Noncompete agreements are under attack by doctors who want to unravel contracts with hospitals and physician practice management firms.
It is not always easy to enforce covenants restricting physicians who leave their employers and establish competing practices. The courts seem to be siding with physicians in a few recent cases involving PPM companies (See chart).
In one hospital case, four pediatricians in Winston-Salem, N.C., sued Novant Health to void their noncompete agreements. They claim the system violated employment contracts by lowering salaries and imposing policies that interfered with patient care (March 29, p. 28). Novant is expected to file a response this week.
The enforceability of noncompete agreements varies widely by state. In California, for example, such agreements are illegal.
Physicians are challenging noncompete agreements on the basis that they restrict patient choice by requiring doctors to leave an area or discontinue seeing their patients.
"My personal feeling is that it's not in the public's best interest to allow a physician to be subject to a noncompete, because it directly affects the public's health, safety and welfare," says lawyer Jon Parrish, with the Naples, Fla., firm Parrish & Moore. His firm is representing two physicians in a case against Fort Worth, Texas-based ProMedCo Management Co.
"You have a fundamental problem when you try to apply noncompetes to medical practices, because it's recognized certainly by medical ethicists, and I think by the court as well, that the patient has a right to see whom he chooses," agrees Doug Hudman, a lawyer representing Fort Worth physicians in a case involving a PhyCor practice. "If a physician has to move 25 miles, you're putting the burden on the patient."
Trinity Medical Center in Minot, N.D., employs 76 physicians but doesn't require them to sign noncompete agreements, says Todd Grages, Trinity's vice president in charge of administering the medical group. "We've always wanted to be in a position where we have to do the best job we can" to keep physicians happy, Grages says.
But Trinity is clearly the exception. Most systems, PPMs and independent clinics require noncompete agreements, and sources say it's likely to stay that way.
Employers argue that legitimate business interests outweigh physicians' rights to practice where they choose. Also, noncompete agreements allow buyers of practices to justify paying higher prices to physicians.
"The hospital has to protect its investment somehow," says Sue Cejka, president of recruiting firm Cejka & Co., St. Louis. "If you pay $200,000 for a physician's practice, and six months later he leaves, you have nothing left."
Some employers are crafting ways to avoid the tenuousness of enforceability. For example, about a year ago Nashville-based PhyCor began requiring physicians to sign individual management agreements. That way, doctors must continue to pay the company a management fee even if they leave a PhyCor-affiliated practice and set up shop across the street.
Carolyn Forehand, vice president and general counsel of PhyCor, adds that even if judges fail to issue preliminary injunctions against physicians who attempt to leave practices, employers may try to recover damages later.
Brian Andrew, a lawyer in the St. Louis office of Polsinelli, White, Vardeman & Shalton, says noncompete agreements will not go away. "Noncompete agreements are nasty little things from a physician's perspective," he says. "But there's only one way you, as a physician, can avoid them, and that is to comply."