Exclusive radiology contracts with hospitals, and contracts in many private practices, typically contain “restrictive covenant” provisions, known as non-competes. Individually, these provisions restrict ACR members — whether partners or employees — from competing for patient referrals against their current employer, either by joining another group (hospital-based or private) or by opening their own practice. In addition, many hospital contracts with radiology groups include non-compete provisions limiting or prohibiting the group from competing with the hospital or new hospital radiology group, for some period after the contract expires.
Most states have allowed hospitals and medical practices to enforce non-competes against their employees or contractors — if the non-compete is for a reasonable time and geographic scope. However, some jurisdictions have begun to prohibit non-competes or severely limit a group from enforcing them. These states have curtailed non-competes because they inhibit a patient’s right to choose (or keep) their physician. Additionally, a recent Biden Administration Executive Order calls for federal agencies to enforce antitrust law more aggressively and identifies non-compete provisions as potentially anti-competitive. In this first of a two-part RADLAW series, we’ll explain key points about radiology non-compete provisions and then evaluate how members can address their impact.
The term “restrictive covenant” or “non-compete” reflects its intended outcome. It is an agreement to forego practicing in a specific location for a specific duration after employment ends. For instance, a member who practices general radiology with a group agrees in their contract to avoid practicing with another entity in that specialty during the term of their employment, and for one or two years thereafter — within 25 miles from their current group’s location.1 The nature of the hospital department or private group’s services may influence the geographic scope and timeframe of the non-compete. A teleradiology practice that provides imaging care may well attempt to enforce a non-compete that extends across state lines, even regionally.
Why does a hospital or private group enforce a non-compete against ACR members? It does so for clinical and financial reasons. Hospitals and private practices invest in radiologists and their department or group by recruiting and relying on radiologists to render quality patient care. Yet, a radiologist who leaves to join another practice — and perhaps compete against a hospital — might leave the department with a key position to fill, and the prospect of losing patients to their former employee. Consequently, hospitals assert that they have a legal interest as the member’s employer to enforce the restrictive covenant against the member. Some ACR members maintain that non-competes fundamentally exist so that a hospital may prevent another entity from cherry-picking the member away to a separate practice.2 These members note that non-compete provisions may also benefit radiologists by constraining hospitals from selecting their own radiology groups or threatening that step.3
Reining in Non-Competes
Several states and the District of Columbia have reined in non-competes by enacting laws that either limit or ban them altogether. California, Oklahoma, and North Dakota generally ban non-competes on public policy grounds. Florida enacted a law in 2019 that prohibited any non-compete agreements between physician specialists and any organization that contracts with or employs any physicians in that specialty in a certain county.4 In that state, a practice may not enforce its non-compete provision for three years after the date on which another entity begins to provide the same specialty services in that county.5 In response, 21st Century Oncology, a national radiation oncology company, sued Florida — claiming that the law violated its constitutional rights of contracting, due process, and equal protection. However, a federal judge rejected that challenge. The court ruled that the state legislature could have reasonably determined that invalidating specific non-compete provisions could improve competition, and thereby enhance patient access and control cost of care.6
The District has gone a step further, by approving legislation banning essentially all non-competes, both during and after employment. Notably, though, District law exempts “medical specialists” — defined as “licensed physicians who have completed their medical residencies and make at least $250,000 annually.”7 This exception could apply to certain ACR members who work in the District. Any employer from the District that attempts to enforce a non-compete provision against the member must provide the proposed non-compete language to them at least two weeks before the parties sign the underlying contract. Additionally, District law excludes otherwise enforceable non-compete agreements related to selling a business in which the seller promises not to compete with the buyer’s business.8 The Louisiana Senate is considering a bill to ban non-competes against physician specialists who have served as employees or are under contract
with an employing or contracting entity for at least three years.9
Finally, President Biden issued an Executive Order in July of 2021 that encourages federal agencies — such as the Federal Trade Commission — to enforce antitrust laws within their current authority. Whether the Executive Order may legally apply to ACR members beyond those who are federal employees or contractors remains uncertain. In the second part of this series, we’ll outline the practical aspects for members who are on either side of a non-compete provision.