Why the Non-Compete Clause Needs to End
When I completed my residency training many years ago, I had two main job offers to consider. One was with a large medical group in the city of New Orleans, the other with a small practice in Chalmette, Louisiana. The large group offered me a brand new office in a verdant, growing area near New Orleans, a decent salary, a brand new office, and a lot of independence. They sent me a contract. I turned them down, taking the job in Chalmette, because the first contract had a non-compete clause in it, and the second one did not.
Non-competes are in the news these days because the Biden administration is considering a new FTC rule that would ban non-compete agreements between employers and employees. A non-compete clause is a provision in an employment contract that prevents an employee from leaving a company and working for the competition, or from starting a new company that competes against it.
Many medical employers include non-compete clauses in their contracts, but I have been lucky (and careful) to avoid them my entire career. My current employer has not required me to sign a non-compete, which is one reason I have been with them for so long.
For a doctor, a non-compete usually means that if a doctor leaves his job, he is not allowed to practice within a specific geographic area the former employer considers its “market,” a territory that can be as large as an entire state, or even more than one state, in the case of one contract I was offered.
From the employer’s standpoint the rationale is simple — the employer spends money helping the doctor establish and build a practice. The concern is that if the doctor leaves, he might take all the patients with him and the medical employer would be out a lot of money.
While I would not argue with that, there are problems with non-compete clauses that make them an unjust arrangement, harmful for doctors and patients alike. First, a non-compete values money over work and technical ability, as if hard work and competence matter less than cash investment. Doctors bring something to a medical practice, too. They bring time and expertise, patience and devotion. The main value of a medical practice is not in the cost of the building or in its administrators, but in the goodwill the patients and doctor have for one another. No one ever said, “Let’s go to Westside Pediatrics. The furniture is so nice over there.” In fact, no one even says, “Let’s go to Westside Pediatrics.” They say, “Let’s take Taylor to see Dr. Wilson.”
In medicine it is specifically the healthcare providers — not only doctors of course, but also nurses and staff — that build the reputation of a clinic or hospital. There is not much value in an empty medical clinic. But since the doctor can move and the building can’t, when doctor and employer no longer get along, it is the doctor who has to move out of town. But the odd thing about non-competes is that even if the doctor finishes the contract and the contract expires, the non-compete still applies. So if the contract is not renewed, the employer may not owe the doctor anything else, but the doctor still can’t sign with a competitor, for anywhere between a six months and several years. This is not a fair arrangement. When a deal ends, both sides should be free to do as they please.
And this leads to the second and more important issue with noncompete clauses — they deprive patients of their doctors. I often hear complaints from patients that every few years when they go to their local clinic for a checkup, they find their doctor is gone and and replaced by a new one. A quick internet search reveals that the old doctor is now several states away. This is the non-compete clause in action — the doctor decided not to renew the contract with his employer, and, because of a non-compete clause, was unable to move to a new local clinic, and so moved away to a new city (and possibly had to sign a contract with a new non-complete clause). Put simply, if your doctor has a non-compete clause in her contract, whether she will be there five years from now depends largely on her relationship with her employer. If that relationship goes bad, she’s moving to a new practice out of the region, someplace too far away for you to follow. You had nothing to do with the contract, but it affects you anyway.
This situation can, in the worst of circumstances, develop into a “my way or the highway” mentality. A doctor who has concerns about the way her clinic is operating may complain to the employer. But if the employer has no plans to change, she is stuck — she can either choose to accept a problematic situation or be forced to leave the area. The doctor may not want to leave, but the contract leaves no choice. Thus, a non-compete gives an employer leverage to refuse to negotiate compromises that might otherwise get worked out if non-competes didn’t exist, because it gives the employer a degree of leverage.
Why, you may wonder, would a doctor sign such a thing? Some doctors don’t read their contracts closely enough, or naively assume that a difficult situation with an employer that would force an exit will never happen. Others live in cities where all the major employers have non-competes, making it difficult if not impossible to practice in the region without signing one. (In a sense, employers are using their size and power to act as monopolies. This is usually legal, or close enough to legal not to be challenged.)
Non-competes can appear unexpectedly. I had one colleague who was very nearly bullied into a non-compete. He had been working for an organization for some time, when a new CEO came on board and inserted non-compete clauses into all contracts. The CEO then presented the contract to the doctor and told him this was the new contract he had to sign or he would be moving on when the current one expired.
Medical organizations, understandably, want to make a profit. Everyone does. But the cost of non-compete clauses is too high for the practice of medicine. It protects a medical company’s assets at the cost of turning a local medical community into a turnstile. It separates doctors from patients, and isolates doctors from one another. The money stays in the medical system, but the healthcare providers, who are the real value in any healthcare system, become expendable. It should not be this way. The purpose of medicine is to benefit patients. Your doctor should be allowed to stay in town to continue to care for you.
The medical companies may do better when they keep their money, but communities do better when they keep their doctors. There are other ways to do this. There could be a retention bonus system in which a doctor would forfeit additional money if he leaves; there could be non-disclosure agreements that prevent ex-employees from using inside information at the new job, or taking patient information with them; or maybe the employer could just make a better effort to retain the doctor by keeping work conditions competitive, which is the way free markets are supposed to behave anyway.
Medicine in America, with its multifaceted insurance plans, copays, pre-authorizations, deductibles, sky-high costs, and byzantine billing schemes, is complicated enough. It does not need to be complicated even further by contract provisions that push doctors away from patients. One way to improve American medicine is to guarantee that employed doctors can change employers within local markets, and that patients are allowed to choose to follow them. Rather than costing medical organizations money, healthcare managers may find that working out problems with doctors leads to loyalty and better clinic outcomes, and perhaps even higher profits in the end. Listening, instead of hiding behind contract language, seems like a step forward.
Contract law has nothing to do with good patient care. The Biden administration should eliminate the non-compete clause, and take at least this small step towards making American healthcare better.
