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Indiana Bills Address Non-Compete Clauses on Physicians

March 26, 2020

Indiana lawmakers are considering three measures that would limit or stop non-compete clauses that medical employers such as hospitals can impose on physicians regarding future employment.

Traditionally, employers have used non-compete clauses to protect trade secrets if an employee should leave.

 Senate Bill 33, which would apply to contracts after June 30, 2020, would limit the duration of non-compete clauses to 24 months after the termination of employment. The bill would require employers to provide physicians with a list of their patients, their contact information and medical information for a reasonable fee.

It also gives physicians an opportunity to “buy out” non-compete restrictions, for a reasonable price, as determined by an arbitrator. Additionally, the bill would make non-compete clauses supplementary to an enforceable employment contract and require the clauses to have specific language regarding the geography of where the clauses would apply and the scope of practice under restraint. SB 33 would not apply to transactions involving the sale of a physician’s practice.

Indiana State Senator Victoria Spartz (R-Noblesville) says she sponsored SB 33 because the health care market in her state has changed dramatically over the years.

“We have some of the highest health care prices in the country,” Spartz told Health Care News. “Already, 80 percent of physicians are employed by a hospital. We really need to free up physicians if they choose to leave. These contracts are very one sided and hospitals are very powerful.”

Indiana lawmakers are considering two other measures that would limit or eliminate non-compete clauses for physicians. HB 115 would require employers to notify patients of a physician’s departure and provide medical records, but does not specify how long such clauses can last or how they would apply in terms of geography and scope of practice. It also provides a buyout provision. SB 243 would be an all-out repeal of non-compete clauses.

Spartz says her bill falls in the middle.

“It is a reasonable approach so that it’s not defeated all together,” Spartz said.

Questions on Impact

A growing shortage of physicians and consolidation of hospitals are two reasons for the growing interest in non-compete reform. Physicians in South Carolina, for example, are lobbying state lawmakers to rein in the clauses, which are protected by case law.

Eliminating non-competes would introduce much-needed competition into the health care marketplace, says Adam Habig, founder of Freedom HealthWorks and policy advisor to The Heartland Institute, which publishes Health Care News. Physicians would be free to set up independent, direct care practices and provide charity care.

Habig wrote Spartz a letter October 10 in which he urged reform. “Indiana should emulate the growing number of states that statutorily limit the scope and duration of such clauses,” Habig wrote.

Habig told Health Care News he is pleased Spartz has taken interest.

“She integrated several of our suggestions,” Habig said. “It is definitely a step in the right direct, but my concern is it mostly codifies case law.  I would like to generate some draft legislation not just for Indiana but all states for future efforts that apply to existing non-competes, and define competition statutorily.”

 

AnneMarie Schieber (amschieber@heartland.org) is managing editor of Health Care News.

Author
AnneMarie Schieber is a research fellow at The Heartland Institute and managing editor of Health Care News, Heartland's monthly newspaper for health care reform.
amschieber@heartland.org @HCPolicy

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