August 5, 2024 Written by: Erik Derr, Esq.
Effective on January 1, 2025, the “Fair Contracting for Health Care Practitioners Act” (Pennsylvania House Bill No. 1633) (the “Act”) will prohibit new non-compete agreements for almost all health care practitioners in Pennsylvania, including doctors, osteopaths, nurse anesthetists, nurse practitioners, and physician assistants. Citing to the risk of losing health care practitioners to surrounding jurisdictions, the Act prohibits agreements that have “the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competition employer after the term of employment.”
While there are some excepted circumstances where non-compete agreements are still permitted (non-compete agreements of less than one year where the practitioner is not dismissed by the employer, or in certain transactions involving a healthcare practitioner), the ban is wide reaching. The Act does not affect non-compete agreements entered into before January 1, 2025.
A new burden on employers:
Under the Act, employers must now notify patients seen within the prior year, within 90 days following a practitioner’s departure from the employer:
- Of the practitioner’s departure;
- If the patient chooses to receive care from the departed health care practitioner or another health care practitioner, how the patient may transfer the patient’s health records to a health care practitioner other than with the employer; and
- That the patient may be assigned to a new health care practitioner within the existing employer if the patient chooses to continue receiving care from the employer.
This notification requirement only applies if the practitioner maintained a patient relationship with the patient for longer than two years.
Recourse for Employers:
There is some positive aspect to the Act. The Act permits employers to recover reasonable expenses from practitioners who depart the practice for those expenses:
- directly attributable to the healthcare practitioner and accrued within 3 years prior to the separation (unless the employee was dismissed);
- related to relocation, training, and establishment of a patient base; and
- amortized over a period of up to 5 years from the date of separation.
Takeaway:
Although it is uncertain whether the FTC’s ban on non-competes will ultimately survive judicial scrutiny, Pennsylvania’s ban on non-competes for health care practitioners is one among many data points indicating a national trend of state-level non-compete bans.[1] Additionally, in the event that the FTC’s ban does not survive judicial scrutiny, political pressure in worker-friendly states will likely ensue, possibly leading to legislation hostile towards restrictive covenants throughout the United States and the creation of a patchwork of disparate prohibitions. Given these trends, employers should be cognizant of the possibility that existing and prospective non-compete agreements may become unenforceable, and states may impose obligations on employers relating to existing non-competes. Work around solutions such as non-solicitation agreements or non-disclosure agreements may be useful tools to mitigate the effects of non-compete bans, where applicable.
If you have any questions regarding the Act, please reach out to the Staffing Group at Becker LLC and we will be more than happy to answer your questions.
[1] The Eastern District of Pennsylvania’s decision refusing to enjoin the September 4, 2024 effective date of the FTC ban bolstered this trend.