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Doc’s Lawsuit Tests New Crackdown onNon-Compete Clauses

In a test of one of the nation’s most restrictive laws limiting non-compete clauses in medicine, an Indiana pediatric critical-care physician is suing to stop his former hospital employer from controlling his future employment prospects.

David Lankford, DO, acknowledges that he signed a contract with the Lutheran Health Network that included a non-compete clause. However, he claims in a lawsuit filed July 5 in Allen County Superior Court that an Indiana law that took effect 4 days earlier nullifies the clause because he quit his job with cause. 

Indiana’s law is notable among states because if a physician terminates his/her job for cause, the non-compete may be considered unenforceable.

“When you have physicians who are unable to work in their community, it creates a barrier for access to care for patients,” Lankford told Medscape Medical News in an interview. “I’m fighting to decrease barriers and continue to have patients be able to see their doctors in their own hometown or their own county.”

Lutheran Health’s media relations department did not respond to requests for comment.

Non-compete Clauses “Extremely Common”

Non-compete clauses — which typically restrict when and where employees can take future jobs — are extremely common in physician contracts, said Anu Murthy, Esq., who reviews employee contracts for a firm called Contract Diagnostics, in an interview with Medscape Medical News.

However, the tide has been turning against them.

About a dozen states and the District of Columbia have enacted legislation to limit the use of non-competes in employment contracts, and about half of states have pending legislation that could dilute non-compete clauses, Murthy said. Just this past month, the state of New York has sent a non-compete ban bill to the governor’s desk.

For more about state-by-state restrictions on non-compete clauses, check this chart.

In his lawsuit, Lankford said he was hired in 2017 to work at Lutheran Hospital in Fort Wayne.

Lankford signed an employee renewal contract in 2020 that included a non-compete clause; his attorneys declined to provide details about the clause due to confidentiality restrictions. 

In 2022, the lawsuit says, Lutheran Hospital told Lankford that he’d need to take on more work due to layoffs of pediatric hospitalists. His patient load subsequently grew by 4-5 times, and he quit as of January 7, 2023. 

Lankford writes that he found a new job at Parkview Regional Medical Center in Fort Wayne, but his former employer threatened to take action under the non-compete clause, and Parkview withdrew its offer.

Among other things, the new Indiana law says that the clauses are not enforceable “if physician terminates the physician’s employment for cause.”

The lawsuit asks for a judge to prevent Lutheran Health Network from enforcing the clause.

Impact on Patients

The new Indiana law also bans non-compete clauses for primary care physicians. Kathleen A. DeLaney, Esq., one of Lankford’s attorneys, told Medscape Medical News that this provision came about because rural legislators didn’t want to add to the challenges of attracting primary care doctors to move to their communities.  

State legislators have become less friendly to non-compete clauses in medicine because they’re wary of the negative effects on patients, Evan Starr, PhD, told Medscape Medical News. The clauses prevent doctors from taking new jobs where they could continue to treat their previous patients, said Starr, an associate professor in the Department of Management and Organization at the University of Maryland.

However, he said, hospitals are fighting to preserve the clauses, arguing that they provide a base of patients to physicians in return for their agreement not to go work for a competitor.

The legal landscape may change even more. The Federal Trade Commission has proposed banning the clauses nationally, and a decision is expected in 2024. However, it’s an election year, which may delay a decision, attorney Murthy said, “and there is also language in the proposed rule that could exempt nonprofit hospitals, which further complicates the issues.”

For now, Murthy said, “we are still seeing non-competes and other restrictive covenants in almost every contract we review in all 50 states and across all specialties. We explicitly explain to every client that they should only sign the agreement with the expectation that their specific non-compete will be enforced as written. Large employer groups, including hospital systems, will likely fight any kind of restriction or dilution of non-competes, and these types of legal challenges could be tied up in court for many years.”

Randy Dotinga is a freelance health/medical reporter and board member of the Association of Health Care Journalists.

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