Noncompetes are in limbo: what happens in healthcare either way?

Last week, we took on the task of explaining how the Chevron doctrine affected the healthcare realm, but turns out we weren’t done yet. Another final rule, this time surrounding noncompete agreements, should also be on your radar. Let’s get to business.

What happened and why?

Back in April, the Federal Trade Commission (FTC) banned noncompete agreements nationwide. This means employers could no longer make employees sign agreements regarding where they work and what they do after leaving that company. Usually, these would ban employees from working with competitors, giving away secret recipes, or walking away with their clients. Noncompetes would be invalid starting September 4, 2024.

The FTC claims this ban would help 1 in 5 American workers. Noncompetes, they say, stifle wages by $524 per worker per year. They also argue the practice made it harder for entrepreneurs to flourish, saying 8,500 additional new businesses would pop up each year once noncompetes end. We’d see as many as 29,000 more patents in the next decade, too.

But the one item on the list affecting our neck of the woods is healthcare costs. According to the FTC, this move would have lowered healthcare costs up to $194 billion dollars over the next ten years. And of course, lower healthcare costs make our job as health insurance agents much easier.

How would this affect providers?

Many physicians sign noncompete agreements, particularly in hospital systems. They have become more prevalent as private equity firms acquire health organizations and potentially merge them.

So as you might imagine, the American Hospital Association has openly opposed this ban. Hospitals would argue a need to protect investments when they hire specialized physicians, and noncompetes are instrumental in that process. Equipment and teams could be built around one physician. If that physician leaves, the care team might be unable to function until that physician is replaced.

But on the other side of the fence is the American Academy of Family Physicians. This ban would give physicians, particularly those working for nonprofit health systems, more freedom. A physician could easily move to a smaller, independent practice if she chooses—or even open her own practice. This, in theory, would allow for better care to spread to more areas across the country.

Texas held ‘em

However, in July, a federal judge in Texas has ruled the FTC doesn’t have the authority to issue this ban. A Dallas tax firm, the Business Roundtable, and the US Chamber of Commerce joined forces to sue, calling the ban “arbitrary and capricious,” which is legalese for “you knew this wasn’t reasonable, but you did it anyway.”

This lawsuit will push back this ban for the time being until it can have its day in court.

What happens now?

Well, in some states, like California, Minnesota, North Dakota, and Oklahoma noncompete agreement bans already exist. These do not discriminate by trade, so they will apply to health care systems.

In 2025, Pennsylvania and Louisiana will join Iowa, Massachusetts, and Kentucky. These states have already created noncompete bans that only apply to healthcare.

But everywhere else, healthcare systems are figuring out the best ways to protect their assets in case the lawsuit falls through. Some might have things like non-solicitation agreements in their onboarding checklist. Confidentiality agreements would not be included in this ban, so those might be required for new hires.

Even if the Chamber of Commerce and company win their lawsuit and noncompetes remain legal, they might look different. They could be written for a shorter duration of time, or only be enforceable in certain areas.

Until then…

 As of right now, the FTC is likely to appeal, and the Supreme Court will get involved. And if we learned anything from their ruling on the Chevron doctrine, they are uninterested in allowing governing agencies to write rules that affect the nation as a whole. But it doesn’t mean each state can't ban noncompetes, and many have done just that.