At the end of last month, the Federal Trade Commission announced that it would be enforcing a nationwide ban on non-compete clauses.

According to the FTC, this was a move made to safeguard workers’ freedom to move between jobs while promoting innovation and encouraging the creation of new businesses.

Unsurprisingly, this is already having a marked impact on the healthcare industry. For years, workers in the field have struggled to argue for better pay and treatment, as the possible enforcement of non-compete clauses has prevented them from pursuing a role at another facility. Additionally, with the consolidation of health systems in recent years, a non-compete being enforced after someone leaves a job could put them out of work in their area entirely.

In this piece, we’ll discuss what doing away with non-compete clauses means for the industry—and if there’s a chance that we haven’t yet seen the end of the non-compete clause.


Non-Compete Clauses in the Healthcare Industry

For context, a non-compete agreement is a legal clause in a contract that prevents an employee from “competing” with their employer once their employment ends.

While this can make sense in certain contexts—for example, many non-compete contain language preventing a former employee from using proprietary or privileged information in their new role—in other contexts, workers have found that these clauses make it difficult to find further employment in the field for which they are trained.

This is especially true in the healthcare industry. While only around 20% of American workers are bound by a non-compete agreement, in the healthcare industry, between 37% and 45% of physicians are affected by non-compete clauses.


How Non-Compete Agreements Can Hurt Workers

As we’ve previously covered, the healthcare industry has seen a massive consolidation in the past decade, leading to more and more formerly-independent providers falling under larger corporate umbrellas.

Although there have been some antitrust efforts under the Biden administration, there are still many areas around the country where working in the healthcare industry means negotiating with only one or two potential employers.

Non-compete clauses, then, pose several issues for workers. As hospitals merge into larger health systems and physician practices consolidate, the use of noncompete agreements can restrict a physician’s employment options to a single employer within a specific geographic area. Consequently, if physicians are dissatisfied with their working conditions or compensation and benefits, they may be compelled to relocate to a different town or even another state.

Seeing this, if a physician chooses to stay at a practice, they can also face issues. The existence of a non-compete clause in their contract can serve to create a downward pressure on salaries and working conditions, as employers are not threatened by local competition.


What This Rule May Change

The FTC is optimistic about this new rule. According to the aforementioned press release, they estimate that enforcing a ban on non-compete agreements could “lower health care costs by up to $194 billion over the next decade.”

There is some evidence to support the idea that non-compete clauses are one of the factors currently driving up healthcare prices. A 2021 study found that “a 10 percent increase in the enforceability of noncompete agreements (NCAs) causes 4.3 percent higher physician prices, and declines in practice sizes and concentration.”

Additionally, without non-compete agreements, workers in the industry would be freer to fight for better wages and working conditions, a factor that some speculate could encourage workers to stay in the industry.


Why Non-Compete Agreements Might Not Be Over Yet

Before this ruling, hospitals had argued that non-compete agreements were essential for attracting and keeping staff. Furthermore, for-profit hospitals had stated such a rule would target them unfairly, as nonprofit hospitals would not be subject to the same restrictions.

However, now that the rule has passed, these arguments are going to be playing out in the courts.

Soon after the announcement, the US Chamber of Commerce and other trade groups stated that they would be suing the FTC over this rule. These groups argue that the ban will “curb their members’ ability to ‘protect their confidential information’ and ‘investments in the workforce,’” per the Financial Times.

That said, the FTC seems confident in their ability to fight these claims. A spokesperson released a statement saying that, “Our legal authority is crystal clear,” and in the press release announcing the ban, they laid out other methods employers could use to protect their intellectual property and investments, such as trade secret laws and non-disclosure agreements.

At present, no one is sure whether these challenges will hold up in court. Regardless, the banning of non-competes is a step in the right direction for the industry and a sign that the current administration is serious about taking on healthcare pricing.