How non-compete clauses shackle physicians and hurt patients

Tired of regulation and the headache of dealing with third-party payers, increasingly, more physicians are leaving private practices to join hospital networks.

But rather than being a respite from the swamp of bureaucracy, these new employers are acting like roach motels with the liberal and coercive use of non-compete clauses in employment contracts. Physicians suffer, and so do patients.

Non-compete clauses dictate where and when a former employee can work after leaving a place of employment. They are often non-negotiable and binding — even if a job is eliminated with no cause. In health care, non-compete clauses are especially egregious because they slow down innovation, disrupt the relationship between doctor and patient, and remove doctors — who are already in short supply — from the workforce.  

Employers often use non-competes to protect trade secrets and valuable customer lists. But neither of these are at stake when a physician pursues models outside the realm of hospitals, like direct care, house visits, telemedicine, or retail health.

There is no shortage of patients, and hospitals should be focused on critical care, not monopolizing the primary care market. Hospital consolidation has been a real problem in some states, with patients finding limited access to primary care services that hospital conglomerates now dominate. 

Non-compete clauses also interfere with the doctor-patient relationship. When a doctor leaves a practice, patients are left in the dark. Practices won’t tell patients where they can find their doctor, and doctors can’t say where they are going.

One woman says the only information she got when her doctor left his or her practice was a letter stating her doctor was leaving and that colleagues would welcome her “into their care.” It didn’t matter that the woman had a 10-year relationship with the doctor and wasn’t seeking a new one.

The value of continuity of care is well-documented. When patients build trust with a doctor, they tend to pay closer attention to their health, which, in the long run, reduces costs.

The nation can ill-afford to have doctors not working while they wait out non-compete clauses, which can sometimes last more than a year. When this happens, a new employer pays a physician not to work. These costs are passed on to all consumers in terms of higher health care bills.

Moreover, it keeps physicians and their skills out of practice. Patients struggle to gain access to care, and whether this is a result of a shortage of doctors or inefficiencies in current delivery models, it makes no sense to have doctors sitting on the sidelines, not having the opportunity to explore new ways to deliver care. 

Solutions can be tricky because a non-compete clause is part of a legally recognized contract between two parties. The answer may require some new thinking on the part of hospital employers, physicians, and state lawmakers. Many of our challenges in health care can be addressed by creating more competition, not less, and finding alternatives to non-compete clauses would be a straightforward first step.

Hospital employers must first recognize that when a physician leaves, this will open the door to bringing in new patients with new sets of challenges and opportunities. There is no shrinking market of “customers,” and there aren’t “trade secrets” to be protected in health care in the same way as software developers, for example.

Hospitals have excellent marketing departments that can help guide patients to their services. Understandably, hospitals will want to protect their interests if they spend lots of money recruiting a particular physician or hiring support staff.  Hospitals can customize the language in employment contracts to address these concerns, perhaps with a “liquidation damages” clause, if a physician should leave.

Physicians also need to change the way they approach these agreements. Physicians need to look at non-competes in the same way attorneys do. This is where the American Medical Association (AMA) can help tremendously.

The American Bar Association restricts members from signing non-competes because it recognizes how clients can be harmed if an attorney moves to a new firm. The AMA could do the same, or at least help physicians understand the drawbacks of such arrangements.

State lawmakers also need to step up. In many states, non-competes rely on case law — that is, the agreements are upheld or rejected in a court of law based on precedent, not statute. Today, doctors are forced to fight with huge, multi-million-dollar hospital corporations if they dare to contest a clause.

As a result, few, if any, doctors take hospitals on. A handful of states, however — California, Colorado, Connecticut, Delaware, Massachusetts, New Mexico, North Dakota, Oklahoma, Rhode Island, Tennessee, and Texas — have shown that disallowing or limiting non-competes for physicians can work.

There is no other industry in need of so much innovation in delivery than health care. Eliminating anti-competitive, monopoly-protecting non-compete clauses would increase competition and allow doctors to be more responsive to the marketplace — benefitting all patients.

AnneMarie Schieber is the managing editor of Health Care News and a research fellow at The Heartland Institute.