Hospitals slam FTC's noncompete ban

The Federal Trade Commission on April 23 voted 3-2 to ban noncompete agreements in a move it estimates will save up to $194 billion in healthcare costs over the next decade. 

Though the FTC recognized that it does not have jurisdiction over nonprofit entities, it reserved the right to evaluate an entity's nonprofit status, which would include a significant portion of the 6,120 hospitals in the U.S. 

Specifically, the agency said that "some portion of the 58% of hospitals that claim tax-exempt status as nonprofits and the 19% of hospitals that are identified as state or local government hospitals in the data cited by [American Hospital Association] likely fall under the commission's jurisdiction and the final rule's purview."

The final rule would have significant implications for the healthcare industry and has been described by Federation of American Hospitals President and CEO Chip Kahn as a "double whammy" against hospitals. 

"The ban makes it more difficult to recruit and retain caregivers to care for patients, while at the same time creating an anticompetitive, unlevel playing field between taxpaying and tax-exempt hospitals — a result the FTC rule precisely intended to prevent," Mr. Kahn said in a statement shared with Becker's. "In a time of constant healthcare workforce shortages, the FTC's vote today threatens access to high-quality care for millions of patients."

About 18% of the U.S. workforce, or 30 million people, is covered by noncompete agreements, from senior executives to fast-food workers, according to the FTC. The American Medical Association estimates that between 35% and 45% of physicians are bound by noncompete clauses. Existing noncompetes for most workers will no longer be enforceable once the rule takes effect, but there are exemptions.

Existing noncompetes for senior executives (less than 0.75% of workers) can remain in force. However, employers cannot enter into or attempt to enforce any new noncompetes, even if they involve senior executives, which the FTC defines as workers earning more than $151,164 a year and who are in policymaking positions. 

"Noncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned," FTC Chair Lina Khan said in an April 23 news release. "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market."

The FTC expects the final rule to drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents a year over the next 10 years.

In the U.S. economy overall, the FTC projects that banning noncompetes will drive 2.7% growth in new businesses per year. It also expects the ban to spur higher pay for workers, with estimated earnings increasing for the average worker by an additional $524 annually.

The AHA had urged the FTC to withdraw the noncompete ban or exempt the hospital field amid staffing shortages that are projected to affect hospitals and health systems far beyond the pandemic. It also argued that the agency erred by seeking to create a one-size-fits-all rule for employees across all industries. 

"The agency's stubborn insistence on issuing this sweeping rule — despite mountains of contrary legal precedent and evidence about its adverse impacts on the healthcare markets — is further proof that the agency has little regard for its place in our constitutional order," AHA General Counsel Chad Golder said in an April 23 statement shared with Becker's. "Three unelected officials should not be permitted to regulate the entire U.S. economy and stretch their authority far beyond what Congress granted it — including by claiming the power to regulate certain tax-exempt, nonprofit organizations."

The AHA added that in its estimation, the only saving grace is that the rule will likely be short-lived, with courts expected to weigh in on the rule before it can do damage to hospitals' ability to care for their patients and communities. The U.S. Chamber of Commerce has indicated that it will challenge the rule.

The FTC said it received more than 26,000 comments on the proposed rule, with over 25,000 in support of the noncompete ban, which is set to take effect 120 days after its publication in the Federal Register. 

Read the 570-page rule in full here.

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