AHA: Banning noncompetes ‘would profoundly transform’ health care labor market

Banning noncompete clauses in health care employment contracts upend a labor market that was facing shortages even before the COVID-19 pandemic, according to the American Hospital Association (AHA).

Earlier this month, physicians were among the speakers supporting a proposed ban on noncompetes when the Federal Trade Commission (FTC) held a public forum to gather information about its proposed general ban on those contracts.

FTC continues to collect comments on whether noncompetes are unfair to business competition. Among the 5,934 responses so far, AHA submitted an 18-page letter explaining why Association leaders say noncompetes are essential for hiring, training, and keeping physicians and executives.

“The proposed regulation errs by seeking to create a one-size-fits-all rule for all employees across all industries, especially because Congress has not granted the FTC the authority to act in such a sweeping manner,” said the letter from AHA General Counsel and Secretary Melinda Reid Hatton.

Banning noncompetes “would profoundly transform” the health care labor market for physicians and executives, according to AHA.

The FTC does not have legal authority to ban noncompetes. If the federal regulators go forward with a ban, they must differentiate among physicians, executives, other health care workers, and nonprofit and for-profit hospitals, according to AHA.

Legal authority?

The FTC does not have authority to make rules that prohibit business practices that the Commission deems an unfair method of competition, said the AHA letter, citing the FTC Act that outlines the Commission’s regulatory powers.

Even if it did, Congress has not granted the FTC authority to regulate an entire section of the U.S. economy in one fell swoop, or to invalidate existing private contracts, according to AHA. FTC also has no legal authority to regulate nonprofit entities, including nonprofit hospitals and health systems.

Meanwhile, states already regulate noncompete contracts, said AHA, citing examples among various laws from Illinois, Rhode Island, Tennessee, Texas, and New Mexico. In health care, that includes state limits on noncompete agreements by nurse staffing agencies.

Physicians at issue

AHA cited research and testimony that noncompetes increase physician earnings while protecting hospital and health care investments to recruit and retain them. The same holds true for executives, and rural hospitals especially need both to survive.

Health care systems with noncompetes have greater incentives to offer continual training for physicians, executives, and staff, knowing the employees won’t immediately leave with improved knowledge and skills. Current studies on continuing training did not relate specifically to physicians, but the findings hold true to experience of AHA members, according to the Association. Patients also may benefit because noncompetes encourage the sharing of proprietary information within hospitals and health care systems, including among physicians.

Separate classes

Workers and health care systems exist can be divided for sake of regulations, according to AHA.

Noncompetes have advantages for physicians and senior executives and they should not be included in a sweeping ban. Doctors and executives are highly skilled, highly paid workers who may have legal help to negotiate employment contracts “on an even playing field,” especially compared to lower-skilled and lower-wage workers, the AHA letter said.

The federal Fair Labor Standards Act already differentiates among workers who are “learned professionals,” “highly compensated employees,” and workers in the practice of medicine.

“These are finely drawn, well-established legal categories that the Commission can – and should – look to when re-evaluating its rule regarding noncompete agreements,” the AHA letter said.

Among organizational types, 58% of U.S. hospitals are nonprofit, 24% are for-profit, and 19% are state and local government hospitals. At least 78.8% of for-profit hospitals compete in the same regions as nonprofits, which would not face the same rule as for-profit. That would distort the labor markets, driving up costs “or at least creating serious instability,” according to AHA.