On February 7, 2020, the American Medical Association submitted a letter to the Federal Trade Commission (FTC) concerning non-compete agreements in the workplace and urged the government agency not to use its rule-making authority to ban all non-compete agreements. In essence, AMA advocated that physician non-competes serve a useful purpose and each state should be left to decide how they want to regulate such contracts.
Although AMA acknowledged that physician employment arrangements frequently included non-compete agreements, and their enforcement can raise issues regarding physician ownership, the patient-physician relationship, and patient access to care, it urged FTC to, basically, stay out of the states’ regulation of such agreements.
While AMA wrote the letter on behalf of all of its constituents, it admitted that its members had different perspectives on the issue, depending on whether they were employers or employees:
“Physicians who are employers and owners in physician practices or leaders in integrated delivery systems may favor the use of reasonable non-competes, while physicians who are employees of practices, hospitals, health systems, or other organizations may have concerns about being subject to overly restrictive non-competes that limit employment opportunities and may impact patient access to care.”
AMA then clarified that it already had several policies on post-employment non-compete agreements, such as Ethical Opinion 126.96.36.199 from the AMA’s Council on Ethical and Judicial Affairs, which states:
“Competition among physicians is ethically justifiable when it is based on such factors as quality of services, skill, experience, conveniences offered to patients, fees, or credit terms.
Covenants-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care.
Physicians should not enter into covenants that:
(a) Unreasonably restrict the right of a physician to practice medicine for a specified period of time or in a specified geographic area on termination of a contractual relationship; and
(b) Do not make reasonable accommodation for patients’ choice of physician.
Physicians in training should not be asked to sign covenants not to compete as a condition of entry into any residency or fellowship program.
According to AMA, its Ethical Opinion 188.8.131.52 is consistent with the majority of states where courts enforce post-employment non-competition agreements in physician contracts so long as those agreements protect a legitimate business interest, are reasonable with respect to duration and geography, and are not otherwise against public policy, of which patient choice may be a consideration in some jurisdictions.
In addition to this ethical opinion, AMA has adopted other relevant non-compete polices: Policy H-310.929, “Principles for Graduate Medical Education;” Policy H-295.910, “Restrictive Covenants During Training;” Policy H-295.901, “Restrictive Covenants in Residency and Fellowship Training Programs;” Policy H-225.950, “AMA Principles for Physician Employment;” and Policy H-383.987, “Restrictive Covenants in Physician Contracts.
Employer’s Interests in Using Non-Compete Agreements in Physician Employment Arrangements
AMA explained that employers may have a legitimate business interest in implementing post-employment non-compete agreements, such as providing physicians specialized training, making referral sources and contacts available to physicians, providing physicians with patient lists, marketing the physicians in the community, and allowing physicians to have access to proprietary information.
AMA further explained that non-competes may give employers the peace of mind necessary to invest significant resources in the employed physician’s success, without having to worry that the physician will later leave the employer after the physician has developed a significant patient base, taking those patients with him or her. Such arrangements can also benefit physicians who might not have otherwise received the time and resources from their employer without a non-compete.
Concerns with Non-Compete Agreements
AMA acknowledged that non-competes can “pose challenges” to employed physicians, as their enforcement can force physicians and their families to move out of the geographic area where the physicians had developed significant community relationships. Furthermore, their enforcement could negatively impact patient access to care because a patient may not be able to travel to visit the physician at his or her new location outside the competition radius or because forcing a physician to move to a new geographic area may reduce the number of available physicians within the non-compete region.
Despite acknowledging that non-compete agreements may affect patient-physician relationship, the AMA ultimately issued the following recommendation:
The AMA does not recommend that the FTC at this time use its rulemaking or other authority, such as its law enforcement authority, with respect to non-compete agreements in physician employment arrangements.
Instead, AMA urged the FTC to leave it up to the states to determine which non-compete restrictions they wanted to implement.
Comments by Other Medical Associations and Individual Physicians
AMA’s recommendation stands in stark contrast to the position taken by Allegheny County Medical Society and American Academy of Emergency Medicine, both of which recommended that FTC should ban physician non-compete agreements. In addition to the letters from these association, dozens of individual physicians submitted comments urging FTC to ban non-compete agreements.
BOTTOM LINE: It is not certain whether FTC will issue any rules affecting physician non-compete agreements. Therefore, physicians should continue to carefully review the agreements they are being asked to sign and negotiate these contracts. Some situations lend themselves to creative solutions that protect both the employer and the physician employee. In other situations, making the language of the non-compete tighter, if not narrower, can help bring some clarity into what the physician’s restrictions will be should he or she leave the practice.
Most importantly, physicians should be reviewing their agreements BEFORE they sign them and seek legal advice if the agreement seems one-sided or they want to negotiate the best deal.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.