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FTC might ban noncompetes. Here are 3 things physician employers should do now.

By Kara Marlatt

February 15, 2023

    On Jan. 5, the Federal Trade Commission (FTC) proposed a ban on noncompete clauses in employment contracts. To put it lightly, the buzz surrounding this proposal has been contentious. It is also difficult to understand what the long-term implications of such a ban will have and what the FTC's timeline looks like.

    So, let's begin by taking a step back and break down how we arrived at where we are today.

    Historically, noncompete agreements have been a matter of state law. If this new rule is adopted, a ban would be set at the national level and require employers to rescind existing and past noncompete agreements. We are particularly interested in the potential implications of the proposed ban for physicians, the entities that employ them, and the patients they serve. Importantly, the ban would not apply to most not-for-profit organizations, such as non-profit health systems.

    As of today, the FTC is inviting a 60-day public comment period (through March 20), after which they will likely finalize their proposed rule by late 2023. We anticipate the proposed rule will be met with many legal challenges and will eventually get watered down or tossed out in court altogether.

    Regardless of where the ban lands, one thing is for certain ― employers, whether for-profit or not-for-profit, should take this opportunity to rethink their employee relationships and contracting strategies. We are already seeing individual states acting independently to ban or significantly restrict the use of these agreements. Any upheaval in employment could have ripple effects across the healthcare industry that is already embroiled in a workforce crisis.

    Below we outline 3 actions that physician employers should take in light of the proposed ban:

    1. Review your physician noncompetes ― and how you talk about them

    Employers should anticipate more restrictions on noncompete agreements being handed down by individual states regardless of the nationwide ban outcome. Whether that happens next month, next year, or not at all, is a moot point. Take this as an opportunity to review your restrictive covenants with existing or former employees and determine how a national ban or future state-level restrictions would impact your business interests. You can begin by ensuring your contractual agreements are not written too broadly and are consistent between physicians.

    Just as important is how you present these noncompete agreements to physicians. Transparency is critical to building trust or maintaining loyalty. Whether your contractual agreements are negotiable or not, your intent should always be to present them openly (i.e., "this is what our noncompete means for you") and to give your prospective physicians enough time to determine whether your organization is the right fit for them. A physician may have fewer qualms about signing a noncompete if the work is enjoyable and the environment is supportive.

    Conversely, physicians that are unhappy with their work environment are more likely to express a deep dissatisfaction with non-complete agreements. One way to alleviate physicians' concerns about signing noncompete agreements is by providing them with tangible ways that you are the employer of choice.

    Here are questions to ask yourself when revisiting your physician contracts:

    • Do I present my noncompete agreements openly to prospective physicians?
    • Would the courts be able to challenge my noncompete or non-solicitation agreements as written?
    • How might certain contractual agreements (e.g., signing bonuses, equity, non-solicitation, etc.) be affected if a ban is enforced?

    2. Revisit your employee value proposition for your physicians

    A new era of physician employment is underway. More physicians are experiencing heightened levels of burnout, and this is causing many of them to contemplate a career change. This comes at a time when more employment options are available, and these options often have enticing characteristics that physicians crave — stability and autonomy. Whereas once you could rely on physician goodwill and loyalty, physicians are increasingly in the driver's seat of where they practice and how they deliver care. And if the noncompete ban is enforced, physicians will have one less barrier preventing them from moving on to greener pastures.

    Rather than stress over how to not lose physicians (defensive strategy), it is best to understand why they work for you in the first place. This remains at the heart of any great employee value proposition and will be what you can utilize to attract new talent and retain the talent you have (offensive strategy). As one physician effectively penned in a recent open letter, "rather than putting time and energy into [noncompete clauses], that same focus could be used to cultivate an environment in which physicians want to stay."

    Maybe your physicians prefer being salaried because that offers more work-life balance. Or maybe they saw you as an employer with a great support structure that removed workflow burdens. Whatever the reason(s) may be, employers should know why their physicians like working for them and what sets them apart from the competition.

    Here are a few starter questions to ask your physicians:

    • What do you like about working for us (e.g., autonomy, sustainable workload, work-life balance)?
    • What are three things we can do to improve your day-to-day?
    • Do you feel you have enough support to be successful? If not, where can we help?

    3. Make care continuity the path of least resistance

    At their core, physicians want to provide the best care to their patients. Physicians build their practices by establishing relationships of trust with their patients. This physician-patient relationship is the foundation of clinical care and is the value that physicians offer you (the employer). If you can successfully attract and retain your physicians, you will attract and retain patients.

    Noncompete agreements do not embody a patient-first approach to healthcare. Instead, noncompetes have the potential to harm the physician-patient relationship in two ways:

    • Noncompetes disrupt continuity of care. When physicians sign a noncompete, they are often bound by a separate non-solicitation agreement as well, which prohibits them from telling their patients where they are moving to. This disruption in care continuity can lead to increases in total care costs and certain care delays.
    • Noncompetes make information sharing difficult. Make no mistake, the healthcare system already makes sharing of patient information challenging ― noncompetes just make it worse. Thankfully, patients have ample resources at their fingertips (thank you, internet!) to locate where their physician moves to and get their medical records transferred. But should it really be this hard? Should a patient need to play the role of private investigator to find their doctor they have trusted for years?

    To bridge this gap in care, we advise employers to build their patient care model assuming physicians will leave if allowed to, and that their patients will follow them.

    Here are questions to ask yourself when trying to bridge this gap in care:

    • Do we currently take a more proactive or backseat approach when it comes to transferring patient information?
    • What are the benefits to establishing a more seamless transfer system? What are the challenges?
    • Does my existing IT infrastructure make it easy or hard to share patient records with other local providers?

    Parting thoughts

    As we navigate the FTC's proposed ban on noncompete agreements for the remainder of 2023 and into 2024, we encourage healthcare employers to take on a more offensive strategy and be proactive in their thinking. Regardless of where the ban lands and what happens in the court system, there are things you can do now to improve your physician relationships as well as to gain and maintain their loyalty:

    • Review your physician noncompetes and how to talk about them
    • Revisit your employee value proposition for physicians
    • Be more proactive with how to make continuity of care and the transfer of patient information a priority

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