Healthcare Sector Non-Competes Continue to Harm the Public

In today’s America, non-compete agreements have become ubiquitous.  Everybody has one.  The wine salesman.  The disc jockey.  The advertising executive.  Even the maid.  One of the most obscene examples of the widespread use (and abuse) of non-compete agreements is that of non-competes in the healthcare industry.

Many doctors are either driven out of town – or driven out of practice – because of non-compete agreements.  Recent cases out of the Illinois are illustrative.  As reported by Crain’s Chicago Business, numerous doctors and hospitals in the Chicagoland area are engaged in litigation over non-compete agreements.  Lake Shore Urology is suing a former doctor and seeking an injunction barring him from practicing at other local hospitals.  In another case out of Chicago, a small practice has already obtained an injunction barring a doctor from joining a rival obstetrics practice.

In my view – and on the law – this makes no sense.  In Florida, non-compete agreements can only be used to protect a legitimate business interest.  Illinois is similar.  There are the usual suspects like confidential information and trade secrets.  These interests are not at stake in doctor non-compete litigation.  What is at stake: customers.  But there are limits to holding customers captive.

If I have seen a particular doctor for years and that doctor leaves one practice to join another, I will likely want to follow that doctor and maintain my relationship with him.  My act of following that doctor – and that doctor continuing to provide me care – does not, without more, infringe upon a legitimate business interest.  That scenario alone does not give rise to an actionable violation of an enforceable non-compete agreement.  That doctor did not solicit me.  He did not interfere with my relationship with his old practice.  He did not steal me as a patient.  I went willingly because of my independent relationship with that specific doctor.

Unfortunately, many doctors are so afraid of litigation over their non-compete agreements (understandably so) that they end those patient relationships.  Patients seek these doctors out at their new practices, but they often refuse to see those patients.

This is unacceptable.  The adverse impact on the public interest is clear.  And that public interest outweighs any business interest in seeking to uphold such a restrictive covenant.  Strangely, the most reasonable, thoughtful articulation of this principle comes from the Tennessee Supreme Court, of all places.  A few years back, that court declared physician non-compete agreements unenforceable as against public policy.  See Murfreesboro Medical Clinic, PA v. Udom, 166 SW 3d 674 (Tenn 2005).  In that case, the court held that:

Due to the important public policy considerations implicated by physicians’ covenants not to compete, along with the ethical problems raised by them, and our state legislature’s decision not to statutorily validate all such covenants, we conclude that non-compete agreements such as the one at issue in the present case are inimical to public policy and unenforceable. Public policy considerations such as the right to freedom of choice in physicians, the right to continue an on-going relationship with a physician, and the benefits derived from having an increased number of physicians practicing in any given community all outweigh the business interests of an employer. In addition, we are guided by the American Medical Association’s ethical standards which view covenants not to compete as against public policy, because according to the AMA, such agreements “restrict competition, disrupt continuity of care, and potentially deprive the public of medical services.” Also persuasive is the fact that our legislature has elected to affirmatively provide for such covenants, but in very limited contexts. For these reasons, we hold that except for restrictions specifically provided for by statute, covenants not to compete are unenforceable against physicians.

The Tennessee Supreme Court got it right and all states should follow suit.  But my point goes beyond that.  Even in those states where physician non-compete agreements are not per se unenforceable, they should be unenforceable under existing law.

Holding a patient captive – not preventing solicitation, not preventing interference with patient relationships, but actually preventing the patient from choosing his or her doctor – is not a legitimate business interest.  And absent a legitimate business interest, non-compete agreements are unenforceable.  Actually, it goes even further than that:  Absent a legitimate business interest, non-compete agreements are naked restraints of trade that violate the antitrust laws and should be treated as such.