Non-compete agreements typically restrict employees from joining competitors or starting similar businesses within a given timeframe and geographical area after leaving their jobs. These kinds of covenants have become enormously widespread in the American economy, and even more so in the sector of health care. Despite their prevalence, the issue of noncompete agreements stands at a watershed moment as state and federal policy take aim at their anticompetitive effects on worker mobility and wages, raising an urgent question: how might changes in the use of noncompete agreements hinder or improve the delivery of healthcare?
The Hopkins Business of Health Initiative convened a panel of national experts on this topic in a recent conversation to discuss the history and future of such agreements.
The panelists include Danielle Drory, JD, PhD, Attorney Advisor in the Competition Policy & Advocacy Section of the United States Department of Justice, Antitrust Division; Stephanie Quinn, Senior Vice President for External Affairs at the American Academy of Family Physicians; and Barak Richman, JD, PhD, the Katharine T. Bartlett Distinguished Professor of Law and Professor of Business Administration at Duke University.
Together with our moderators, HBHI affiliates Mario Macis, PhD and Amit Jain, MD, MBA, our panelists discussed the real world implications of noncompete agreements, and what may come next. As massive shifts are underway, here are 7 important aspects to understand.
1. Noncompetes have proliferated in a wide range of industries. From healthcare workers to highly paid CEOs to even fast food employees, a staggering percentage of American workers are employed under such agreements. “I think one of the most commonly cited examples for a noncompete that perhaps didn't need to happen was Jimmy John's sandwich artists were subject to non compete,” said Drory.
2. Healthcare workers are particularly affected by these agreements. While its impossible to say exactly how many individuals are working under noncompete clauses, recent estimates reflect something like 20% of workers are subject to noncompetes overall, as opposed to 45% of healthcare workers.
3. Increased consolidation has magnified the effect. Compared to 20 years ago, the current prevalence of hospital chains and the diminished role of private practices in healthcare has exacerbated the negative impacts of such agreements on worker mobility and wages.
4. Small physician practices have different motives than large health systems. Small practices are often seeking to protect their investments in their handful of physicians while larger health systems are focused on competing against each other for thousands of workers in large geographic areas. “When it comes to considerations for smaller practices, especially when you're talking about in rural areas, trying to attract people to come can be a challenge and it can be very disruptive to have physicians that leave,” said Quinn. “Despite these few instances, it would be a missed opportunity not to consider policy change because a lot of what we see to be the most egregious behavior is happening by the large health systems.”
5. More competition may be better for not just workers but patients too. Large health systems’ claims that that competition is bad for patients has not been proven out by independent research. In reality, more competition may result in lower costs, improved quality of care, and better patient experiences as individual workers gain options and better wages. “It's not just the inability to join another physician practice, it's also the inability to improve on the current delivery system. Noncompete clauses don't just stifle competition across physicians, they stifle innovation in the delivery system altogether,” said Richman.
6. The tide of regulation is changing. There are currently underway a number of efforts to minimize or ban the use of noncompetes in the workforce. Some states, most recently Colorado and Minnesota, have made noncompetes completely unenforceable. The FTC has also proposed a rule in January 2023 that would significantly limit the use of noncompetes, across the economy.
7. Nonprofit health systems are not exempt from regulation protecting industries from anti-competitive behavior. While they are excluded from the FTC's proposed rule banning non-competes, the Department of Justice can still take action against anti-competitive non-competes under antitrust laws.
Watch the full conversation here.
This conversation is part of HBHI’s Conversations on the Business of Health, a series of one-hour webinars that engage leaders in business and academia to explore questions such as:
● Should companies invest in their employees’ health?
● Are companies responsible for the health consequences of their products?
● Will artificial intelligence actually advance health?
● How can business offer healthcare in novel settings?
Moderated by faculty members and jointly hosted by the Bloomberg School of Public Health, the Carey Business School, the School of Nursing, and the School of Medicine, these events are open to all. Learn more here.
