Judge rules Lutheran breached contract with Indiana physician, can’t enforce noncompete

A judge ruled in favor of an Indiana physician in his case against his former employer, Lutheran Medical Group in Fort Wayne, Ind. The ruling affirmed that the noncompete clause in his employment contract is unenforceable and that he is potentially entitled to monetary damages from Lutheran. 

That noncompete clause attempted to bar Dr. David Lankford, a pediatric intensivist, from practicing any medicine within a thirty-mile radius of a Lutheran hospital or office for up to a year after his employment ends.

The judge ruled that Lutheran breached its contract with Lankford when it changed his job duties and also found the noncompete was overly broad.

The case comes as the law –– and culture –– around Indiana’s physician noncompete clauses has shifted. But some still worry that existing noncompete clauses could push physicians out of the state.

Material breach of contract and a nullified noncompete

As a pediatric intensivist, Lankford had been trained to care for the sickest of the sick pediatric patients in intensive care units. And that’s what he did for the first four years of his employment with Lutheran. Then, in October 2022, Lutheran eliminated several pediatric hospitalist positions and shifted their workload to intensivists like Lankford.

“Which meant more patients to see, more phone calls to make, more consults to make, more notes to write, more discharges, more admissions,” Lankford told Side Effects in 2023. “It makes it harder to give the attention that you want to those critically ill patients.”

Court documents show Lankford handled 282 visits in the three months after the change — slightly more than he saw across the entire 12 months before. That drove him to quit and sue to get out of his noncompete. Lutheran tried to dismiss the case and in February of this year sued Lankford and his new employer, Parkview Health, for allegedly hurting its business interests. A judge dismissed those cases.

Months of legal ping pong ended with the court’s decision this November that Lutheran’s actions amounted to a breach of Lankford’s employment contract. This means Lutheran can not enforce any part of the contract including the noncompete clause.

Separately, the court also found that the noncompete clause was unreasonable in its scope as it prohibited Lankford from practicing any type of medicine, not just his specialty. The noncompete’s geographic restriction would have put all of Fort Wayne out of bounds. The nearest hospital would be an hour away.

The judge also ruled that Lankford is potentially entitled to monetary damages due to Lutheran’s breach of contract, which has harmed him in several ways. According to court documents, this harm included lost income, emotional distress from the litigation process, and reputational damage. 

The amount of damages has not yet been set and will be determined at trial.

Side Effects reached out to Lutheran for comment but did not hear back at the time of publication.

The stakes

Around one in five U.S. workers have noncompete clauses in their contracts, including many physicians. According to the American Medical Association, around 37% to 45% of U.S. physicians are bound by noncompete agreements.

Lankford’s case coincided with recent bipartisan federal and state efforts to limit the use of noncompete clauses for physicians.

Locally, Indiana legislators passed a new law in 2023 that limits the use of noncompete agreements in physician contracts. The law outright prohibits noncompetes for primary care physicians whose contracts started after July 2023. Primary care physicians are typically the first point of contact for non-emergency medical care for patients, including regular checkups, immunizations, blood tests and preventative care.

That’s pushed the state’s largest health system, Indiana University Health, to announce that it is eliminating noncompete clauses for all its primary care physicians.

Beyond primary care physicians, the new Indiana law also gives other specialists –– like Lankford –– two routes out of their noncompete clauses: if they are let go by the employer “without cause” or they quit “for cause”. However, the law doesn’t define “cause” in any way.

Lankford’s case was thought to potentially be the first real test of Indiana’s new law. But the court decided that since Lankford terminated his contract several months before the Indiana law went into effect, it cannot retroactively apply to it.

Trial court rulings like Lankford’s case are not precedential on higher courts, which means the Court of Appeals doesn’t have to follow this decision. But Alexander Pantos, an attorney at DeLaney & DeLaney, who represents Lankford, said that he is encouraged by the progress both in the legislature and the courts. 

“From my perspective, I think that's because it's a public good for physicians to be out there taking care of sick people,” he said, “and when there are situations where a physician either can't practice for a certain period of time because of one of these contracts, or they move to some other state to get out of a restricted area, Indiana loses the benefit of having those trained physicians taking care of its sick people.”

There is a looming doctor shortage in the Midwest, according to federal estimates. By 2025, many of the region's states, particularly Indiana, Missouri and Ohio, are expected to have more demand for primary care doctors than supply. Some advocates argue noncompete agreements might be one of several reasons for that shortage.

And there are signs the wind is blowing away from these restrictive contract provisions in Indiana.

In April 2024, the Indiana Court of Appeals ruled that a trial court erred when it allowed Indiana University Health to prohibit Dr. Kennethh Kesler, a thoracic surgeon who specializes in removing cancerous tumors in the chest area, from practicing medicine within a thirty-mile radius from IU Health facilities.

The Court of Appeals reversed the decision because it found that preventing Kesler from practicing within the restricted area would harm the public interest and limit patients’ access to vital and specialized expertise in the state. The court ruled that this potential irreparable harm outweighed the business interests IU Health sought to protect through enforcing the noncompete clause.

Kenneth is now employed by Community Health Network at Community North Hospital, a competitor within the 30-mile radius of IU Health.

Federal efforts to end noncompetes meet hurdles

Health care leaders say noncompetes are necessary to protect the business interest of hospitals and medical practices. They say noncompetes protect them from losing patients who may follow a doctor who leaves to another hospital and help to avoid what some described as “bidding wars” over physician wages. 

But doctors and some policy makers say noncompetes make physician shortages and health care costs worse because they force doctors out of their communities when they just want to switch employers.

In April 2024, the Federal Trade Commission approved a ban on noncompete agreements across nearly all industries. The ban would have impacted the health care industry, but it faced expected legal challenges. 

In August, a federal judge in Texas blocked the FTC’s ban from taking effect citing the agency’s lack of authority to enforce it.

The FTC may appeal the decision but legal scholars say the ban may be delayed or may not survive the legal challenges altogether.

Side Effects Public Media is a health reporting collaboration based at WFYI in Indianapolis. We partner with NPR stations across the Midwest and surrounding areas — including KBIA and KCUR in Missouri, Iowa Public Radio, Ideastream in Ohio and WFPL in Kentucky, WGLT in Illinois and KOSU in Oklahoma.