Health System Eliminates Noncompetes for Primary Care Physicians

Indiana University (IU) Health will eliminate noncompete clauses for its primary care physicians in a new policy effective December 15.

The move will affect nearly 400 physicians, according to IU Health, following both a recent Federal Trade Commission (FTC) ruling and state legislation banning the clauses specifically for primary care physicians.

“This proactive measure goes beyond recent legislative requirements and highlights IU Health’s commitment to fostering an environment of professional growth and patient-centered care,” the healthcare system said in an emailed press release.

IU Health’s policy will allow the elimination of noncompete clauses for current contracts, not just for new hires. According to the Indiana law that took effect in July 2023, employers may not enter into new noncompete agreements with primary care physicians, and may not enforce them under certain circumstances.

“While the law does not mandate the amendment of existing contracts, IU Health decided to extend this benefit to physicians currently employed,” the press release stated.

The change comes with new employment agreements for IU Health Medical Group. IU Health has not moved beyond primary care physicians yet, but said that it “acknowledges the ongoing discussions regarding noncompete clauses for other medical specialties.”

Noncompete clauses normally specify a period of time after employment ends within which employees cannot seek a job at a competing company. Some also limit the agreement to a particular geographic area. However, the strict requirements can prevent physicians from leaving jobs for better opportunities in their field or starting their own practices, which policymakers argue can keep wages low, and hamper competition and innovation.

Advocates have argued that banning noncompete clauses could help more doctors run independent practices, and can give employers more freedom in hiring.

Hospital groups, on the other hand, have pushed back on the new FTC rule, which was issued in April.

Chip Kahn, MPH, president and CEO of the Federation of American Hospitals, told Becker’s Hospital Review at the time that the ban “makes it more difficult to recruit and retain caregivers to care for patients, while at the same time creating an anticompetitive, unlevel playing field between taxpaying and tax-exempt hospitals — a result the FTC rule precisely intended to prevent.”

The FTC’s final rule bans all noncompete clauses, and will be effective on September 4. Commenters on the proposed rule during a public comment period stressed that “noncompetes restrict physicians from leaving practices and increase the risk of retaliation if physicians object to the practices’ operations, poor care or services, workload demands, or corporate interference with their clinical judgment,” according to background given in the text of the final rule.

FTC Chair Lina Khan has said the new national rule “will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market,” and is estimated to increase average worker earnings by $524 per year, and reduce healthcare costs by up to $194 billion in the next decade.

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