The commission estimates that banning noncompete clauses will lower health care costs by up to $194 billion in the next 10 years
May 3, 2024 (ACP) -- The Federal Trade Commission (FTC) has finalized regulations that will ban noncompete clauses in employee contracts for many workers.
The American College of Physicians supported the draft FTC intent to crack down on unfair noncompete clauses, while urging the agency to explicitly include physicians and nonprofit hospitals in the final rule. ACP has also been helping members to lobby the agency along these lines. The College called on the agency to ensure that contract provisions affecting health care entities align with the ethical commitments of physicians, and not restrict physicians' actions to promote their patients' best interests.
"In recent years, the percentage of physicians who are employed has increased significantly, and with that, the number of physicians who are restricted by noncompete clauses in their employment contracts has also increased," said David Pugach, ACP vice president for governmental affairs and public policy. "It is estimated that between 35 and 45 percent of physicians in the United States have a noncompete clause of some sort in their contracts."
ACP recognizes that non-compete clauses are an attempt to balance the interests of employers and the public with the interests of the employee but believes many do not strike the right balance. Therefore, it is important to address non-competes that potentially create opportunities for employers to exploit their bargaining power and hinder innovation or prevent new businesses from starting.
In a recent interview with NBC News, former ACP President Dr. Omar Atiq said, "We have seen these noncompetes increase exponentially over the last several years, and it really goes against the very ethos of medicine. It takes a while for physicians to start really knowing their patient, not just the disease for which they come, but the patient themselves, and to just sever that relationship is a big blow."
Many noncompete clauses will become void when the new regulations go into effect 120 days after they are published in the Federal Register unless a court blocks the process. There are exceptions for some nonprofit organizations and for senior executives, whose existing noncompete clauses can remain in place. These executives are defined as those who make more than $151,164 per year and are in policymaking positions.
"Noncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned," said FTC Chair Lina M. Khan in a statement. "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market."
The FTC estimates that the new regulations will lower health care costs by as much as $194 billion during the next 10 years.
As Pugach explained, "For a number of years, there has been a trend of consolidation and mergers of health care employers. This creates a potential dynamic with both fewer employment options for physicians and fewer options for patients seeking care. Physicians with noncompetes can be forced to leave a geographic area if they want to change their employment, worsening existing physician workforce shortages."
In comments submitted regarding the proposed rule in March 2023, ACP emphasized the importance of accounting for nonprofit health care organizations in the final rule. "We noted that as of 2021, 58 percent of hospitals were nonprofit, 24 percent were for-profit and 18 percent were government-owned, [according to KFF data]. We called on the FTC to clarify how this rule will impact nonprofit health care organizations," Pugach said.
In the final regulations, the FTC acknowledges that it does not have jurisdiction over nonprofits. However, the agency notes that some entities that are tax-exempt may still fall under the agency's jurisdiction. "ACP staff is in the process of reviewing and analyzing the rule to better understand the threshold for the rule applying to nonprofits," Pugach said. "It is also quite likely that this question will ultimately be decided in court, as some business groups have already stated their intention to file suit."
Pugach noted that ACP had been growing increasingly concerned by delays in the finalizing of the rule. "We initiated a grassroots alert to facilitate internal medicine physician messages to the FTC chair, calling for the rule to be finalized and include nonprofits," he said.
During a single week in April 2024 prior to the FTC announcement of the regulations, more than 360 ACP members sent messages to the FTC in support of the rule being finalized. Prior to that, nearly 250 ACP members submitted comments regarding the proposed rule.
"Now that the noncompete rule has been finalized, ACP will develop informational resources for our members and monitor any additional guidance that is issued, especially pertaining to nonprofits or 'senior executives' as defined by the rule," Pugach said. "We will also track any litigation relating to the rule."
Members with employment contracts can assist by informing ACP about their experiences. "It will be helpful to know whether their employers are changing their contracting practices or suggesting that the new noncompete rule does not apply to them," Pugach said.
Back to the May 3, 2024 issue of ACP Advocate
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