Noncompetes Banned by the FTC—But Not for Most in Healthcare

On April 23, 2024, the medical community on Twitter (X) erupted with excitement when the Federal Trade Commission (FTC) issued its final rule banning noncompete agreements. The FTC has determined that noncompetes are an unfair method of competition, violating Section 5 of the FTC Act. The excitement was short-lived when physicians realized that the ban on noncompetes, which takes effect September 4, 2024, doesn’t cover nonprofits and thus doesn’t protect a large majority of physicians in the U.S. The FTC did note that while it does not have jurisdiction over nonprofits, it reserved the right to evaluate an entity’s nonprofit status and stated that some “entities that claim tax-exempt nonprofit status may fall under the Commission’s jurisdiction.”

According to the American Hospital Association’s 2022 Annual Survey, published in 2024, 58% of hospitals are non-governmental and not-for-profit, 24% are investor-owned for-profit entities, and 18% are state and local government institutions. Nonprofit hospitals benefit from the fact that they are exempt from federal and local taxes, an exemption given in exchange for providing “community benefit.” Many nonprofit hospitals are large employers regionally, and, as recently as 2016, seven of the top 10 most profitable hospitals were nonprofits. (Bai G, Anderson GF. Health Aff. 2016;35:889-897. doi.org/10.1377/hlthaff.2015.1193).

So, one must ask the question, why are nonprofits, particularly nonprofit healthcare systems, allowed to continue the practice of noncompetes? Many healthcare markets have limited competition as they undergo increasing consolidation. The FTC states that noncompetes decrease innovation, business development, and wages. They also prevent the fundamental freedom of workers to exchange jobs, trapping employees in bad jobs where the employer has no incentive to improve conditions. (https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes).

While 18% of U.S. employees are currently covered by noncompetes, an estimated 37% to 45% of physicians have noncompetes, limiting their career advancement and restricting their ability to provide care in economically or socially marginalized communities (AMA, June 2023). Additionally, the FTC stated it is unaware of any empirical evidence that prohibiting noncompetes will either worsen consolidation or raise prices for patients. Patricia L. Turner, MD, MBA, executive director and chief executive officer of the American College of Surgeons, wrote in her letter to the FTC in April 2023 that noncompetes can have significant negative impacts on patient continuity of care and access to subspecialty care, along with surgeon wellness.

The FTC says noncompetes may hurt nonprofits. As the FTC wrote, “those entities outside FTC jurisdiction that continue to deploy noncompetes may be at a self-inflicted disadvantage in their ability to recruit workers, even if they derive some short-term benefit from trapping current workers in their employment.”

Further complicating noncompetes for physicians is the fact that they vary dramatically depending on state and geographic regions. Some healthcare systems operate in multiple states, making it unclear which state law should be followed. Four states already have a full ban on noncompetes (California, Minnesota, North Dakota, and Oklahoma), and others have restrictions. In some regions, however, noncompetes stipulate that a surgeon can’t work within a 75-mile radius of their current employer for a year or more. Some noncompetes do have a buyout clause, allowing a surgeon or a future employer to pay what can be equal to a full year’s income to be allowed to continue to work in the region. Basically, you are working for a year just to pay to buy yourself out of the noncompete, or your future department is paying the cost at the expense of other department initiatives.

Women face a greater penalty from noncompetes than men. A large gender pay gap persists in healthcare, particularly in surgical subspecialties, so women may be trapped in a contract in which they are significantly underpaid. Additionally, women are more often in two-income households, making moving even more of a challenge.

For women and men alike, however, noncompetes can hurt well-being, job satisfaction, retirement income, and professional advancement. Young surgeons are often desperate for a job, having been in school and training for a decade, with hundreds of thousands of dollars of student loans to repay. Mid-level surgeons may be ready to move into private practice or may seek a better work environment or pay but don’t want the expense of moving and the stress of pulling kids out of their school system. Lawyers do not have noncompetes. (The American Bar Association’s longstanding ban on noncompetes for most lawyers is meant to protect clients’ freedom to choose their lawyer.) Why then should physicians?    

—Robin