The Federal Trade Commission issued a final rule on Tuesday banning noncompete clauses in most employment contracts, a move that drew praise from radiologists and other physicians.
About 30 million U.S. workers (or 18%) are covered by such agreements, aimed at reducing unfair competition and the spread of trade secrets. The FTC claims that curtailing noncompetes will lead to a 2.7% uptick in the formation of new businesses each year.
“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,” FTC Chair Lina M. Khan said in a statement issued April 23 “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.”
Commissioners voted 3-2 to advance the final rule after the agency made its initial proposal in January 2023. The law change is slated to take effect 120 days after its publication in the Federal Register.
Radiologists and other physicians took to social media on Tuesday to discuss the decision.
“My condolences to all of the private equity and corporate radiology groups out there,” neurorad Ned Holman, MD, of Anchorage, Alaska, wrote April 23.
“FTC is moving forward in banning noncompete clauses today. Physicians everywhere rejoice!” added Michael Albert, MD, co-founder and chief medical officer at Accomplish Health.
Commenters noted that the rule excludes nonprofits, a designation held by many hospitals and health systems. However, there is further nuance.
“The commission disagrees with commenters’ contention that all hospitals and healthcare entities claiming tax-exempt status as nonprofits necessarily fall outside the commission’s jurisdiction and, thus, the final rule’s purview,” the 570-page document states.
There are other exceptions. For instance, existing noncompete clauses for senior executives (representing about 1% of all U.S. workers) will remain valid. The rule defines a senior exec as anyone earning more than $151,164 per year who is in a “policymaking position,” according to a corresponding fact sheet.
Along with increasing the formation of new firms, the FTC also estimated the noncompete ban would result in between $74 billion to $194 billion in reduced spending on physician services over the next decade.
Opposition forming
While some in the physician community praised the law change, others are lining up against it. Last year, AMGA (formerly the American Medical Group Association) said it opposes banning noncompete clauses, contending the move could disrupt patient care.
The American Hospital Association also has urged the FTC to withdraw the regulation or exempt its members.
“For all of the reasons the AHA explained in its comment letter, the FTC’s final rule banning noncompete agreements for all employees across all sectors of the economy is bad law, bad policy and a clear sign of an agency run amok,” Chad Golder, the association’s general counsel and secretary, said in a statement shared April 23. “The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities,” he added later.
On the other side, the American Medical Association’s House of Delegates in 2023 approved a resolution advocating for a ban on noncompete contracts for physicians. The resolution applied to all docs employed by for-profit or nonprofit hospitals, health systems or staffing companies. “Unfair noncompete clauses are extensive in healthcare,” AMA noted, impacting between 37% and 45% of physicians.
Experts note that these tactics are sometimes deployed by private equity firms to help stifle competition.
“We must keep in mind that owners of private practices often invest heavily when hiring and training physicians, and those owners may believe that they need to use reasonable noncompete agreements to compete with large hospital systems or other dominant institutional employers,” AMA Trustee Ilse Levin, DO, said last year. “Preserving and fostering independent physicians and other physician-led organizations is crucial to a healthy nation.”
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.