The Federal Trade Commission’s (FTC) vote to ban noncompete agreements is set to have an outsized impact on the health care sector, empowering clinicians and raising anxiety among private practices who worry it will compound staffing problems.
The FTC voted 3-2 last month to ban all current and future agreements preventing workers from going to competitors or starting a competing business after they leave a job. The rule is set to go into effect on Sep. 4, though the U.S. Chamber of Commerce has already sued to stop it.
Shortly before the rule came out, FTC Chair Lina Khan told reporters that of the 26,000 comments her agency received on the proposed rule, “a pretty significant chunk were from health care workers in particular.”
“Even for workers who, you know, make a decent living, their view was that at the point of signing these contracts, they did not actually have bargaining power,” she said.
In its announcement, the FTC said eliminating noncompete clauses is expected to lower health care costs by $194 billion over the next 10 years.
Lisa Stand, director of policy and regulatory advocacy at the American Nurses Association, said her group was pleased with the rule and surprised by “how strong it is.”
“It absolutely will make job mobility easier,” Stand said. “We’re nurses, and we think that ultimately this is good for patients as well, as there is more sort of robust competition for clinical talent and an expanded access to more choices of provider and provider setting.”
But some private practices worry not enough thought has been put into how a change like this will affect the care they provide to patients.
Jack Feltz is a practicing OB-GYN as well as president and CEO of Lifeline Medical Associates, a practice of roughly 200 physicians providing care to patients in New Jersey and Delaware.
Employees at Feltz’s practice, including himself, are asked to sign noncompete agreements. He acknowledges that noncompetes can be onerous on workers but argues that private practices will be less capable of competing with larger hospital systems without them.
“It truly unbalances the ability of those organizations, especially private practices which are already under siege and being decimated by hospital employment, for them to be able to maintain and be able to compete with hospitals that have no restriction on noncompetes,” said Feltz.
He warned that large health systems will soon be more able to poach not only physicians, but their private practice patients as well.
According to the American Medical Association, 37 percent to 45 percent of physicians are under noncompete agreements. While they are common, Feltz noted noncompete agreements aren’t always enforced. He said his own practice has let former employees out of their agreements due to external issues.
Lynn Rapsilber is co-founder and CEO of the National Nurse Practitioner Entrepreneur Network, a nonprofit that helps nurse practitioners start their own businesses. According to Rapsilber, everyone from large health systems to small practices is “competing for that patient” who she believes is the main beneficiary of this rule.
From a business perspective, Rapsilber agrees there is value in contractual agreements that former employees won’t take patients or mailing lists from a practice. The main “problematic” issue she sees in enforcing noncompete agreements is the geographic stipulations they place on health care workers, limiting where they can practice after leaving a job.
“For the consumer, this is great news because there’s going to be more opportunities for choice in their health care provider if there’s more opportunity for people to open up their own practices and to be able to serve the community,” she said. “That’s going to enhance competition, which will actually in the long run lower prices and increase quality.”
Labor experts argue that getting rid of noncompetes will also relieve physicians of an additional challenge amid an increasingly monopolized industry.
According to John August, director of health care and partner programs at Cornell University’s Scheinman Institute, noncompetes have become “a big issue” in health care as physicians’ practices are being taken over by large health systems.
“A lot of physicians are thinking of leaving their practices that they’ve spent many years building and then only to see them taken over by larger and larger corporations and feeling very, very dissatisfied in their employment situation and wanting to leave and finding these noncompete clauses,” August said.
The new rule would allow many of these physicians to leave after their practice is absorbed — with some caveats depending on what type of entity it is.
Some larger hospital systems may gain an advantage by being excluded from this rule. The FTC has limited jurisdiction over nonprofits, and about half of all community hospitals in the U.S. are nonprofits, according to the American Hospital Association.
As Fierce Healthcare recently reported, FTC Commissioner Rebecca Slaughter acknowledged there would be health care workers the rule would “struggle to reach” due to their employment at nonprofit hospitals.