Apr 24, 2024 - Health

New ban on noncompetes could have big impact on health care

Illustration of a healthcare worker with an ID that says "BYE".

Illustration: Shoshana Gordon/Axios

The Federal Trade Commission's vote on Tuesday to ban noncompete agreements could be a big deal for the health care workforce.

Why it matters: While the agreements are often thought of as a concern for senior executives and lower-income workers, sizable shares of doctors and nurses face employer restrictions on switching jobs.

Driving the news: In a 3-2 vote, the FTC approved a final rule that would soon make it illegal for employers to enforce noncompetes for the vast majority of workers.

  • Between 37% and 45% of physicians are affected by noncompetes, according to the American Medical Association.
  • The FTC projected the rule could reduce health care costs by up to $194 billion in the next decade. It has cited evidence that noncompete agreements encourage consolidation and drive up health care prices.

The big picture: Of the roughly 26,000 comments the FTC received on the rule, a "significant" number came from health care employees, especially doctors, agency chair Lina Khan said Tuesday.

  • Particularly in rural areas, employers can force these agreements on doctors and nurses while offering lower wages because they know there are few other options for work, Khan said.
  • Even health care workers making a "decent living" feel they did not have bargaining power, Khan told reporters Tuesday.
  • "There were a whole bunch of comments that said, 'I signed this, but it's not like I was exercising real choice. It felt coercive.'"

Zoom in: The debate over noncompete agreements divided the health care industry, with hospitals offering scathing assessments of Tuesday's vote.

  • Hospitals argue the agreements are necessary to recruit and retain workers, and for-profit hospitals complained that the FTC rule creates an uneven playing field since nonprofits aren't bound to it.
  • "The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals' ability to care for their patients and communities," the American Hospital Association said in a statement.

Critics of noncompete agreements say they often require health care workers to leave the field or relocate to change jobs.

  • "Doctors are trapped in places where they may or may not feel good about the care that they are able to provide," Elizabeth Wilkins, senior fellow at the American Economic Liberties Project, told Axios.
  • In rural markets already suffering shortages, this can lead to greater problems for patients.
  • "If a doctor or nurse really does feel as though they need to leave their job, they may need to leave that county or even that state to get a new job that deprives patients of their doctor of choice and continuity of care."

Between the lines: Noncompetes tied to the sale of a business, like a physician practice, would still be allowed under the FTC rule.

  • "There's a lot of good policy reasons why," Faegre Drinker labor and employment partner Matt Fontana told Axios. "I don't want to shell out a bunch of money for something if could then just recreate that and basically suck all the value out of what I purchased."

What we're watching: The FTC ban appears likely to face a legal challenge, and it could be years before it can take effect.

  • Even if it gets tied up in courts, more states and cities could pursue similar restrictions, said Peter Steinmeyer of Epstein Becker Green.
  • Four states already ban all noncompetes, and several states specifically banned noncompetes for health care workers.
  • There are also bipartisan proposals in Congress to ban the practice.
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