Healthcare’s biggest winners, losers from the FTC’s non-compete ban

With a single ruling, the Federal Trade Commission removed the nation’s occupational handcuffs, freeing nearly all American workers non-compete agreements. The medical profession will never be the same again.

On April 23, the FTC issued a last rule, which impacts not only new hires, but also the 30 million Americans currently bound by non-compete agreements. The ruling is expected to take effect in September — subject to the outcome of legal challenges by the U.S. Chamber of Commerce and other business groups — and will remove long-standing barriers that keep health care professionals from changing jobs.

The FTC predicts that eliminating these clauses will raise health care wages, promote greater competition, boost employment, and reduce health care spending by $74 billion to $194 billion over the next decade. This comes at a crucial time for US healthcare, an industry where 60% of physicians report burnout and 100 million people (41% of US adults) are saddled with medical bills they can’t afford it.

Like all great statements, this one leads to clear winners and losers: outcomes that will reshape careers and possibly even change the structure of American health care.

Winners: newly trained doctors

The FTC’s ruling is undoubtedly a victory for younger doctors and nurses, many of whom join hospitals and health care systems with the promise of future salary increases and greater autonomy. However, by agreeing to strict non-compete agreements, these newly trained doctors have little choice but to place their trust in employers who, protected by airtight agreements, are not afraid to break their promises.

Most newly trained physicians enter the medical job market in their late 20s or early 30s, with significant student loan debt: nearly $200,000 for the average physician. Desiring a stable, well-paying position, these young professionals quickly establish themselves in their careers and communities and form strong relationships with friends and patients. Many are starting families.

But when these doctors realize that their jobs are not living up to the promises they made early on, they are faced with a difficult decision: either endure the poor working conditions or uproot their lives. Moving 10, 20, or even 50 miles away is the only option to avoid violating a non-compete agreement.

In a Supplement of 570 pages Following its ruling, the FTC published testimonials from dozens of healthcare professionals whose lives and careers were harmed by these clauses.

“Caregivers feel trapped in their current employment situation, leading to significant burnout that can shorten the longevity of their careers,” says a physician who works in rural Appalachia.

By banning non-compete agreements, the FTC’s rule will increase the career mobility of all physicians within their own communities. This change is likely to stimulate competition between employers, leading to better wages and benefits to attract and, just as importantly, retain top talent. And with the peace of mind that they can easily switch jobs if their current employer doesn’t meet expectations, physicians will experience greater professional satisfaction and less burnout.

Winners: Patients in Competitive Healthcare Markets

The benefits to doctors and nurses resulting from the FTC’s ban will translate directly into better outcomes for patients. For example, we know that doctors who report symptoms of burnout are twice as likely to commit a serious medical error. Studies have shown that the reverse is also true: Healthcare providers who are satisfied with their jobs tend to have lower burnout rates, which is positively correlated with better patient outcomes.

Once freed from restrictive non-compete agreements, many physicians will practice elsewhere within the community. To attract patients, they will have to offer better access, lower prices and more personalized service. Others with the freedom to choose will join outpatient clinics that offer convenient and efficient alternatives to diagnostic tests, surgeries and emergency medical care, often at a fraction of the cost of traditional hospital services. In both cases, increased competition will provide patients with better medical care and added value.

Losers: Large Healthcare Systems and Their CEOs

Large healthcare systems, which include several hospitals in a geographic area, have traditionally relied on non-compete agreements to maintain their market dominance. By preventing in-demand medical professionals such as radiologists and anesthesiologists from joining competitors or starting independent practices, these systems have been able to stifle competition and force insurers to pay more for services.

Currently, these systems can demand high reimbursements from insurers while maintaining relatively low wages for staff, creating a highly profitable model. Yale economist Zack Cooper’s research shows the consequences of the status quo: prices go up and quality declines in highly concentrated hospital markets.

The FTC’s ruling challenges these conditions and potentially dismantles monopolistic market controls. As a result, insurers will no longer have to deal with one dominant provider. And as healthcare systems are forced to offer better wages and benefits to retain their top talent, the bottom line will shrink.

Losers: Hospital administrators

Individual hospitals have faced a unique challenge over the past decade. Across the country, the number of hospital patients is falling, making it harder for hospital administrators to fill beds overnight. This trend is driven by advances in medical technology and new practices that allow for more outpatient procedures, along with changes in insurance reimbursement that promote less expensive outpatient care. As a result, hospital administrators are forced to adjust their financial strategies.

Today, outpatient services account for about half of all hospital revenues. These range from doctor consultations to specialized procedures such as radiological and cardiac diagnostics, chemotherapy and operations.

Medicare and other insurers typically pay hospitals more for these outpatient services than local physicians and other facilities. Knowing this, hospitals hire community physicians and acquire diagnostic and procedural facilities, then increase profitability by charging higher hospital rates for the same services.

Hospital administrators know that for this strategy to work, newly hired physicians must be prohibited from quitting and returning to practice within the same community. If they do, chances are their patients will go along with them. That’s why non-compete agreements are so essential to a hospital’s financial success. As expected, the American Hospital Association opposes the FTC’s policy, arguing that it protects proprietary information. In practice, most doctors subject to the ban provide standard medical care, just as they would in any setting, and do not have specific knowledge.

Looking forward

Today’s hospital systems are sharply divided between ‘haves’ and ‘have-nots’. Facilities in affluent areas often enjoy high reimbursements from private insurers, which benefits the financial success and salaries of administrators. In contrast, rural hospitals face low patient volumes, while facilities in economically disadvantaged areas with high population densities face greater financial challenges.

The current model doesn’t work. The old ways of doing things – enforcing non-compete agreements, charging higher fees for identical services and promoting market consolidation to raise prices – are not sustainable solutions.

The abolition of the non-compete clause will create both winners and losers. In the healthcare sector, the ultimate measure of policy impact should be its effect on patients – and the overwhelming evidence suggests that eliminating these clauses will benefit them enormously.