specializes in healthcare and law.
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