126. Are Non-Compete Clauses About To Be History? | And what to consider before accepting a signing bonus

Non-compete clauses have plagued contracts for decades. It’s been analogous to asymmetric warfare, with employers holding the upper hand. 

All of that may soon be a thing of the past.

In this episode, we explore the Federal Trade Commission’s recent ruling to ban these clauses and its implications for doctors and the healthcare industry. We’ll also discuss the unexpected ways non-competes can protect smaller groups, the rise of independent contractor models, and the critical staffing issues in emergency medicine. A highlight of our discussion includes the lure and the trap of signing bonuses—what seems like a generous offer can sometimes come with subtle strings attached. Finally, we’ll touch on the U.S. Senate’s investigation into major staffing companies and the innovative emergence of empath units for mental health patients. 

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Guest Bio: Leon Adelman, MD, MBA, FACEP, FAAEM is an emergency physician and co-founder of Ivy Clinicians, a software company that simplifies the emergency medicine job search through transparency. Dr. Adelman is the author and publisher of the Emergency Medicine Workforce Newsletter, which explores the business of emergency medicine.

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We Discuss

What is a non-compete clause?

• A non-compete clause prevents employees from working with competitors within a specific time and geographic range after leaving a job.
• Emergency physicians face unique challenges due to the narrow skill set and patient flow, making non-compete clauses particularly restrictive.
• Violating a non-compete clause typically results in legal action to enforce the terms.
• The FTC ruling will nullify existing non-compete clauses, removing this employment barrier for physicians.
• Employers use non-compete clauses to retain employees and protect their investment in staff.

The Federal Trade Commission’s ruling making non-complete clauses null and void

• The FTC’s ruling bans non-compete clauses, making them unenforceable from September 2024.
• This change does not require new legislation but enforces existing laws on unfair competition methods.
• Non-compete clauses will be eliminated for all employees except senior executives in new contracts.
• Current non-compete clauses in contracts will be retroactively unenforceable, allowing affected employees to change jobs without legal repercussions.
• The ruling addresses the significant power imbalance created by non-compete clauses, especially in healthcare.

Why employers and private equity are unhappy with the non-compete ruling

• Hospitals and private equity firms heavily rely on non-compete clauses to retain doctors and protect investments.
• The American Hospital Association expressed strong opposition to the FTC’s decision.
• Private equity firms, which have invested heavily in healthcare, are particularly affected by this ruling.
• The elimination of non-compete clauses threatens their business models by allowing doctors more freedom to leave.
• The ruling is seen as a major shift in favor of employee rights over corporate control.

The emergency medicine specific burn point of the non-compete ruling: contract retention

• Emergency medicine’s lack of patient ownership makes non-compete clauses a unique retention tool.
• Groups use non-compete clauses to prevent hospitals from switching to competing staffing companies.
• Without non-compete clauses, staffing companies risk losing contracts and having to replace entire medical teams.
• This strategy is particularly crucial for smaller groups trying to protect their contracts from larger competitors.
• Larger groups have moved away from non-compete clauses, using independent contractor models to manage staffing flexibility and costs.

The unexpected way that individual non-compete contract clauses can protect a group from being replaced

• Smaller emergency medicine groups use non-compete clauses to protect their contracts from being taken over by larger companies.
• These clauses prevent hospitals from easily switching staffing providers by complicating the transition process.
• Non-compete clauses force hospitals to hire entirely new medical staff if they switch groups, a challenging and risky process.
• This retention strategy helps smaller groups maintain contracts and resist takeover attempts.
• The approach highlights the complex dynamics of contract negotiations in emergency medicine.

Why small groups like to use non-compete clauses

• Small groups use non-compete clauses to secure their contracts and protect against competition from larger entities.
• This strategy is crucial for their survival in a market dominated by big staffing companies.
• Non-compete clauses create a significant barrier for hospitals considering switching providers.
• By retaining their staff through non-compete clauses, small groups maintain stability and service continuity.
• This approach contrasts with larger groups, which use independent contractor models to manage staffing.

How larger groups have moved away from non-competes and favored a 1099 independent contractor model

• Large staffing companies prefer the 1099 independent contractor model over non-compete clauses.
• Independent contractors offer more flexibility and reduce the administrative burden of employment.
• This model allows companies to adjust staffing levels and costs dynamically.
• Contractors do not receive benefits, significantly lowering the overall staffing costs for companies.
• The shift reflects broader trends in workforce management and cost-saving strategies.

Why the non-compete ruling is a massive win for independent physician practices

• Independent physician practices stand to gain the most from the elimination of non-compete clauses.
• Doctors can now leave hospital-owned practices and start their own without legal restrictions.
• This change promotes greater autonomy and competition in the healthcare market.
• It enables physicians to make career moves based on personal and professional satisfaction rather than contractual obligations.
• The ruling supports a more dynamic and competitive healthcare environment, benefiting both doctors and patients.

The lure and the trap of physician signing bonuses

• Signing bonuses often come with contractual obligations, tying physicians to a practice for a specified period.
• These bonuses can be enticing but may function as a form of financial handcuff, limiting career flexibility.
• Physicians should view signing bonuses as loans rather than free money, considering the potential repayment obligation.
• The high turnover rate in emergency medicine makes signing bonuses a risky financial commitment.
• Evaluating the reasons behind a signing bonus offer is crucial, as it may indicate underlying issues within the practice.

A signing bonus is a loan, not a check. It’s a loan you are paying back with time.

• Signing bonuses should be considered loans that are paid back with time and commitment to the practice.
• Physicians need to understand the terms and potential repayment scenarios if they leave the job early.
• This perspective helps in making informed decisions about accepting signing bonuses.
• The financial and professional implications of signing bonuses require careful consideration and planning.
• Physicians should be prepared for the possibility of having to repay these bonuses if their employment situation changes.

What is the chance of someone not paying back the time attached to a signing bonus?

• The likelihood of having to repay a signing bonus is significant due to high turnover rates in emergency medicine.
• Young physicians often change jobs within the first few years, triggering repayment clauses.
• Understanding the full terms and conditions of signing bonuses is essential to avoid financial surprises.
• Repaying a large signing bonus can be financially burdensome, making it important to consider long-term job satisfaction.
• Evaluating job stability and personal career goals can help in making better decisions about signing bonuses.

There’s a reason that some jobs offer a signing bonus and others don’t.

• Jobs offering large signing bonuses may have higher turnover rates or staffing challenges.
• Competitive and desirable positions often do not need to offer signing bonuses to attract candidates.
• Physicians should investigate the reasons behind a signing bonus offer and what it indicates about the job.
• Speaking with current and former employees can provide insights into the working environment and job satisfaction.
• Signing bonuses can be red flags for underlying issues within the practice or company.

The US Senate Committee on Homeland Security and Governmental Affairs is investigating the staffing models of USACS, Team Health, Envision, and Life Point

• The U.S. Senate Committee on Homeland Security is investigating major emergency medicine staffing companies.
• Concerns focus on cost-saving measures at the expense of patient safety and care quality.
• Complaints from physicians highlight issues of understaffing and prioritizing profits over patient care.
• Homeland Security’s involvement underscores the potential national security risks of inadequate emergency staffing.
• The investigation aims to address and mitigate these risks, ensuring better preparedness and patient care standards.

When private equity owns a hospital, it tries to lower expenses by decreasing staffing

• Private equity-owned hospitals often reduce staffing to lower expenses and increase profits.
• This practice leads to higher error rates, increased patient mortality, and more frequent never events.
• Reducing staffing directly impacts the quality of patient care and safety.
• Financial incentives drive these decisions, often compromising the healthcare provided.
• Understanding the ownership and management structure of a hospital can reveal potential risks and quality issues.

48 states and the federal government don’t require a physician in the emergency department

• Most states and the federal government do not mandate a physician’s presence in emergency departments.
• This regulatory gap allows some emergency departments to operate without a doctor on site.
• The absence of a physician can lead to significant quality and safety issues in emergency care.
• Public and professional awareness of this issue is crucial for advocating regulatory changes.
• Ensuring physician presence in emergency departments is essential for maintaining care standards and patient outcomes.

Indiana and Virginia are the only two states that require a physician to be on duty in emergency departments

• Indiana and Virginia have passed laws requiring a physician to be on duty in all emergency departments.
• These regulations aim to improve patient care quality and safety in emergency settings.
• Other states may follow suit, prompted by advocacy and awareness of the issue.
• The federal government’s inaction has led states to take independent measures to ensure adequate emergency staffing.
• Monitoring the impact of these laws can provide evidence for broader legislative changes.

Are Empath Units the solution to helping emergency department mental health patients?

• Empath units offer a specialized environment for acute behavioral health patients, fostering immediate healing.
• These units provide counseling, group therapy, and psychiatric support in a calming setting.
• Located near emergency departments, empath units ensure medical stabilization while promoting mental health recovery.
• The model addresses the inadequacies of traditional emergency department settings for psychiatric patients.
• Federal and state funding has supported the development of empath units, highlighting their importance and effectiveness.