Employers rejoiced after a court ruled in their favor, though an appeal appears likely.
Just 15 days before going into effect, the Federal Trade Commission’s ban on noncompete agreements was struck down by a Texas federal judge, handing hospitals a win over physicians in employment contracts.
Employer groups like the American Hospital Association (AHA) and Federation of American Hospitals (FAH) praised the decision, which they argue prevents hospitals and health systems from being at a disadvantage in recruiting and retaining physicians, nurses, and other clinical workers.
U.S. District Judge Ada Brown ruled that the FTC’s ban is “unreasonably overbroad without a reasonable explanation” and that the federal agency lacks the authority to implement it.
Last month, Brown approved a preliminary injunction against the ban for plaintiffs Ryan LLC and the U.S. Chamber of Commerce while the court considered the FTC’s application of the rule more broadly.
Despite Brown’s decision, the noncompete ban may continue to be litigated, with FTC spokesperson Victoria Graham saying that the agency is “seriously considering” an appeal.
Meanwhile, FAH president and CEO Chip Kahn praised the ruling and reiterated the consequences of a noncompete ban for hospitals.
"We have been clear from the start that this rule would threaten patient access to care by making it more difficult for hospitals to recruit and retain physicians and invest in training and technology," Kahn said in a statement. "In addition, this rule would create an unlevel playing field for tax-paying hospitals, an outcome completely at odds with FTC's mission to promote competition. Especially at a time of workforce shortages and other challenges, this was the right decision."
AHA general counsel and secretary Chad Golder echoed the sentiment that the court made the right decision.
“The rule was a breathtaking assertion of regulatory power by three unelected commissioners, made worse by the fact that the commissioners did not attempt to understand the disruptive impact it would have on hospitals, health systems and the patients they serve,” Golder said in a statement. “We are pleased that Judge Brown vindicated what the AHA predicted when this unlawful regulation was first released—the ‘only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities.’”
On the opposite end, physician groups expressed disappointment in the ruling, claiming noncompete agreements damage patients along with physicians.
"Noncompetes harm family physicians and their patients by jeopardizing long-term patient-physician relationships and creating an uneven playing field for physicians," American Academy of Family Physicians president Steven Furr said in a statement. "The AAFP will continue to support the FTC's mission to eliminate noncompetes in healthcare that prioritize the interests of organizations over those of patients and their physicians."
While the decision to block the ban limits employees’ freedom of movement, it relieves additional pressure that would have fallen on hospitals and health systems during a time when organizations are struggling with workforce challenges.
However, hospitals may find more success in recruiting and retaining physicians by offering contracts without noncompete agreements and getting creative with compensation and benefits.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
The FTC’s ban on noncompete agreements suffered a setback when U.S. District Judge Ada Brown deemed it “unreasonably overbroad” before the rule was set to take effect on September 4.
Multiple hospital groups celebrated the court’s decision, while some physician groups were dismayed that they’ll continue to be on “uneven playing field.”
The FTC said it's considering an appeal and will still fight against restrictive noncompetes on a case-by-case basis.