Regulate Physician Restrictive Covenants to Improve Healthcare

Abstract

Expanding patient choice and access, improving quality, and controlling costs are the primary concerns that have dominated the U.S. healthcare reform agenda. This Article argues these concerns should govern enforceability of physician non-compete and non-solicitation agreements (restrictive covenants). Most jurisdictions have adopted a reasonableness test to assessing the enforceability of physician restrictive covenants. Some jurisdictions have decided physician non-competes are per se invalid. Courts applying the reasonableness test to non-competes often disrupt continuity of care and harm patients; continuity of care is key to patient health. Moreover, physicians departing a practice have an ethical obligation to notify patients of the physician’s departure and how to transfer care to the physician’s new practice. Courts have scrutinized every word of a physician’s notification to her patients to determine whether the physician crossed the nebulous line from fulfilling notification obligations to improper solicitation. Wary of liability for breach of a non-solicitation agreement, doctors will likely avoid fulfilling their obligations to notify patients, effectively preventing the patient from continuing treatment with her doctor. This Article articulates a model framework for evaluating restrictive covenants that protects patients and furthers healthcare reform goals. First, practices should be required to allow departing physicians to access patient info to fulfill patient notification obligations; courts should refuse to enforce non-solicitation agreements prohibiting physicians from soliciting their own patients. Otherwise, non-solicitation agreements will effectively sever doctor-patient relationships. Next, courts should refuse to enforce restrictive covenants in a way that disrupts continuity of care or interferes with the doctor-patient relationship; courts should clarify that non-competes can only restrict the location where a physician practices and cannot prohibit a physician from treating her own patients. Finally, states should enact transactional incentives to lower costs to patients and expand patient choice and access by making covenant enforcement turn on the extent to which the covenant supports healthcare reform goals.

Current frameworks fail to incentivize providers to:

(1) accept lower reimbursement coverage such as TRICARE, Medicare, and Medicaid and

(2) reduce patient costs. This Article’s model provides these incentives.  

Keywords: physicians, doctors, contracts, non-competes, Medicare, Medicaid, TRICARE, healthcare reform, restrictive covenants

JEL Classification: K12, I1