FTC’s Noncompete Ban Could Leave Most Doctors and Nurses on the Sidelines

Many doctors and nurses are happy with the Federal Trade Commission’s new rule prohibiting the use of non-compete agreements in employment contracts. But they are disappointed that it may not protect those who work in nonprofit hospitals and health care facilities, which provide the most care in the country and employ the most medical professionals.

Last month, in a 3-2 vote, the FTC approved a final rule prohibiting contracts that prevent an employee from accepting a job with a competitor. Calling noncompete agreements “a widespread and often exploitative practice,” an agency announcement described them as a method of unfair competition that depresses wages and hinders the formation of new businesses.

The rule prohibits employers in most industries, including health care, from using contract clauses that prevent employees from leaving for other jobs or starting a competing business in the same geographic area for a fixed period of time.

But that doesn’t help many health professionals, because the FTC Act gives the agency authority over businesses organized to operate for profit, but not over nonprofit charitable organizations, which are also tax-exempt. .

Still, the agency noted that some nonprofits could be subject to the rule if they do not operate as true charities. The rule establishes a two-part test to determine whether the FTC has jurisdiction over a nonprofit organization: whether the organization conducts business solely for charitable purposes and whether its income is directed to public rather than private interests.

“Our regulatory record includes powerful stories from healthcare workers employed by nonprofit organizations about how non-competitors harm patients and providers,” said FTC Commissioner Rebecca Kelly Slaughter, one of the three Democratic commissioners, in comments before the April 23 vote. “I don’t think there’s a good justification for excluding them from this rule.”

Non-compete contractual terms have become increasingly common for doctors, nurses, and other medical professionals in hospitals and various healthcare facilities. Some providers say these agreements have forced them to leave their communities and patients behind if they wanted to escape unethical or unsafe working conditions.

Most work for nonprofit organizations.

Nearly 64% of U.S. community hospitals are nonprofit or government-owned organizations and employ many of the country’s medical professionals. In 2022, nearly three-quarters of American doctors were employed by hospital systems or other companies, both for-profit and nonprofit.

Based on their designation as charities that do not have to pay income or property taxes, U.S. nonprofit hospitals received an estimated total tax break of $28 billion in 2020, according to KFF, an organization non-partisan research.

That exceeded the estimated $16 billion they spent on charity care for patients who can’t pay their medical bills, KFF said.

Doctor and nurse groups say it doesn’t make sense to treat nonprofit hospitals differently because they operate just as much as for-profit hospitals. Patients, they say, will benefit if providers are free to report unsafe conditions and change jobs. “Giving doctors freedom of movement will force hospitals to compete to improve working conditions,” said Jonathan Jones, immediate past president of the American Academy of Emergency Medicine.

Chad Golder, general counsel and secretary of the American Hospital Association, which represents mostly nonprofit hospitals, said the rule would increase health care costs and reduce patient access by triggering doctor bidding wars. in hospitals. He predicted that the FTC would try to apply the rule to both for-profit and nonprofit hospitals.

“They’re not saying exactly what they’re going to do, but it’s a pretty significant move for them to say we’re going to apply our own test to determine whether we can regulate a nonprofit,” Golder said. “Nonprofits will now have to be very careful.”

Additionally, some nonprofit hospitals have joint ventures with for-profit hospitals and medical groups. That could create complicated questions about whether their employees’ contracts are subject to the rule, said Chip Kahn, president and CEO of the Federation of American Hospitals, which represents for-profit companies.

The new rule arose from President Joe Biden’s 2021 executive order instructing the FTC to curb unfair use of non-compete agreements, part of its broader mandate to boost economic competition and worker mobility in the United States. .

FTC action promises to reduce costs

The FTC argued that banning noncompetitive companies, which it said cover 1 in 5 American workers, would reduce health care costs by up to $194 billion over the next decade. It will guarantee Americans “the freedom to look for a new job, start a new business or bring a new idea to market,” said FTC Chair Lina Khan.

The rule also prohibits contractual terms that function as non-compete clauses to prevent employees from going to work for competing companies or starting their own businesses. These could include overly broad confidentiality agreements, training reimbursement provisions, and non-solicitation clauses.

“No one should be trapped in an insecure job by onerous contracts that prevent them from taking another job,” said Brynne O’Neal, a regulatory policy specialist at National Nurses United, the profession’s largest U.S. hospital workers union. In the U.S., they use training reimbursement agreement provisions that require nurses to pay up to $30,000 in training costs if they leave, essentially locking them into their jobs.

California, Minnesota, North Dakota and Oklahoma already prohibit the enforcement of non-compete clauses for all employees of for-profit and nonprofit organizations, while nine other states prohibit non-compete clauses for physicians. Even in states without bans, judges have struck down non-compete clauses when they find them too broad or unreasonable.

‘A matter of basic justice’

Hospital executives argue that the non-compete rule will force them to compete with each other to hire doctors and other providers, ultimately costing them more, and that it benefits nonprofits over for-profits. . “All it would do is increase the price of labor in a field that already has labor shortages and low margins,” Golder said.

“The nonprofit hospital across the street could go after our employees, while their employees would be protected, and that’s a question of basic fairness,” Kahn said.

But Clifford Atlas, an employment lawyer at Jackson Lewis in New York, said the argument against the non-compete rule “won’t fly” in court because preventing competition for the services of doctors or other workers is not a business interest protected by the law. law or public policy.

The rule will go into effect in September, although business groups have filed two federal lawsuits against it in Texas and one in Pennsylvania. Many legal experts predict that conservative judges will strike down the rule on the grounds that it exceeds the FTC’s legal authority.

Doctors and nurses groups hope the FTC rule, whatever its fate in the courts, will help persuade hospitals and other health care employers to stop using non-competitive clauses and prompt more states to ban them.

“We tell our members they could opt out, but we ask them to renegotiate their contracts,” said Jones of the American Academy of Emergency Medicine. “They should ask their employers: ‘Wouldn’t you like to be on the right side and not be seen as fighting against doctors and patients?’”

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