Noncompete agreements: What physicians should know in 2022

Noncompete agreements prohibit physicians for a certain period of time from joining a competing practice or setting up their own within a particular geographic distance from their previous practice. But regulations vary from state to state and a recent executive order could change how these agreements are viewed at the federal level.

Ten notes on physician noncompete agreements:

1. Physician noncompete contracts are a common but sometimes contentious issue, as they have the potential to disrupt the physician-patient relationship and remove physicians — who are already in short supply — from the workforce.

2. Ninety percent of physicians are currently or were previously bound by noncompete clauses, according to an April Medscape survey, but President Joe Biden has cracked down on these agreements since he took office. 

3. President Biden signed an executive order last year encouraging the Federal Trade Commission to limit or ban noncompete agreements. For the healthcare industry, the move would likely facilitate physicians leaving hospital employment for ASC ownership in the same community, but it also could increase competition between ASCs to attract and retain talent as they wouldn't be able to enforce their own noncompete agreements.

4. About half of private-sector businesses have noncompete agreements as part of employee contracts for around 36 million to 60 million workers, including many physicians and healthcare workers, according to the White House.

5. The Biden administration hopes the executive order will raise wages by promoting competition between employers. The executive order said noncompete agreements cost American households $5,000 a year by causing lower wages and less competition.

6. The executive order could signal a shift toward more regulation at the federal level. Currently, what may be unenforceable in one state may not be in another, according to law firm Dickinson Wright. All noncompete clauses are generally unenforceable in California, Montana, North Dakota and Oklahoma.

7. Four noncompete disputes that drew national attention in 2021:

8. Most states scrutinize noncompete agreements like those of other industries, but some states treat the agreements differently depending on whether a physician or a nonphysician signed them. Tennessee limits noncompete agreements to be a maximum of 10 miles from the county of practice and a maximum duration of two years, according to Dickinson Wright.

9. A noncompete clause cannot prevent physicians from using general knowledge or skills. For example, if an orthopedic surgeon is prohibited from practicing orthopedic surgery, they would argue that the agreement restricts them from practicing medicine altogether and should not be enforced.

10. Physician noncompetes are void in some states, but most states have exceptions, like when the agreement coincides with the sale of a practice, according to Dickinson Wright. Physician noncompetes are typically void in Colorado, Delaware, Massachusetts, New Hampshire, New Mexico and South Dakota.

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