The FTC Ban on Non-Compete Provisions Highlights Ethical Issues for Physicians
6-7 Minutes
Author: Judy Hanrahan, JD, MA
Purpose
To prime clinical educators to integrate health systems science and ethics topics in their clinical teaching by elucidating the ethical and professionalism concerns with physician non-compete provisions.
Learning Objectives
1. Describe two ethical considerations physicians should understand when thinking about non-compete provisions in employment contracts.
2. Identify one profession with professionalism rules that forbid employment contracts with non-compete provisions.
When I teach residents about physician employment contracts, non-compete provisions are always a hot topic. One that I am particularly keen to warn them about based both on ethical concerns and my own experience. As a lawyer, I am forbidden by rules of professional responsibility from signing an employment contract with a non-compete provision, but my husband, a pediatrician, took an employment offer that included a non-compete provision for his first post-residency job.
The job was at a new outpatient pediatrics practice in a rural community. We moved with our growing family to a small town two hours outside of a large metropolitan area on the understanding that the clinic would open shortly. Eighteen months later, the practice had not opened, and my husband found himself alternating between working in-house inpatient shifts as long as 48-72 hours (due to lack of hospital coverage) and driving two hours to the system’s other outpatient pediatrics practice to maintain his skills. Eventually, the practice did open, but we had already started interviewing for out-of-state jobs due to the geographical limits of the non-compete.
On April 23, 2024 the Federal Trade Commission (FTC) issued a final regulation outlawing this kind of non-compete provisions in most employment contracts.(1) Unsurprisingly, the American Hospital Association opposed the regulation for many reasons including the dubious argument that banning non-compete provisions will have a negative impact on access to care, particularly in rural communities.(2) The American Medical Association recognized the exact opposite, that non-compete provisions can have the effect of limiting access to care for patients by requiring physicians bound by non-compete clauses to move when they are dissatisfied with their employment situation, but nonetheless also opposed the regulation because many physicians are also owners of medical practices that utilize non-compete provisions.(3)
The FTC ban became the subject of intense litigation immediately,(4,5) and will, therefore, not go into effect any time soon, if ever. The move to address non-competes in the economy is about creating fair conditions for competition; however, as applied to medicine, the ban raises questions about the propriety of non-competes from an ethics and professionalism perspective. “Of the 26,000 comments regulators received on the proposal, 25,000 were in favor of the ban… A number of those comments were from physicians testifying that non-compete agreements would force them to leave their communities to find work if they wanted to leave their employer.”(6) One FTC Commissioner, Alvaro Bedoya, pointed directly to physicians, “These are doctors who had to move their families or move out of the state just so they could practice medicine. A pandemic killed half a million people in this country, and there are doctors who cannot work because of a noncompete.”(6)
Ethical Concerns with Physicain Employment Contracts with Non-Compete Provisions
The ethical and professionalism issues raised by physician non-compete provisions are multi-fold and include the fact that they limit access to care for patients, constrain independent medical judgment and professional autonomy of physicians, and exacerbate physician burnout. Medical ethics requires physicians to practice medicine based on three fundamental principles: 1. primacy of patient welfare, 2. respect for patient autonomy, and 3. commitment to social justice.(7) Each of these principles is implicated when physicians are bound by non-compete provisions.
Limiting Access to Care
The Physician Charter originally written by American Board of Internal Medicine and since endorsed by more than 109 other physician organizations outlines the three ethical principles described above and outlines ten professional commitments that flow from them including a commitment to improve access to care.(7) According to the charter,
Physicians must individually and collectively strive to reduce barriers to equitable health care. … work to eliminate barriers to access … [this] entails the promotion of public health and preventive medicine, as well as public advocacy on the part of each physician, without concern for the self-interest of the physician.(7)
The commitment to increase access to care is fundamentally incompatible with non-compete provisions. My family’s example highlights this concern; my husband was unhappy with his job but was not necessarily wanting to leave the entire community. The non-compete provision in his employment contract impacted the community’s access to care in a very real way. We wanted to stay in this underserved, rural community but were limited to a geographical range that made this impossible.
Independent Medical Judgment and Professional Autonomy
Physicians have a duty to use independent medical judgment and exercise professional autonomy; this duty comes directly from the fundamental ethical principle of primacy of patient welfare. It is the patient’s welfare, and the patient’s welfare alone, that should serve as the basis for a physician’s decision making. When tied to a non-compete provision, physicians are susceptible to employer influence over medical decisions. When the employer knows that a physician has no alternative for employment save moving themselves and their family, they may push them harder to make decisions that align with business interests rather than patient care. Health systems pressuring physicians is a real predicament that undermines both independent medical judgment and professional autonomy. For example, I once counseled a physician who was pressured by the hospital where they had privileges to send referrals to the specialist the hospital brought in once a month rather than the local specialist at a competing hospital. The physician was referring newly diagnosed patients with diabetes and was uncomfortable sending them to the endocrinologist that was only in town once a month, especially during the time when the patients needed regular diabetic counseling as well as medical management. Ultimately, the physician sent the referrals, instead, to a local endocrinologist who worked for the competing hospital system.
Hospitals are allowed to require employed or contracted physicians to refer within the hospital system, but this restriction is ALWAYS subject to the clinician’s independent medical judgment.(8) Contracting physicians, and physicians who are employed but not bound by non-compete provisions, have more bargaining power to push back against required in-house referrals, and stand firmer when they are referring out based on their independent medical judgment.
Burnout
In their argument against the FTC regulation, the American Hospital Association noted, “Data shows…that nearly one-quarter of health care workers say they are likely to leave the field soon,”(2 citing 9) and argued somehow that this supports non-compete provisions. The evidence seems to be squarely opposite. Physicians tied to their employers by non-compete provision are less able to move from a bad employment situation without completely disrupting their lives and the lives of their loved ones. Furthermore, experienced physicians who are nearing the end of their careers are more likely to retire rather than move their entire lives to keep practicing. Early retirement further exacerbates the infamous wide-spread physician shortage and often substantially affects communities that are already unserved, like rural communities.(10) More freedom in employment enables physicians to make employment decisions based on their personal wellness and professional concerns without uprooting their lives.
Rules of Ethics and Professional Conduct: Doctors versus Lawyers
It is instructive to look at the different ways the fields of medicine and law deal with the ethical issues associated with non-compete provisions. The American Medical Association’s Code of Medical Ethics cautions physicians about the potential for non-compete agreements to limit access to care without outright banning them:
Competition among physicians is ethically justifiable when it is based on such factors as quality of services, skill, expertise, conveniences offered to patients, fees, or credit terms.
Covenant-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care.
Physicians should not enter into covenants that:
a) Unreasonably restrict the right of a physician to practice medicine for a specified period of time or in a specified geographic area on termination of a contractual relationship; and
b) Do not make reasonable accommodations for patients’ choice of physician.
Physicians in training should not be asked to sign covenants not to compete as a condition of entry into any residency or fellowship program.(11)
The subtext to this provision is that the AMA represents both employed physicians and the many physicians who own practices where they employ other physicians. The AMA’s comments on the FTC’s proposed rule outlawing non-competes say just this, “Views on non-competes differ across AMA’s large and diverse membership. Physicians who are employers and owners of physician practices or leaders in integrated delivery systems may favor the use of reasonable non-competes, while physicians who are employees of practices, hospitals, health systems, or other organizations may have concerns about being subject to overly restrictive non-competes that limit employment opportunities and may impact patient access to care.” (3)
The reality is much different for lawyers; the American Bar Association’s Model rules of Professional Conduct explicitly prohibits lawyers from making employment agreements that include non-compete provisions:
A lawyer shall not participate in offering or making: a[n]…employment agreement that restricts the right of a lawyer to practice after termination of the relationship.(12)
This rule of professional responsibility specifically prohibits one lawyer from trying to tie a second lawyer to a non-compete provisions specifically because BOTH lawyers, not just the employed one, have ethical obligations to society and clients. The American Bar Association recognizes that this prohibition is important to “protect the freedom of clients to choose their representation and it protects a lawyer’s professional autonomy.”(13) I like to tell students,
It is a sad state of affairs when something is so ethically dubious that even lawyers won’t do it, but physicians will.
Addressing Ethics and Professionalism with Students
This issue of non-compete clauses in employment agreements is ripe for use with medical students and residents to reinforce health systems science and ethics competencies in your clinical teaching. Consider using the chart above when teaching students; matching topics to their underlying ethical principle can be particularly helpful for students as they build their ethics and professionalism vocabulary.■
References
(1) Federal Trade Commission. Non-Compete Clause Rule. 16 CFR 910. 2024.
(2) American Hospital Association. Re: Notice of proposed rulemaking, Federal Trade Commission; non-compete clause rule; 88 Fed. Reg. 3482. Regulatory Comment. February 22, 2023. Accessed April 29, 2024. https://www.aha.org/system/files/media/file/2023/02/aha-comments-on-ftc-proposed-non-compete-clause-rule-letter-2-22-23.pdf
(3) American Medical Association. Re: Federal Trade: Non-Compete Clause Rule, RIN 3084-AB74. Regulatory Comment. April 17, 2023. Accessed April 29, 2024. https://searchlf.ama-assn.org/letter/documentDownload?uri=%2Funstructured%2Fbinary%2Fletter%2FLETTERS%2Fltrfr.zip%2F2023-4-17-AMA-Letter-to-FTC-re-Noncompete-NPRM-final.pdf
(4) Complaint, Chamber of Com. of the United States of Am. v. FTC, No. 24-cv-148 (E.D. Tex. Apr. 24, 2024)
(5) Complaint, Ryan, LLC v. FTC, No. 24-cv-986 (N.D. Tex. Apr. 23, 2024).
(6) Pifer R. FTC votes to ban noncompetes, with far-reaching effects on doctors. Healthcaredive. April 23, 2024. Accessed April 29, 2024. https://www.healthcaredive.com/news/ftc-noncompete-ban-healthcare-doctor-effects/713846/.
(7) ABIM Foundation, ACP Foundation, European Federation of Internal Medicine. Medical professionalism in the new millenium: A physician charter. 2002. Accessed May 10, 2024. https://abimfoundation.org/wp-content/uploads/2015/12/Medical-Professionalism-in-the-New-Millenium-A-Physician-Charter.pdf
(8) 42 CFR § 411.354(d)(4)(iv)(B).
(9) Kooch K. 23% of healthcare workers likely to leave healthcare soon, poll finds. Becker’s Hosp Rev. February 2, 2022. Accessed April 29, 2024. https://www.beckershospitalreview.com/workforce/23-of-healthcareworkers-likely-to-leave-healthcare-soon-poll-finds.html.
(10) Orgera K, Senn S, Grover A. Rethinking Rural Health. Association of American Medical Colleges. September 27, 2023. Accessed May 14, 2024. https://www.aamcresearchinstitute.org/our-work/issue-brief/rethinking-rural-health
(11) American Medical Association. Restrictive covenants: Opinion 22.2.3.1. In Code of Medical Ethics. Accessed May 14, 2024. https://code-medical-ethics.ama-assn.org/ethics-opinions/restrictive-covenants
(12) American Bar Association. Rule 5.6: Restrictions on Rights to Practice. In Model Rules of Professional Conduct. 2024 Ed. Accessed May 10, 2024. https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_6_restrictions_on_rights_to_practice/?login
(13) American Bar Association. Comment on Rule 5.6. In Model Rules of Professional Conduct. 2024 Ed. Accessed May 10, 2024. https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_5_6_restrictions_on_rights_to_practice/comment_on_rule_5_6/