The hospital lobby is hoping the Federal Trade Commission’s narrowed scrutiny of employers’ noncompete contracts will focus on healthcare’s “lower-skilled, lower-wage employees” rather than physicians or hospital executives.
The Republican-led federal regulator, in a clear break from the more sweeping views of its prior iteration, has signaled its interest in “case-by-case” enforcement of employment contracts with mobility restrictions it deems to be anticompetitive.
Still, the FTC has stressed that healthcare employers will remain an enforcement priority, as “noncompete agreements may limit employment options for nurses, physicians and other medical professionals and thereby restrict patients’ choices of who provides their medical care.” In September, FTC Chairman Andrew Ferguson sent letters to several large healthcare employers and staffing firms urging them to voluntary review their existing contracts for potentially offending noncompetes.
The American Hospital Association (AHA), responding this week to a request for information (RFI) on how the regulator should shape its new approach, said it broadly agreed with the case-by-case enforcement plan and preference for “narrowly tailored noncompetes.” However, the lobbying group said it was concerned about Ferguson’s September letters because while “certain” noncompete agreements can be harmful to healthcare, others are “necessary because of the unique features of the healthcare labor market.”
The AHA pointed to the wide swath of employment roles at a hospital, telling the FTC that some, such as food service employees, lack bargaining power and are appropriate for regulatory protection with respect to noncompete agreements. Highly skilled, trained and compensated employees like physicians and senior hospital executives, meanwhile, have more power when negotiating contracts, and limiting employers’ use of noncompetes for these roles would hamper organizations’ ability to deliver care.
“The Commission therefore should be cautious about any anecdotal information it receives in response to this RFI,” the AHA wrote in its letter to Ferguson. “The actions it takes against one hospital will ripple across the entire field. The Commission must be certain that it is targeting the most egregious forms of noncompete agreements—namely, those that impact employees who cannot effectively bargain for different terms.”
Echoing comments given on the subject back in 2023, the AHA wrote that research on physician and healthcare executives “is either inconclusive or shows [they] are neither unfair nor anticompetitive within the meaning of the FTC Act.” Referencing those sources, the association outlined five major arguments for the FTC to consider:
- Noncompetes protect the investments hospitals make when recruiting physicians and executives, which can be particularly painful for rural hospitals whose talent is poached by nearby larger employers.
- Noncompetes encourage hospitals to train their high-demand employees, whether that means educating physicians on innovative care delivery technologies or training executives in management.
- Noncompete clauses would increase the rate of earnings growth for physicians, due to increased intra-institutional referrals.
- Noncompetes encourage the sharing of proprietary information—such as patient lists, R&D and business relationships—within an organization.
- Focusing enforcement on low-skilled, low-wage employees is consistent with related referral law and a better use of the regulator’s limited resources.
“The AHA respectfully submits that the FTC consider the importance of noncompete agreements for highly skilled and highly compensated employees—and the costs to the health sector of disincentivizing or penalizing them—in its evaluation of this critical issue and any subsequent enforcement efforts,” the letter concludes.
The AHA and other employers’ stance on noncompetes is a stark difference from workers groups and several states that have introduced laws restricting their use.
The American Medical Association adopted an official position opposing the clauses for hospital and health system-employed doctors in 2023, stating that increased mobility can improve access to care and protect young physicians’ career advancement opportunities. When looking to implement its ill-fated ban on noncompetes in 2024, the FTC said it had received “overwhelming” support from the public, and highlighted public comments from healthcare providers who said the employment clauses had become “ubiquitous” in the industry and contributed to practitioner burnout.