The Federal Trade Commission (FTC) released a proposed rule on January 5, 2023, to prohibit employers from imposing noncompete clauses on workers. In issuing the proposed rule, the FTC cited evidence suggesting noncompete clauses significantly reduce workers' wages, stifle new businesses and new ideas, exploit workers, and hinder economic liberty.
Traditionally, legislation that impacts noncompete clauses for workers exists at a state level, marking this move as a significant effort on a national level. Three states currently have legislation that prevents employers from enforcing noncompetition clauses: California, North Dakota, and Oklahoma. In its release of the proposed rule, the FTC is quick to point out that despite the absence of noncompete clauses in these states, industries that depend on trade secrets and other key investments have flourished there, suggesting that companies are able to find other ways to protect their investments. The proposed rule has a broad reach and is not specific to the health care industry but has the potential to impact physicians and their employers directly (1).
Recent and historical actions by the FTC have shown interest in health care business operations in kidney care, particularly as it relates to dialysis markets and consolidation. Not long ago, the current FTC regulators recognized the impact that dialysis providers can have on industry consolidation and workforce availability for dialysis facilities. In 2021, the FTC intervened in DaVita, Inc., and Total Renal Care, Inc., on acquisition of The University of Utah clinics, citing a concern over reduced competition. In its decision, the FTC also prohibited DaVita from enforcing noncompete agreements and other employee restrictions (2).
Nephrologists are commonly exposed to noncompete clauses in employment agreements and also in contracting agreements for medical director services with dialysis organizations. The degree to which nephrologists are exposed to these agreements and the impact these agreements have on the health care system are largely unknown. Concern does exist, as illustrated by the FTC in the Utah example, that medical director arrangements between locally established physician groups and consolidated dialysis providers can lead to less competition in local dialysis markets. Established dialysis providers typically will have the advantage in locking physician groups into noncompete arrangements, thus restricting access for new dialysis companies to medical director leadership. This practice has the potential, particularly in rural environments, to lead to “dialysis deserts,” limiting patient access to care.
Additionally, some academic medical programs have been known to subject junior faculty, directly out of training, to noncompete arrangements at a time when graduating trainees may not fully understand complex contractual agreements. Trainees may feel intimidated or uncomfortable negotiating such agreements with mentors who they respect and trust. Contractual-restrictive covenants are applied more frequently to women and minorities, who may also feel that they are not in a position to negotiate (3). Research has suggested that banning noncompete clauses nationally may help to close gender and racial wage gaps by 3.6% to 9.1% (4).
Following interest from numerous ASN members, the society's Quality Committee—formerly titled the Quality, Patient Safety, and Clinical Practice Committee—reviewed the FTC proposed rule on behalf of ASN members. The ASN Quality Committee aids the policy and advocacy effort of the society with a focus on the regulatory aspects of public policy. The end-product of this effort, along with subsequent review by the ASN Council, was a letter sent by ASN President Michelle A. Josephson, MD, FASN, to the FTC (5). In the letter, ASN highlighted its full support for the proposed rule, focusing on two key issues summarized below.
Federal Trade Commission. Fact sheet: FTC proposes rule to ban noncompete clauses, which hurt workers and harm competition. https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete_nprm_fact_sheet.pdf
Federal Trade Commission. FTC imposes strict limits on DaVita, Inc.'s future mergers following proposed acquisition of Utah dialysis clinics. October 25, 2021. https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-imposes-strict-limits-davita-incs-future-mergers-following-proposed-acquisition-utah-dialysis
Marx M. Employee non-compete agreements, gender, and entrepreneurship. Organ Sci 2021; 33:1756–1772. https://pubsonline.informs.org/doi/full/10.1287/orsc.2021.1506
Josephson MA; American Society of Nephrology. Letter to Lina M. Kahn, Chair, Federal Trade Commission. April 18, 2023. https://www.asn-online.org/policy/webdocs/04.18.23ASNFTCNon-CompeteBanCommentLetterFINAL.pdf