Indiana to consider ban on physician non-competes as national debate over agreements heats up

Indiana lawmakers are set to consider a bill that would prohibit new non-compete agreements for physicians this session.

“Indiana is one of the most expensive states in the union when it comes to when it comes to the price of health care,” said Rep. Justin Busch (R-Fort Wayne), who authored Senate Bill 7. “So we need to be doing things and not be afraid of trying to make some reforms or to lower the price of care. And also make sure that we're firmly putting the patient in the center.”

Non-compete agreements often prohibit workers from leaving a job and taking another in the same industry, usually within a certain time frame, geographic area or both. Proponents argue these agreements help protect trade secrets, prevent employees from stealing clients as well as increase employers’ willingness to invest time and money to train and develop workers’ skills.

“I've heard the horror stories of ‘they've eliminated my position, I would have stayed at that hospital. And now they won't even let me practice [in the area] because it's within a half a mile radius of my non-compete,” Busch said. “And for me, the bill is patient-centric, right? You create a relationship with your doctor, they know your history, you develop trust with them. And we're just trying to keep the good doctors that we have in our area.”

This is not the first time Indiana lawmakers have tried to chip away at physician non-competes. And SB 7 is not the only bill taking aim at them this session.

“I was open to maybe a bit more of a narrow bill earlier,” Busch said. “But I really think that our opposition is gonna want to fight it no matter what it would be. So I decided to say, ‘hey, instead of creeping towards that, I think we just should end it totally.”

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The Indiana Hospital Association has opposed some previous efforts. They declined an interview request, but in a statement a spokesperson said the legislature already “struck the right balance for both physicians and employers” with a 2020 law that required non-compete agreements to allow a physician to buy out “at a reasonable price” and ensured physicians get “continuing access to their patients’ medical records.”

“Noncompete agreements are a standard business practice to protect an organization’s investment,” the emailed statement said. “The Indiana legislature should not further interfere with this legitimate business tool to protect the capital, time, and training that employers invest to recruit and retain physicians.”

Other states like Alabama and North Dakota have similar bans in place, Busch said.

“The sky did not fall, when non-competes were taken away and [letting] the competitive market shape this industry is something I think would be good for Indiana and Hoosier patients,” Busch said.

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He notes the current version of SB 7 would not affect existing agreements, it would just prohibit new ones after it goes into effect. Busch is not sure when SB 7 will go up for discussion at the statehouse.

At the same time, the Federal Trade Commission is considering a new rule banning all non-competes across all industries, nationwide.

“My focus has just been doctors’ non-competes. So I haven't really dug into the other fields,” Busch said. “But, in concept, creating competition I think makes a lot of sense.”

The fervor to regulate non-compete agreements is relatively new, said Kenneth Dau-Schmidt, Indiana University labor and employment law professor.

“In the old days [non-compete agreements] were limited to high-level executives who had very sensitive information or research personnel who were employed to conduct research for the firm. They were well paid for accepting these non-competes,” Dau-Schmidt said. “But the problem is that now firms have expanded them … there are cases where it's been applied to sandwich makers, janitorial workers, guards and even unpaid volunteers, counselors at a summer camp. And so it's just really gotten out of hand and the FTC has taken note of this.”

The FTC estimates that about 1 in 5 American workers is under a non-compete. The commission says getting rid of the agreements “could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.”

Many workers likely signed employment contracts without realizing it included a non-compete, Dau-Shmidt said.

“Under the common law, an employer needs a legitimate interest in order to enforce these [agreements],” he said. “Most courts, I mean, you would predict that a lot of these would not be enforceable… but the problem is that employees don't know that. They can't retain a good employment lawyer to tell them that it's not enforceable.”

However, Dau-Schmidt notes the case for putting physicians under these agreements is probably stronger than many other jobs.

"[If] they develop a patient list while they're working for [an employer] and learning and then they leave and take those customers with them, a health services company or another physician could feel legitimately aggrieved,” he said. “But the problem there is that there's also a public interest in having physicians practice in the area. And also there's a public interest in having patients getting to pick their own physicians.”

The FTC rule could be softened in its final version or get torn apart by legal challenges. The commission is accepting public comments on the proposed rule until March 10.

A bipartisan group of federal lawmakers, including U.S. Sen Todd Young (R-Ind.), plan to introduce a bill to ban the agreements again after a previous attempt at that failed.

Side Effect Public Media's Farah Yousry contributed reporting to this story.

Contact reporter Adam at arayes@wvpe.org or follow him on Twitter at @arayesIPB.

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