Last month, the Federal Trade Commission voted to ban non-compete agreements for workers in for-profit companies. The move upends non-compete laws across the country and has healthcare workers, as well as those who employ them, wondering about its implications.

Non-competes are common in physician and mid-level practitioner employment agreements.

Since the FTC non-compete ban was announced, several legal challenges have already popped up and more are expected – so it’s unclear if or when the ruling will take place – although it is scheduled to become effective 120 days after being published in the Federal Register on May 7, 2024.

The rule change provides for a comprehensive ban on new non-competes with all workers. While the rule allows existing non-competes for senior executives to remain in force, non-competes for those who are not senior executives no longer will be enforceable. Senior executives are employees earning more than $151,164 annually in policy-making positions.

Healthcare Entities Favor Non-Compete Ruling

The FTC non-compete ban rule was first proposed in January 2023 and there was an extensive public comment process during which approximately 26,000 comments were received. According to the FTC, approximately 25,000 of them supported a total ban on non-competes.

Several healthcare organizations that represent physicians have expressed varying opinions about the changes.

Physician Groups Praise FTC Non-Compete Rule Change

The American College of Surgeons (ACS) said the ruling aligns with a letter it sent during the public comment period after the ban was initially proposed. The ACS noted that “noncompete agreements can have a detrimental effect on patient care by affecting their access to the best surgeons, as well as on the ability of surgeons to seek their optimal work environment and for hospitals to compete for employment of well-suited surgeons.”

The American Academy of Family Physicians said it was pleased with the FTC’s action as it “puts patients first and ensures family physicians can pursue opportunities that value their expertise and continue to provide high-quality care that their communities need.”

The FTC estimates that banning non-compete agreements will result in reduced healthcare costs of between $74 billion and $194 billion in the next decade, while increasing worker earnings.

The Ruling and Non-profit Entities

Although the FTC, in issuing its ruling, recognized that it does not have jurisdiction over not-for-profit entities, it did reserve the right to evaluate an entity’s non-profit status and suggested that some “entities that claim tax-exempt nonprofit status may in fact fall under the FTC’s jurisdiction.”

Specifically, it stated that “some portion of the 58 percent of hospitals that claim tax-exempt status as nonprofits and the 19 percent of hospitals that are identified as state or local government hospitals in data cited by American Hospital Association likely fall under the commission’s jurisdiction and the final rule’s purview.” In addition, if a physician group is affiliated with a nonprofit hospital, the physician group would be subject to the FTC ruling barring non-compete agreements.

Hospital Organizations Not Happy with Non-Compete Rule

The American Hospital Association, which represents nearly 5,000 member hospitals, health systems and other healthcare organizations, was among those entities that spoke out against the ruling. The AMA estimates that between 35 percent and 45 percent of physicians are bound by non-compete clauses.

Chad Golder, AHA general counsel and secretary stated: “FTC’s final rule banning non-compete agreements for all employees across all sectors of the economy is bad law, bad policy, and a clear sign of an agency run amok. The FTC non-compete ban illustrates the agency’s stubborn insistence on issuing this sweeping rule — despite mountains of contrary legal precedent and evidence about its adverse impacts on the health care markets — is further proof that the agency has little regard for its place in our constitutional order.”

The Federation of American Hospitals (FAH) echoed the sentiment. FAH President and CEO Chip Kahn stated: “This final rule is a double whammy. The ban makes it more difficult to recruit and retain caregivers to care for patients, while at the same time creating an anti-competitive, unlevel playing field between tax-paying and tax-exempt hospitals – a result the FTC rule precisely intended to prevent.”

Economic Impacts of Rule Change

Fitch Ratings noted that the change could result in staffing complications for not-for-profit hospitals “that are still adapting to the upward reset of wages and have only recently begun to rein in labor costs.”

The ratings agency added that the FTC non-compete ban rule could lead to more turnover, particularly at rural hospitals and health systems. Small hospitals and rural facilities “may struggle to keep staffing at adequate service levels without ramping up costs,” Fitch noted.

If the FTC ruling survives court challenges, Fitch noted the effects on hospitals wouldn’t be seen until 2025.