Academy Backs Ending Noncompete Clauses, Urges More Action

The AAFP’s April 6 letter to the FTC voiced strong support for the proposed rule while calling for changes that would further boost its positive impact on the primary care workforce and family medicine patients.

“Noncompete agreements in health care threaten to disrupt patient access to physicians, deter advocacy for patient safety, limit physicians’ ability to choose their employer, stifle competition and contribute to an increasingly concentrated health care market,” the Academy wrote. “We urge the commission to ensure that organizations employing physicians and other health care workers are included in the final rule to protect patient access and continuity of care with their family physician, and to support our nation’s health care workforce.”

Quoted by Medical Economics, AAFP President Tochi Iroku-Malize, M.D., M.P.H, M.B.A., added that noncompete clauses “can impede patient access to care, limit physicians’ ability to choose their employer, contribute to burnout and stifle competition.”

“The AAFP firmly believes that everyone should have affordable, equitable access to comprehensive, person-centered primary care, and we are therefore concerned that noncompete clauses may be undermining progress toward improving individual and population health,” the letter said. “These concerns are exacerbated for family physicians, who provide continuous, comprehensive care for patients over their lifespan.”

The Academy’s letter noted that more than 90% of physician agreements reviewed by physician search firm Merritt Hawkins include noncompete agreements. “More recently, noncompetes have been documented to prevent physicians from practicing medicine in their chosen communities when they want to change jobs, thus potentially limiting patients’ access to their regular source of care.”

The advocacy reflects the Academy’s recent update of its policy opposing restrictive covenants, following a Congress of Delegates resolution adopted last fall, and is in line with AAFP support for policies that would grow the family medicine workforce, improve physician well-being and increase patient access to comprehensive primary care.

Consolidation, Nonprofit Health Systems

A top hazard affecting physicians is the recent rise in consolidation among health care employers, the AAFP told the FTC, citing “at least 1,600 known hospital mergers in the United States between 1998 and 2017” and noting the consequences: increased health care prices, stagnant health care quality and potentially decreased access to care. At least one FTC analysis notes that the inclusion of nonprofit hospital and health systems in this trend doesn’t mitigate these negative effects.

The FTC noted in the proposed rule that it may lack the authority to ban noncompete clauses in contracts from nonprofit employers. The AAFP responded that commission should “explore mechanisms to include enforcement of the rule banning noncompete clauses with nonprofit employers” and pointed out that, as of last year, 58% percent of hospitals in America were nonprofits.

“Nonprofit hospitals and health care systems represent one of the largest segments of physician employers,” the Academy wrote. “While the proposed rule supports the critical principle that physicians retain independence to dictate and protect the quality of patient care and the practice of medicine free from the influence of corporate employers, excluding nonprofit entitles significantly limits its otherwise positive impact. Excluding these employers from the ban on noncompete clauses would undercut the proposed rule’s otherwise positive effect on many physicians.”

Small and Independent Practices

Small, physician-owned practices are vital to patients in rural and otherwise underserved areas, so protecting them and their patients from restrictive employment contracts is crucial, the Academy said.

“As the FTC considers the impact of this proposed rule on small businesses through the Initial Regulatory Flexibility Analysis, as required by the Regulatory Flexibility Act, the AAFP urges the consideration of small, physician-owned practices, the majority of which employ fewer than 50 physicians,” the letter said. “In the face of increasing health care consolidation, preservation of independent practices and their ability to invest in hiring and training new physicians is essential to ensuring patient access and patient choice in light of the important role many of these small practices play in meeting the needs of underserved Americans.”

Noting a recent and significant shift away from physicians owning their own practices, a trend affecting all specialties, the letter pointed to a 2020 AMA Physician Practice Benchmark Survey, which found that for the first time, fewer than half of physicians (49.1%) delivered care in independent (wholly physician-owned) practices.

“Just 24% of AAFP members report that they are sole or partial owners in their practice setting,” the Academy wrote. “The proportion of family physicians who are employed continues to grow each year, with 73% of all AAFP members and 91% of new physicians (the first seven years post-residency) working as employees in a wide range of organizations from small independent practices to Fortune 100 employers. This shift is dramatic when considering just 59% of AAFP members reported being employed in 2011.”

What Counts as a Noncompete Clause?

The FTC uses “functional tests” to determine whether a contractual term is a “de facto noncompete clause” that effectively prohibits a worker from seeking or accepting employment after the contracted employment ends. The Academy outlined several such terms that affect physician employment contracts and said the FTC should expand the proposed rule’s definition of a “de facto” noncompete clause “to include any contractual term that requires an employee to repay an employer or a third-party entity upon termination of the employment,” including

• sign-on bonuses,
• student loan reimbursement,
• moving expenses,
• housing fees,
• stipends, or
• any other item in an amount equal to 10% or more of an employee’s annualized salary. 

Legislative Support

In March, the Academy also sent testimony to a House hearing titled “Lowering Unaffordable Costs: Examining Transparency and Competition in Health Care,” calling on Congress to write legislation backing the FTC’s push against noncompete clauses. 

“The AAFP urges Congress to pass legislation to ban noncompete clauses in physician employment contracts to ensure patients have access to their physicians and to allow physicians to freely practice medicine in their communities,” the Academy wrote.

The Academy has launched a Speak Out campaign so members can contact their members of Congress and echo this call to action.