Non-compete agreements (NCA) have long been used by both independent and hospitalbased integrated practices to keep physicians who leave on the sidelines for a prescribed period of time. Negotiating these agreements can be a problem for doctors of all ages.
An NCA, also known as a restrictive covenant, has two major elements. The first is as a provision in contracts giving an employer a reasonable amount of time to find, recruit, and hire a replacement for a departing physician. The other protects an employer from “raising their competition” by not allowing the ex-employee to compete against them for a period of time.
Reasonable Geographic Scope & Duration
“The non-compete agreement has to be reasonable as to geographic scope and duration,” says Robert Milligan, JD, LL.M, a healthcare attorney with Milligan Lawless, PC in Phoenix. “Reasonableness is decided by balancing the interests of the employer, the employee, and the patients, and it is judged on a case-by-case basis. There is truth in the saying that NCAs do not prohibit competition, just give the employer a fair opportunity to compete when an employee leaves.”
Unlike other areas where NCAs are used, there is a third group whose interests are included: the patient. Courts will often look at what is reasonable from their viewpoint.
“At least under Arizona law, if an NCA is thought to unreasonably impair the rights of the patient to see their doctor, or worse, any doctor, the courts may say it is unenforceable,” notes Milligan. “The courts in our state can include the interests of the patient in their deliberation.”
Changes by State
Which brings up another important part of the NCA legal environment: The circumstances under which an agreement will be upheld varies widely from one state to the next. Massachusetts, California, Delaware, and Alabama are states that ban or demand buy-out provisions in restrictive covenants as a matter of law. Most of the states have a bias against their enforceability, but will not interfere with those deemed reasonable as to time and geographic area.
“Most states are loathe to enforce agreements restricting professionals, so they tend to narrowly construct and review those restrictions,” says Ronald L. Vance, JD, managing director and physician strategy team leader for Navigant Consulting in Atlanta. “Many jurisdictions won’t support anything much over a year and may cut geographic restrictions to something like five to 10 miles around the office where the physician worked.”
Some of the points physicians should make sure they understand completely about restrictive covenants include:
• Time: How many months or years will the restriction last?
• Scope: How many miles around a given office does the restriction encompass? Is it around any office of the practice or just the one(s) you have worked in?
• Type: What type of medical practice is involved? Medicine as a whole or just a specific specialty such as endocrinology?
See an Attorney
Given the intricacies of both the agreements and their enforceability, it is important for every physician to have an attorney look over the entire contract with attention to the NGA. It is also important to find an attorney who is familiar with the laws in the state of practice. Someone coming out of a residency in California who takes a job in New York should find representation in New York.
“One place to look for an attorney is the American Health Lawyers Association,” Milligan says. “Their website lists members, the states they work in, and their specialty. You probably shouldn’t get a malpractice lawyer to look at contracts.”
Although it sounds very complex, it often isn’t. Many attorneys will not need to see you face-to-face, an important consideration if the position is across the country. Often, the attorney looks at the contract, highlights areas of interest, returns it to the doctor, and arranges for a telephone call to discuss any concerns.
Hospital Employee
vs. Private Practice
There are often differences in the wording of the agreements if you are entering a private practice or will be a hospital employee. The private practice is likely to be more restrictive saying you can’t practice, period.
“If the doctor is in good standing and is still supportive, a hospital may be less inclined to have them leave the community,” Vance says. “As long as another hospital doesn’t get 100% of referrals, they often won’t restrict the physician as an economic, business, and patient access decision.”
Even for those doctors currently employed, trends in healthcare suggest they still need to be aware of new non-compete agreements. “When people think about these kinds of restrictive covenants, they should note that more private practices are joining or being bought by health systems,” Vance says. “Even if they have been attentive to the agreements within their group, they should also make sure they understand any changes due to a buy out or merger.”
— Ullman, RN, MHA, is an Indiana-based freelance writer with nearly 30 years of experience. He wrote about adding advanced practitioners to an endocrinology practice in the May issue.
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