Hospitals have more questions than answers on noncompetes amid FTC proposal

The Federal Trade Commission on Jan. 5 issued a proposed rule that would ban noncompete agreements, but whether that rule will apply to nonprofit hospitals is unclear. 

An American Hospital Association spokesperson told Becker's the organization's view is that "nonprofit hospitals are exempt because FTC doesn’t have authority over nonprofits." An American Medical Association spokesperson, meanwhile, told Becker's it is unclear "given the less than certain language in the proposed rule." 

Roger Strode, a healthcare attorney and partner at the law firm Foley & Lardner, told Becker's the proposal's application to hospitals is a question many people are trying to determine.

"It's interesting because the FTC Act itself has some sort of vague language in it about it applying to corporations, and they talk about corporations being corporations that essentially generate a profit for the company or its members," Mr. Strode said. "So for a long time people looked at it and said, 'That must mean that [for] nonprofit organizations, it doesn't apply,' or taking it to its extreme, it doesn't apply to hospitals. Nothing has ever been litigated on this and there is scant — if any — guidance as to whether or not it will apply to hospitals." 

Mr. Strode said he thinks the language around the rule is going to be "clarified greatly" because the FTC is going to receive thousands of comments on the proposal. 

"This would be a sea change in the healthcare industry, whether it's hospitals, whether it's physician groups, whether it's private equity buying physician practices," he said. "There's an awful lot of value that's built into a noncompete that gets paid for, in many cases." 

Michael Kass, a partner at the law firm Armstrong Teasdale, told Becker's, "If a healthcare provider is truly a nonprofit organization, it would seem to be exempt from the FTC Act and it would not be subject to the proposed noncompete rule." 

However, he added that "until the government stakes out its position on the issue in an explicit manner, we simply don't know for sure how this issue is going to come down." 

Mr. Kass also said he expects more clarity from the FTC in the months ahead. 

Legal challenges over the rule are also likely, Mr. Strode said.  

"The FTC is going to get challenged … in court on this entire thing and the breadth of it as well as, frankly, their jurisdiction to make this rule," he said. 

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars