FTC Announces Rule Banning Non-compete Agreements

The FTC has banned non-compete clauses in most employment contracts with very few exceptions to the prohibition.  While this ban does not apply to “senior workers,” that are in a position to “make policy” for an organization, or a business owner that owned 25% or more of a company at the time of acquisition, in its current form, the final rule will apply to employed, practicing physicians who do not also perform in highly administrative “senior leadership” roles. Moreover, in their commentary, the FTC pointedly cited the complaints of practicing physicians, indicating the agency’s intent to enforce this prohibition upon medical groups and health care systems that employ doctors.  It is likely that groups like the U.S. Chamber of Commerce will challenge this decision.

Although the FTC recognized that it does not have jurisdiction over nonprofit entities, it reserved the right to re-evaluate an entity’s assertion of nonprofit status in its enforcement activity of its non-compete rule, which would include many of the  6,120  hospitals in the U.S. Specifically, the agency said that “some portion of the 58% of hospitals that claim tax-exempt status as nonprofits and the 19% of hospitals that are identified as state or local government hospitals … likely fall under the commission’s jurisdiction and the final rule’s purview.”

The HMBR Solution

Since non-compete clauses are likely to become unfavorable either through the FTC pronouncement or state law, hospitals and health systems will need to create strong alignment with physicians in other ways.  This includes:

1. Allowing physicians to maintain their own TIN but acquiring their hard assets at FMV.
2. Providing an operating entity that allows physicians to act independently, not necessarily employed, that relieves them of operational stress and allows for the integration of quality data to an extent that allows joint contracting and reduced cost of operations.
3. Open the operational platform to physicians independent of these groups and the hospital.
4. Integrating these physicians with independents to allow joint contracting with payors.
5. Engage physicians from both groups and other independents in systematic quality integration.
6. Providing an operational platform for multiple physicians that avoids duplicate systems.

See the FTC’s summary of the rule below:

SUMMARY: Pursuant to sections 5 and 6(g) of the Federal Trade Commission Act (“FTC Act”), the Federal Trade Commission (“Commission”) is issuing the Non-Compete Clause Rule (“the final rule”). The final rule provides that it is an unfair method of competition—and therefore a violation of section 5—for persons to, among other things, enter into non-compete clauses (“non-competes”) with workers on or after the final rule’s effective date. With respect to existing non-competes—i.e., non-competes entered into before the effective date—the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date. DATES: The final rule is effective [120 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]