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R EVIEW

Restrictive Covenants in Medicine in the United States

RC S IN M EDICINE : T HE P HYSICIAN ’ S P ERSPECTIVE In the modern era, whether one is a solo practitioner running a true business enterprise or an employed phy sician of a larger health care entity, doctors are subject to contract law. Medical practice law in the United States is largely regulated by state-level legislation. To this end, there is considerable variability in the presence and extent of RCs for physician contracts. The American Medical Association ’ s data suggest that 35% to 45% of physicians, for example, have noncompete clauses in their contracts (8, 9). For physicians, RC status is prohib ited by statute in 23% of U.S. states and territories and allowed with common law or statutory law restrictions in the remaining 77% of regions (10). From a physician advocacy perspective, professio nal societies and organized medicine have uniformly and unanimously opposed RCs. In fact, the American Medical Association has provided a Code of Medical Ethics, which notes that RCs reduce competition, are harmful to patients by reducing choice and continuity of care, and may limit physician access as practitioners may avoid moving to certain regions due to the pres ence of noncompete clauses (8, 9). This theme is ech oed in the guidance and opinion of major specialty societies. Most of the specialty societies have put to gether working group committees to lobby and/or promote the case against RCs. These efforts often culminate in position statements published in major medical journals. Examples include the American College of Surgeons, which in their societal statement from 2021 stated: “ Whenever possible, members are urged to avoid restrictive covenants that interfere with the uninterrupted delivery of quali fi ed surgical care, limit patient access to care, or limit patient choice. The impact of such agreements is detrimental to the physician – patient relationship ” (11). In addition to the American College of Surgeons, the American College of Cardiology in a 2023 viewpoint (and in a more recent follow-up) cited the harms of RCs to the delivery of health care to patients and more speci fi cally the ef fi cacy with which this care can be delivered by physicians (10, 12). Although presented in the context of a cardiovascular journal, the salient points are mirrored across various specialties. The speci fi c harms referenced from RCs by the American College of Cardiology included societal impact of less physician availability, lack of competition, captive workforce subject to the wills of a controlling employer, disruption of physician – patient relationships, and a restriction of choice for the consumer. There are several speci fi c aspects of RCs that may harm physicians. The RC clauses in physician contracts most commonly include a distance (miles of restric tion), time (years of restriction), and penalty or buyout cost (price to break restriction). There is substantial vari ability of RCs; these contracts can vary by specialty, years in practice, and employer. Some RCs have buy out clauses of 2 or more years of annual salary and a

antitrust regulation in the United States and help for mulate the concept of “ rule of reason, ” which required a holistic view of each case with judgment centered on fairness (6). In the modern era, state courts and the FTC have increasingly taken the stance that the fundamental principle of RCs is unfair and discourages competi tion. In fact, there is an increasing emphasis and focus on fl at bans of RCs, which stands in stark contrast to the more contextual approach outlined in the Mitchel decision and which has largely stood as precedent in American law throughout the past century. Understandably, there is much controversy surrounding these reforms, with business interests expressing concerns about protect ing investments and intellectual property. The points in support of RCs are largely advocated for by integrated delivery networks, which use large communities of specialists and primary care physicians. In a typical model, whether it be in a nonacademic or academic setting, there are considerable costs to help ing a physician initiate a practice. First, recruitment costs may be tens of thousands of dollars or more. These costs, followed by sign-on bonuses, retirement bene fi ts, malpractice coverage, advertising, capital acquisition guarantees, electronic medical record and work fl ow training, and the hiring of ancillary staff all contribute to the expenditures necessary to recruit competent physi cians to an organization (7). There is also a cost associ ated with the physician leaving, which includes disruption of the ongoing revenue streams, costs related to patients leaving the practice, legal expenses in cases of disputes, and fi nally the costs of re-recruitment. Ironically, these variables are of special signi fi cance in the setting of for-pro fi t health systems. Due to the competitive pres sures associated with large metropolitan environments, patients are seen as customers or clients, and the battle for market share is often fi erce. Loss of patient volume constitutes a fi nancial concern; vacancies in an organi zation ’ s operating room schedule, for example, can cost hundreds of thousands of dollars per month and take on average nearly a year to fi ll. Beyond the ongoing losses, the aggregate fi nancial cost of bringing in a new physician is estimated at upwards of $300 000 (7). Furthermore, with increased mobility and therefore competition, physician wages can increase, driving up the costs for health care employers (3). Given these fac tors, the ability to control the means of production and revenue generation — that is, the physicians — is critical to the employer. Each physician represents an invest ment, as does each patient under their care. Despite these compelling and yet simultaneously provocative points in favor of RCs, there are strong arguments to limit RCs nationally. RC S IN M EDICINE : T HE E MPLOYER ’ S P ERSPECTIVE

Annals of Internal Medicine • Vol. 178 No. 1 • January 2025 71

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