IU Health to eliminate noncompete clauses for primary-care docs

Indiana University Health said Thursday it will eliminate noncompete clauses for primary-care physicians, effective Dec. 15.

The move comes a year after the Indiana General Assembly passed a law banning noncompete clauses in new contracts for physicians practicing primary care. IU Health said it decided to extend the same benefit to physicians who are currently employed.

“We believe removing noncompete clauses for this group of physicians will be a benefit and help foster an environment where our physicians can continue to provide exceptional care without barriers, ultimately improving health outcomes in our shared communities,” Kevin Gebke, senior vice president of community medicine at IU Health, said in written remarks.

Non-competes are restrictive covenants that prevent doctors who leave their employers from working in the same community for a specified period, often a year.

Hospitals and business groups have traditionally favored non-competes, saying the covenants help protect trade secrets and prevent employees from stealing clients.

Many physicians and medical-consumer groups say the agreements needlessly hurt doctors and their patients, reduce access to medical care and interfere with the free flow of labor.

While the policy change affects only primary-care physicians, IU Health said it is also in ongoing discussions regarding noncompete clauses for medical specialists. It said it will continue to monitor and evaluate the topic.

IU Health said the move would affect about 95% of its its nearly 400 primary-care physicians. The hospital system employs more than 2,300 physicians in total, including specialists, as part of the IU Health Medical Group.

IU Health’s move also comes as a near-total ban on noncompete agreements across many industries is scheduled to take effect in September, as a result of a rule approved in April by the Federal Trade Commission.

But whether the FTC rule applies to not-for-profit hospitals systems, such as IU Health, is in dispute. The FTC has said that “some portion of the 58% of hospitals that claim tax-exempt status as nonprofits and the 19% of hospitals that are identified as state or local government hospitals … likely fall under the Commission’s jurisdiction and the final rule’s purview.”

The U.S. Chamber of Commerce and the Business Roundtable filed a lawsuit in Texas federal court challenging the new rules and arguing that without a legislative mandate that the FTC doesn’t have the authority to issue or enforce its noncompete ban.

Those lawsuits are pending. Meanwhile, some lawyers are advising clients to wait and see as to how the rule will play out.

The issue, once a sleeper that rarely got much media attention, is surging through the health care industry and racking up headlines around the nation. In 2022 alone, lawmakers in 29 states proposed nearly 100 bills that would prohibit or limit non-compete agreements. Nearly one-third of those bills involved health care professionals.