Non-compete restrictions are common features of many types of arrangements between hospitals and physicians. Here are 11 types of physician non-compete restrictions.
1) Employed physician non-compete restrictions are commonly included in employment contracts. These non-compete restrictions may prevent an employed physician from providing medical services in competition with their employer during and after the employment period. It is not uncommon to observe a two year non-compete “tail” period after employment is terminated which restricts a physician from working within a five to 15 mile radius of their employer. In some markets, a five mile distance may force a physician to completely start over and create a new practice outside the restricted area.
2) Practice sale non-compete restrictions are commonly used to prevent a physician from damaging the buyer’s purchase of the practice by starting another practice in direct competition. The terms may be similar or more restrictive than the non-compete provisions of a physician employment arrangement. It is common for a physician selling his or her practice to be doubly restricted by non-compete provisions in both the practice purchase agreement and their new employment agreement. Even if the non-compete restrictions in one agreement are deemed to be excessive by a court, the restrictions imposed by the other agreement may still stand.
3) Business sale non-compete restrictions may apply to the sale of an ambulatory surgery center (ASC), imaging center, or other physician-owned business. For example, a physician or physicians selling an ASC to a hospital may be subject to a non-compete provision in the business purchase agreement that restricts them from planning, developing, owning, or investing in another ASC, endoscopy center, or surgical hospital for many years within a specified mile radius. These types of non-compete restrictions cannot dictate where a physician refers his or her patients for treatment, but they may restrict a physician from owning or investing in a competing business.
4) Joint-venture investor non-compete restrictions apply in a similar fashion to business sale non-compete restrictions. If a physician invests in an ASC, imaging center, or other business joint-venture entity, there may be a provision in the operating agreement or subscription documents prohibiting the physician investor from owning, managing, or competing with the joint-venture during and after the investment period. Like the other types of non-compete provisions, the non-compete period may last for several years after the physician has sold his or her interest, and it may cover a large geographic area around the joint-venture’s location. However, as mentioned before, these non-compete provisions cannot necessarily dictate where a physician refers his or her patients for treatment, although they may restrict a physician from owning or investing in a competing business.
5-11) Contractual service agreement non-compete restrictions are covenants that may prohibit a physician contractor from providing similar services to a competing business. These covenants effectively create an exclusive service agreement. There are many types of contractual service agreements (e.g., professional service agreements) that may have non-compete or exclusivity provisions. These include:
Contractual services non-compete restrictions- Management arrangements (5), clinical co-management arrangements (6), and pay-for-performance alignment programs (7) may include non-compete restrictions to prevent duplication or reuse of processes, protocols, and other intellectual property developed as part of the arrangement for use with competitors.
- Development services arrangements (8) used to create and grow new hospital-owned service lines may similarly include non-compete provisions to prevent the duplication or reuse of processes, protocols, and other intellectual property developed as part of the arrangement for use with competitors.
- Professional service arrangements (i.e., synthetic employment arrangements)(9) may or may not include some level of non-compete restrictions. One of the main advantages of using a synthetic employment arrangement is that there does not necessarily have to be a non-compete “tail” period extending after the agreement is terminated because the physician practice was never sold in the first place.
- On-call arrangements (10) may prohibit providers from taking call at more than one facility at one time. The intent of this restriction serves to ensure that a physician will be able to respond immediately when a call event occurs.
- 24/7 coverage arrangements (11) for anesthesiology, radiology, neonatology, and other hospital-based services may restrict providers from covering more than one facility at one time. Again, the intent of this restriction serves to ensure that a physician will be immediately available to provide medically necessary professional services.
New reimbursement systems are promoting increased levels of collaboration and alignment between hospitals and physicians. There are numerous ways to align providers through employment, acquisitions, and contractual service arrangements. However, the presence of non-compete restrictions gives physicians good reason to seriously consider the consequences of entering into alignment arrangements in the first place.