The FTC Fails to Ban Physician Non-Compete Clause: What Every Physician Needs to Know
J. Kevin Duplechain, MD, FAACS | Advocacy Committee Chair
The Federal Trade Commission’s (FTC) attempt to prohibit non-compete agreements among physicians has sparked significant legal and ethical debates, which has been particularly highlighted by the Texas District Court’s decision to permanently block the FTC’s rule. This ruling not only underscores the complexity of regulating noncompetes, but it also addresses the broader issue of regulatory authority and legal interpretation.
Historically, these agreements have been used to protect employers’ interests in trade secrets, customer relationships, and investments in employee training. However, critics argue that non-competes can unfairly restrict employees’ job mobility and suppress competition in the job market. As the practice of medicine became more corporate, with medical conglomerates employing physicians, the noncompete clause became more relevant. Large employers argue that a significant investment in equipment, education, or development of the physician necessitates the use of a noncompete clause. The FTC argued that a physician non-compete clause could restrict access to care or a choice in provider, particularly in rural or underserved areas where physicians are in high demand and access is often limited. Often, physicians bound by a non-compete clause were forced to leave the state for several years before being allowed to return.
Although the FTC’s attempt to improve medical access was at the root of its action, it’s important to note that the FTC’s authority over medical practices is not unlimited. The regulation of the practice of medicine itself—such as medical standards, qualifications, and professional conduct—is primarily the responsibility of state medical boards and professional licensing agencies. The FTC’s jurisdiction focuses more narrowly on matters related to competition, consumer protection, and antitrust enforcement within the healthcare industry.
The Texas District Court permanently blocked the FTC’s rule on non-compete agreements for physicians. The court’s decision hinged on several key arguments, including the interpretation of the FTC’s authority and the legality of its action. Central to the court’s ruling was the determination that the FTC lacked statutory authority to regulate non-compete agreements directly. The court emphasized that Congress had not explicitly granted the FTC the power to prohibit noncompetes in the context of physician employment, highlighting the limits of administrative agencies’ regulatory authority. By affirming that regulatory agencies must operate within the bounds of their delegated authority, the Texas District Court reinforced the principle that significant policy changes, such as prohibiting non-competes, should be addressed through legislative action rather than administrative rule making alone.
In addition to the FTC’s regulatory efforts and the Texas District Court’s ruling, the landscape of physician non-compete agreements is further shaped by state-specific legislation, such as Louisiana’s Bill 165 signed by Governor Jeff Landry. This legislation, which goes into effect January 1, 2025, introduces specific stipulations that govern non-compete agreements for physicians, reflecting the nuanced approach states take in balancing the interests of healthcare providers, patients, and employers. Louisiana’s Bill 165 outlines several key provisions aimed at regulating physician non-compete agreements. One significant aspect of the bill is the establishment of mandatory burn-off periods for a non-compete clause. Specifically, the legislation mandates a three-year burn-off period for noncompete agreements that are in effect for one year or less. For non-compete agreements lasting longer than one year, there is a five-year burn-off period. The concept of a burn-off period refers to the duration during which the restrictive covenant gradually loses its enforceability over time after the physician– employer relationship ends.
Moreover, Louisiana’s legislation reflects a broader trend among states to tailor regulations concerning non-compete agreements to address specific concerns within the healthcare sector. In contrast to blanket prohibitions or unrestricted enforcement of non-competes, these state-level initiatives recognize the unique circumstances of physician employment and the critical importance of maintaining access to healthcare services, especially in underserved or rural areas.
Governor Jeff Landry’s signing of Bill 165 into law underscores Louisiana’s approach to fostering a competitive healthcare environment while safeguarding both patient choice and physician career mobility. Louisiana’s enactment of Bill 165 highlights the state’s proactive stance in addressing physician non-compete agreements through specific regulatory measures, including mandatory burn-off periods.
Looking forward, the debate over non-compete agreements is likely to continue evolving as policymakers, lawmakers, and stakeholders navigate competing interests and seek solutions that promote both economic competitiveness and individual freedoms. Although sometimes costly to enforce, for now physician non-compete agreements will remain.