Noncompete agreements play a crucial role in healthcare. For example, they secure physician services in communities and encourage investment in employee training and development. They offer hospitals a necessary measure of confidence in their recruitment investments, ensuring that physicians and other highly skilled staff remain with the institution long enough to justify the significant resources expended on their training, infrastructure and technology to maximize the care they provide to the community.
Consider this: A hospital in a rural area invests significant resources and capital to recruit and train a highly skilled cardiothoracic surgeon. The hospital, facing a critical shortage of specialists, offers attractive compensation, professional development support and builds a new surgical suite, while relying on a noncompete agreement to ensure the surgeon’s commitment. However, under the recent FTC rule, the agreement becomes void. The surgeon, now free to move without restriction or penalty, receives a lucrative offer from a nearby hospital. The rural hospital loses its specialist, disrupting patient care.
Related: Healthcare employers await FTC's next move on noncompete clauses
In light of the shortages in many specialties broadly and the difficulty of attracting specialists to practice in rural areas specifically, this raises significant risks that the substantial investment will fail to serve the purposes of expanding care.
That is just one scenario that could play out, given the healthcare industry presents unique challenges that a one-size-fits-all rule cannot adequately address. And it is especially challenging for taxpaying hospitals. While the rule may affect certain nonprofit organizations, it is likely to apply only to a limited subset, so most nonprofit hospitals will retain the ability to apply and enforce noncompete agreements.
This implicit nonprofit hospital exemption is solely the byproduct of statutory limits on the FTC’s regulatory authority. Yet, taxpaying hospitals are often located in the same markets as nonprofits, competing directly for the same pool of highly skilled labor. Thus, the taxpaying rural hospital that loses its specialist to a nearby hospital may have simply been unable to compete to retain the specialist because the nearby hospital could negotiate a richer compensation package with the protection of a noncompete agreement.
By prohibiting such clauses exclusively for taxpaying hospitals, the FTC would create an unlevel playing field for hospitals seeking to attract and retain top-tier talent — which is a bit ironic coming from an agency that claims its mission is to “promote competition.”
Healthcare is already grappling with critical workforce shortages, particularly in rural areas. The FTC's broad-brush approach overlooks the specific needs and circumstances of the healthcare sector. Highly skilled professionals such as physicians and senior executives possess bargaining power far greater than lower-wage workers. These individuals often negotiate noncompete clauses as part of broader, mutually beneficial agreements that include significant compensation, benefits and professional development. By voiding these agreements, the FTC would undermine the promotion of continuity of care and integrated care delivery.
Moreover, the rule’s implementation threatens to exacerbate existing inequities. As the empirical evidence makes clear, noncompete agreements are associated with higher earnings growth for physicians. Eliminating these agreements could inadvertently depress wages and stymie professional advancement in a field that desperately needs to attract and retain top talent.
The FTC estimates that the noncompete rule would reduce healthcare costs by $74 billion to $194 billion over the next decade. However, the projected savings come at a significant risk to patient care. These agreements, while sometimes seen as restrictive, ensure that hospitals can maintain a stable workforce, which is essential for providing consistent and high-quality patient care and investing in the innovative approaches to care coordination and value-based care. Without such agreements, hospitals may struggle to retain skilled professionals, leading to gaps in care and longer wait times for patients.
The Federation of American Hospitals has consistently advocated for a more nuanced approach that balances worker protections with the needs of employers to maintain stability and invest in their workforce. At a minimum, the FTC rule should have excluded both physicians and senior executives — jobs for which there is clear evidence that noncompete agreements are wage- and efficiency-enhancing.
But should the FTC ultimately prevail in the courts, and the rule stands as is, it poses a significant threat to the ability of hospitals to field essential clinicians and staff. More important, it would threaten access to care.
Chip Kahn is president and CEO of the Federation of American Hospitals.
