The CEOs of large health system are among the losers of the FTC's recent ban on non-compete clauses. ... [+]
With a single ruling, the Federal Trade Commission removed the nation’s occupational handcuffs, freeing almost all U.S. workers from non-compete clauses. The medical profession will never be the same.
On April 23, the FTC issued a final rule, affecting not only new hires but also the 30 million Americans currently tethered to non-compete agreements. Scheduled to take effect in September—subject to the outcome of legal challenges by the U.S. Chamber of Commerce and other business groups—the ruling will dismantle longstanding barriers that have kept healthcare professionals from changing jobs.
The FTC projects that eliminating these clauses will boost medical wages, foster greater competition, stimulate job creation and reduce health expenditures by $74 billion to $194 billion over the next decade. This comes at a crucial moment for American healthcare, an industry in which 60% of physicians report burnout and 100 million people (41% of U.S. adults) are saddled with medical bills they cannot afford.
Like all major rulings, this one creates clear winners and losers—outcomes that will reshape careers and, potentially, alter the very structure of U.S. healthcare.
Winners: Newly Trained Clinicians
Undoubtedly, the FTC’s ruling is a win for younger doctors and nurses, many of whom join hospitals and health systems with the promise of future salary increases and more autonomy. However, by agreeing to stringent non-compete clauses, these newly trained clinicians have little choice but to place their trust in employers that, shielded by air-tight agreements, have no fear of breaking their promises.
Most newly trained clinicians enter the medical job market in their late 20s and early 30s, carrying significant student-loan debt—nearly $200,000 for the average doctor. Eager for stable, well-paying positions, these young professionals quickly settle into their careers and communities, forming strong relationships with friends and patients. Many start families.
But when these clinicians realize their jobs are falling short of the promises made early on, they face a tough decision: either endure subpar working conditions or uproot their lives. Taking a new job 25 or 50 miles away or moving to a different state are often are only options to avoid breaching a non-compete clause.
In a 570-page supplement to its ruling, the FTC published testimonials from dozens of healthcare professionals whose lives and careers were harmed by these clauses.
“Healthcare providers feel trapped in their current employment situation, leading to significant burnout that can shorten their career longevity,” said one physician working in rural Appalachia.
By banning non-competes, the FTC’s rule will boost career mobility for all clinicians within their own communities. This change will likely spur competition among employers—leading to improved pay and benefits to attract and, equally important, retain top talent. And with the reassurance that they can easily switch jobs if their current employer falls short of expectations, clinicians will enjoy greater professional satisfaction and less burnout.
Winners: Patients In Competitive Healthcare Markets
Benefits that accrue to doctors and nurses from the FTC’s ban will translate directly to improved outcomes for patients. For example, we know that physicians who report symptoms of burnout are twice as likely to commit a serious medical error. Studies have shown the inverse is true, as well: healthcare providers who are satisfied with their jobs tend to have lower burnout rates, which is positively correlated with improved patient outcomes.
Once freed from restrictive non-compete clauses, many clinicians will practice elsewhere within the community. To attract patients, they will have to offer greater access, lower prices and more personalized service. Others with the freedom to choose will join outpatient centers that offer convenient and efficient alternatives for diagnostic tests, surgery and urgent medical care, often at a fraction of the cost of traditional hospital services. In both cases, increased competition will give patients improved medical care and added value.
Losers: Large Health Systems And Their CEOs
Large health systems, which encompass several hospitals in a geographic area, have traditionally relied on non-compete agreements to maintain their market dominance. By barring high-demand medical professionals such as radiologists and anesthesiologists from joining competitors or starting independent practices, these systems have been able to suppress competition and force insurers to pay more for services.
Currently, these systems can demand high reimbursement rates from insurers while also maintaining relatively low wages for staff, creating a highly profitable model. Yale economist Zack Cooper’s research shows the consequence of the status quo: prices go up and quality declines in highly concentrated hospital markets.
The FTC’s ruling challenges those conditions, potentially dismantling monopolistic market controls. As a result, insurers will no longer be forced to contend with a single, dominant provider. And with health systems pushed to offer better wages and benefits to retain their top talent, bottom lines will shrink.
Losers: Hospital Administrators
Individual hospitals have faced a unique challenge over the past decade. Across the country, inpatient numbers are falling, which makes it harder for hospital administrators to fill beds overnight. This trend has been driven by advancements in medical technology and new practices that enable more outpatient procedures, along with changes in insurance reimbursements favoring less costly outpatient care. As a result, hospital administrators have been compelled to adapt their financial strategies.
Nowadays, outpatient services account for about half of all hospital revenue. These range from physician consultations to specialized procedures like radiological and cardiac diagnostics, chemotherapy and surgeries.
Medicare and other insurers typically pay hospitals more for these outpatient services than they pay local doctors and other facilities. Knowing this, hospitals are hiring community doctors and acquiring diagnostic and procedural facilities, then boosting profitability by charging the higher hospital rates for the same services.
Hospital administrators know that this strategy only works if the newly hired clinicians are prohibited from quitting and returning to practice within the same community. If they do, their patients are likely to go with them. This is why the non-compete clauses are so essential to a hospital’s financial success.
As expected, the American Hospital Association opposes the FTC’s rule, arguing that non-compete clauses protect proprietary information. In practice, most of the doctors affected by the ban are providing standard medical care and have no proprietary knowledge that requires protection.
Looking Ahead
Today’s hospital systems are starkly divided between haves and have-nots. Facilities in affluent areas often enjoy high reimbursement rates from private insurers, boosting financial success and administrator salaries. In contrast, rural hospitals grapple with low patient volumes while facilities in economically disadvantaged, high-population areas face greater financial difficulties.
The current model is not working. The old ways of doing things—enforcing non-competes, charging higher fees for identical services and promoting market consolidation to hike prices—are not sustainable solutions.
The abolition of non-compete agreements will produce both winners and losers. In the healthcare sector, the ultimate measure of a policy’s impact should be its effect on patients—and the overwhelming evidence suggests that eliminating these clauses will benefit them greatly.
