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Biden’s push to ban noncompete agreements could have big implications for health care

Noncompete agreements that prevent a worker from leaving their job for a competitor have become standard for many doctors and nurses.
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WASHINGTON — President Joe Biden’s push to ban noncompete agreements that limit a worker’s ability to leave their job for a competitor could cause a major shake-up in the health care industry, where the agreements have become pervasive among doctors and nurses.

The Biden administration is in the final stages of issuing a rule that would ban employers across industries from putting provisions in an employment agreement barring workers from moving to a competitor or starting their own enterprise, a move he touted during his State of the Union address last week.

The practice of having employees sign noncompete agreements has become common in the U.S., with the Biden administration estimating that 1 in 5 workers is bound by one. The practice has become particularly prevalent in the health care industry, as large health systems and private equity firms have increasingly bought up group doctor practices and hospital staffing agencies, requiring their new employees to sign broad noncompete agreements, according to interviews with doctors, nurses and medical groups.

“For a lot of health systems nationwide, it is standard practice to make all their nurses sign them,” said Jonah Mainzer, a senior policy adviser for the American Nurses Association. “They’re very common nationwide and it seems to be more common for younger nurses, people who are just breaking into the industry.”

For doctors and nurses, the agreements often specify a geographic radius in which they're unable to practice medicine for a period of one to two years after they leave or are fired from a job. In some instances, those geographic restrictions can be so broad that they would prevent a doctor or nurse from working in an entire region, requiring them to move to a new city or state or stop practicing medicine for a period of time.

Those who support the agreements say they are necessary to protect hospitals and medical practices that make an investment in recruiting, relocating and training a doctor as well as marketing their work to help them build up their patient base.

But opponents argue that the agreements are suppressing wages, contributing to doctor shortages in rural areas and stifling competition.

“We feel that the only reason they’re there is to decrease competition,” said Jonathan Jones, president of the American Academy of Emergency Medicine, who estimated that half of emergency room doctors are bound by noncompete agreements.

“In most major cities, a lot of hospitals are within a few miles of each other," Jones added. "If I get frustrated with the administration of the hospital, maybe I don’t think they’re providing the best care to patients, maybe they’re offering less pay and the hospital next door wants to hire me. I can’t do that if I have that noncompete.”

A survey last year of 558 doctors across specialties by Medscape, a news site targeted at physicians, found that more than 90% of respondents currently or previously had a noncompete agreement. A separate survey by Ohio State economist Kurt Lavetti found nearly half of primary care physicians in group practices and 37% of physicians employed at hospitals or free-standing care centers had noncompete agreements.

The agreements, which often apply even if a doctor is fired, may also prevent doctors from speaking out against unsafe medical practices or unfair working conditions for fear of getting fired and having to relocate their family in order to find another job, said Jones, who practices emergency medicine in Mississippi.

“When you tie in a noncompete that says if I’m fired I can’t work within a 100-mile radius, that means I’m going to have to take my kids out of school, move my entire family or I’m going to have to live in a hotel and not see my family when I’m working,” he said. “It has a real chilling effect on physicians’ willingness to speak out about unethical or unfair practices.”

Vice President Kamala Harris and US Speaker of the House Kevin McCarthy (R-CA) listen as US President Joe Biden delivers the State of the Union address in the House Chamber of the US Capitol in Washington, DC, on February 7, 2023.
Vice President Kamala Harris and House Speaker Kevin McCarthy listen as President Joe Biden delivers the State of the Union address at the U.S. Capitol on Feb. 7.Saul Loeb / AFP - Getty Images

Biden directed the Federal Trade Commission to ban or limit noncompete agreements in 2021 as part of a wider effort to improve competitiveness for workers. The FTC proposed the rule to widely ban the agreements for all industries last month, and it is taking feedback from the public until March 20 before it makes a final determination.

“By preventing workers across the labor force from pursuing better opportunities that offer higher pay or better working conditions, and by preventing employers from hiring qualified workers bound by these contracts, noncompetes hurt workers and harm competition,” the FTC said in announcing the proposed rule.

In dozens of letters to the agency over the past month, doctors described how they have been affected by noncompete agreements, including being forced to move themselves and their families to other regions just to find work after leaving a job, and urged the FTC to ban them.

Eliminating the agreements could have a significant impact on workers' ability to negotiate wages and change jobs, said Mainzer with the American Nurses Association.

“If you’re stuck with an employer, it can suppress wages. It’s not truly a free market,” said Mainzer. “If you can advertise yourself openly you can try to find the highest bidder wherever you’re most qualified and right now they can’t do that.”

The move by the FTC is expected to draw opposition from companies in a range of sectors. The American Hospital Association along with 100 other industry groups is asking the FTC for more time to formulate a response to its plan given the economic and legal implications it could have.

Hospitals argue that the FTC proposal is too wide-ranging and would prevent exceptions where they might be merited, such as when a hospital spends a significant amount of money recruiting and relocating a physician and helping them to build up their patient base, a hospital industry representative said. In addition, nonprofit hospitals, which make up more than half of hospitals, would not be covered by the FTC rule, which could give them an unfair advantage, the representative said.

“The proposed regulation errs by seeking to create a one-size-fits-all rule for all employees across all industries, without having studied the unique effects that this rule will have on the health care field, and hospitals and health systems in particular, especially as they continue to deal with serious workforce shortages that can threaten patient access to care,” said Chad Golder, deputy general counsel for the American Hospital Association.

The American Medical Association, the largest group representing physicians, said its ethics policy opposes “unreasonable noncompete” agreements, but it opposes the blanket nature of the FTC rule.

“Many states have enacted negotiated health care-specific noncompete statutes that take into account their unique health care markets and that balance the competing stakeholder interests,” the AMA said in a statement. “The balanced approach of these states must be considered against a proposed universal federal ban on all noncompete agreements.”

Susan Kressly, a pediatrician who spent much of her career working in the Philadelphia area, said she has been on both sides of the issue — having been bound by a noncompete agreement when working for a group practice and later requiring doctors to sign them when she started her own. She agreed that noncompete agreements can help medical practices protect the investment they put into doctors and nurses.

But she said the agreements have gotten too broad in many instances, with some large hospitals not only prohibiting doctors from working near their old employer but any facilities that the hospital owns, forcing doctors to move out of state or stop practicing medicine for more than a year.

“It seems logical that you need some way to protect that investment so people aren’t just going to set up next door and compete against you after you just gave them an opportunity,” said Kressly. “Noncompetes protect people who are willing to invest in growing their business. But it’s gotten out of hand with all the consolidation and become unreasonable.”