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Did you know that non-compete contracts in the health care industry are constantly evolving? Join family physician and entrepreneur Tod Stillson as we dive into the latest legal changes impacting physicians’ professional mobility. In this episode, we explore how these reforms are empowering physicians to make informed career choices with more flexibility and autonomy. Discover valuable strategies for leveraging these changes to shape your career according to your vision and passion.

Tod Stillson is a family physician, entrepreneur, and Amazon best-selling author of Doctor Incorporated: Stop the Insanity of Traditional Employment and Preserve Your Professional Autonomy. He can be reached at SimpliMD.  Follow him on Facebook, Instagram, and X @DrInc9, or join his Facebook community for doctors, Every Doctor Is A Business.

He discusses the KevinMD article, “Freedom to roam: Breaking down the boundaries of non-competes.”

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast, and get CME for this episode by clicking on the CME link in the show notes. Today we welcome back Tod Stillson. He’s a family physician and entrepreneur. Today’s KevinMD article is “Freedom to roam: Breaking down the boundaries of non-competes.” Tod, welcome back to the show.

Tod Stillson: Hey Kevin, it’s great to be back with you and to speak to your audience about an important topic on non-competes.

Kevin Pho: So Tod’s been on multiple times. Go to KevinMD.com/podcast to hear his story and prior episodes. But today we’ll jump right into the world of non-competes. For those who didn’t get a chance to read your article, tell us what this one’s about.

Tod Stillson: Yeah. So Kevin, in the past year and a half or so, there’s been ongoing changes in the market space with non-competes, and it kind of began when the Federal Trade Commission began to inquire about whether or not non-competes should even be a thing. They opened for public comment around January of last year, pretty good outpouring and response from it, and a lot of states have actually taken the bull by the horns and began to make changes as well. So we see some federal changes and some state level changes that are really happening for physicians over the past year and a half, and more are to come.

Kevin Pho: All right, so for those who aren’t familiar with physician contracting, tell us what a non-compete is and why does it matter for physicians?

Tod Stillson: So a non-compete, especially in the context of employed physicians, is a way for an employed company to make sure you are not using your professional services with a competing organization, or with one of their competitors. It can be true in a business-to-business contract as well, where they might want exclusive rights to the services that you’re providing to them.

And so for most physicians this has to do with two elements. One, when you’re working for that company, they’re going to ask you not to work for competitors oftentimes, so that’s quote non-competing for your professional services. And then the other element that’s most common, is most painful for doctors, is when their contract is terminated or ended. Oftentimes those non-competes have language in them that specifies how long you cannot work for a competitor, and even a space or distance that you have to be able to choose to work outside of that space.

So it depends on the language, depends on the contract, but organizations put that language in there so that you don’t jump ship quickly and sort of take your patients and all your work right along with you to a competing organization. And so that’s kind of what’s buried deep within the non-compete contracts for a lot of physicians, that often physicians sort of overlook. They don’t really think about it until the day comes when that contract is being finished, and then that’s when it comes into play.

Kevin Pho: So you’re saying that there’s a proposed FTC rule that can change the scope of non-compete contracts as it relates to physicians. Is that right?

Tod Stillson: Yeah, actually not just change the scope of them, but really the conversation that began last January was to outright ban them, or to remove them in totality.

And that’s being driven by the fact that the market space really needs physicians. And so when it comes to the consumer end of the equation, there’s a huge physician shortage, there’s a huge access to care issue all over the country, and these non-compete languages in these agreements actually prevent patients from having access to care with physicians in their geography. And so take for instance, in my place of a rural setting, if a physician left a practice here but wanted to set up shop somewhere in that rural area again, because there’s a great access need, some of these non-compete languages would have prevented that.

So the FTC is looking at banning it altogether, and several states have actually moved forward with that and banned them as well. Those include basically California, Colorado, Minnesota, North Dakota, and Oklahoma, who have essentially in some way, shape, or form sort of eliminated non-compete languages. My state of Indiana has narrowed it down to primary care, because we’re a much more rural state. They didn’t choose to enforce this in regards to specialty care, but especially with primary care they’ve initiated that language.

Kevin Pho: So obviously this trend is good for physicians, because they’re no longer restricted by a distance limitation after they leave a job. What’s the response from medical institutions and hospitals?

Tod Stillson: Well, the response from their standpoint is they’re not very excited about it, right? Because they lose a level of control over the mobility and portability of physicians and their services. And so a lot of them aren’t very happy about it.

And in fact, if you were to try and make a move and say, hey, I recognized in my state that we’re not doing non-competes anymore, you still may get sort of a hand put up and said, wait a second, we have a non-compete in your agreement, and sort of make you think that they might choose to enforce it. And then it becomes a little bit of a game of chicken. Like, are you going to be willing to do it, are you going to accept the penalties that come with it, et cetera, et cetera.

And so as a whole, they’re not excited about it because they’re losing control of your professional autonomy. And at the end of the day, that’s what this is about: autonomy and flexibility for physicians. I’m not on the side of the equation for the large corporations and hospitals. I’m more on the side of the equation for the individual physician who wants to have that flexibility, freedom, autonomy to practice where they want once they terminate a contract with the current person they’re working for. And that should be in place. That’s the way it works for a lot of places.

Kevin Pho: So where are we in terms of this FTC proposal? I know that you mentioned some states don’t have non-compete language, so where are we with this proposal?

Tod Stillson: Yeah, so there hasn’t been a lot of federal decision. It’s still under their consideration, and they have not really given us a real clear understanding of how and when the vote’s going to occur.

From the FTC standpoint, there’s an anticipation that perhaps in April of 2024 the FTC will give their final ruling and judgment in regards to this. But that is merely conjecture. Nobody knows for sure, and there’s political whims and other things that come into play when it comes to the federal government and their decision tree. So it’s a bit of a black box.

But we know it is coming, and it will make a difference for physicians. And really, a lot of large organizations have already begun to somewhat react, or anticipate that that is going to be the final ruling, that they will ban these non-competes, and they’re trying to adjust and make plans for that as well. But that is not currently the case across the board.

Kevin Pho: What are you hearing that these hospitals and academic medical institutions are doing in response to this potential scenario?

Tod Stillson: Well, they’ll be readjusting the language of their contracts to somehow maintain as much control over the employed physician or the contractor physician that they have. So that at the end of the day, for them, they want as much throughput of that physician’s work to go through their organization. That includes the clinical care that you’re doing face to face with patients, but really to a large extent that includes the downstream products that you produce for them. And for most of these organizations, the downstream is the largest proportion of the money that you make for them.

So trying to capture all that, pull it in, and create an environment where you’re aligned with them, is kind of going to be their belt tightening piece of it. So if you’re under contract with them, they’re going to be less willing to let you do side jobs with a competitor, as an example. They’re going to tighten their belts. Now, once your contract is terminated, if there’s non-competes that are now eliminated, they know they have no control over you. So you’re going to see a tightening of their control in real time while you’re contracted underneath them.

Kevin Pho: Now, I’ve read in places that still have non-competes, whether they could be enforced is variable. What are you hearing about that?

Tod Stillson: Yeah, so that is variable, and many times it just depends on the power of the lawyer that you choose to hire, and the power of their legal department, who sorts out what’s what, when and where. And so that varies from geography to geography, state to state, organization to organization.

And I think it depends to a large extent on their sense of threat that you’re leaving, and how close it is, the organization that you’re going to be choosing to work with, how competitive that’s going to be, and really their sense of business loss, whether or not they’re going to go to battle or fight you for it.

If you’re talking about a 30 mile radius and you choose to go work for somebody 28 miles away, they’re not going to be as tight about that. If you’re talking about a competitive hospital that is one mile down the street from your current place or location, and you are likely going to take all your patients to that location, they’re going to fight you over it. So it really varies from institution to institution, contract to contract, and it depends on how miserable they want to make your life.

Kevin Pho: So when a physician is faced with a gamut of career options, and with this proposed FTC change potentially in the pipeline, how do non-competes affect their career decision making?

Tod Stillson: Yeah, I think at the end of the day, in terms of career decisions, I think it makes a big difference. Because I’m of the belief that if physicians can preserve their autonomy and preserve their sense of independence and control in the marketplace, and I’m a big fan of micro corporations for doing that as opposed to being just an individual working as a traditional employee, then they’re going to maintain as much portability and control over their services and who they work with, and can parse that out. And when non-competes are eliminated, essentially you have freedom to move about and roam where you want, who you want, and where you want. And that gives a physician the greatest control over their professional life that they can have.

I think a lot of physicians are unaware of non-competes, to be honest with you, because they somewhat blindly think that they’re going to go to work for somebody, work for them all their life, and everything’s going to be great. But as we all know, oftentimes contracts do change and plans do change professionally. In fact, the latest data shows that around 50 percent of physicians will change jobs within the first three to five years of their first contract. And if you look at the data and burnout and so forth, you’re going to see that a lot of physicians are looking at making changes. So contract changes, job changes, position changes are very common in our profession nowadays. And having portability and having control and having freedom over your professional life is a very fundamental piece of it.

So this is one of the linchpins that hospital corporations, or large health care organizations, have kept over physicians for a long time. The non-compete has kept physicians from moving about. Once this is eliminated, it’s going to empower physicians a whole lot more to find the freedom to practice how they want, where they want.

Kevin Pho: So in terms of maintaining that professional autonomy, we’ve talked in the past about micro corporations and contracting and having a relationship with hospitals in that way. So in that situation, are non-competes completely moot?

Tod Stillson: Yeah, in that context non-competes can still be in play. Again, it depends on the contractual language that you might have with a hospital for your contracted work.

So as a micro corporation, you as an individual can do a business-to-business contract with the hospital where you are a long-term independent contractor with them. They can still build non-compete language into when you’re with them, working for them. In other words, the scope of whom you can go to work for on the side, with your side jobs or your other channels of income as a contractor. And they can also build into that the language of what it looks like when you leave that contract and how many limitations they place.

It’s all about the contractual language, and physicians often, again, overlook that. That’s why I’m a big fan of physicians having contract reviewers look at their contracts and look at the minutiae of that, because ramping into somebody is relatively straightforward. It’s always the question of how you wrap up a relationship with somebody in a contract that has the most challenges and difficulties that physicians often overlook. But with a micro corporation you can have the same issues as you do as an employee, you just need to read the language and connect the dots to that.

Kevin Pho: So it sounds like the best way to maintain that professional autonomy, if we’re going into an employed context, would be to simply try to negotiate that non-compete out. Is that correct? Are there any other ways?

Tod Stillson: Yeah, that’s the best way, is to negotiate it out. And I can say, when I started practice 25 years ago and signed my first employee contract, fortunately there had been some private practice physicians that helped set up the physician organization I joined, and they purposefully did not include non-competes in our contract language at the time. I was oblivious to it, I didn’t even know that that was such a thing, and fortunately that was not in the language of my contract. So 15 years later, when I made the change to a micro corporation and an employment light contract through that same company, I was happy to find out that I didn’t have to worry about the non-compete language, because they had wisely left it out.

But most corporations today are going to include a non-compete in their boilerplate of contract almost every time, all the time, because they’re protecting their business interest. At the end of the day, a physician is a business asset. They are purchasing your services to cause you to make money for them through their own large corporation, and they’re going to protect their asset with as much legal language as they can. So you need to look at the fine print, and I would encourage all physicians to try and negotiate out the non-compete in their contracts.

Kevin Pho: So I want to emphasize what you just said. A lot of these hospitals and medical institutions see physicians as business assets. I actually want to really stress that, because that’s not something that a lot of physicians are familiar with or are aware of.

Tod Stillson: Yeah, you’re basically, as a physician for these large corporations, you’re an impersonal business machine. It’s like a hospital goes out and buys a million-dollar MRI, and what is their goal with that million-dollar asset MRI? It’s throughput. It’s putting as much through that MRI as possible to generate as much business downstream from it as possible.

A physician is like an MRI, not like an MRI machine per se, but they are like a piece of equipment that that company purchases, and they want as much throughput through your care and as much downstream to come out of your services that will create money for that corporation. And in really many regards, that’s what you are, a business asset that they’ve purchased for their business purposes.

And physicians overlook the fact that that’s what they are, and the reason they overlook that is because all of our training is oriented towards you just taking care of patients and doing your job and doing what we’re medically trained to do. And in fact you are doing that. In the process of doing it, it’s a business transaction that happens behind the scenes in today’s economy. And that’s what large corporations are harnessing with doctors. That’s why I truly believe every doctor is a business, even if they don’t have an awareness of it. They are a business, and that’s why health care corporations are interested in us, because they want our power.

Kevin Pho: How successful have you heard is it for physicians to negotiate out a non-compete from a contract?

Tod Stillson: It’s very difficult. So once you’ve signed an employment contract with a company, making any changes to the contract are quite difficult to do. Now, most contracts have an expiration date every two to three years as a whole. Some are now becoming more evergreen, and that’s even more challenging to negotiate those things out. But it just depends on the demand, the specialty, the interest in some of the really physician labor market space of where you’re at, that gives you the ability to negotiate some of that or not negotiate it.

But once a contract gets in place and all that gets set in motion, your ability to make a change later is much more difficult. And this is what I try and coach physicians to all the time through my company, SimpliMD. It is identifying the terms of the relationship on day one that is most fundamental and most important. When they’re recruiting you, they’re going to promise you the moon, and that’s your greatest moment of time when you can organize a contract to your greatest and most powerful advantage.

I encourage physicians to do that in a business-to-business relationship as a micro corporation rather than as an individual. I also encourage them to negotiate out things like a non-compete in the contract. And again, work with a qualified professional who can help you identify what are the key components to that contract that you want in place and what you want out of place. And establishing that from the beginning sets it in motion the right way, because they are going to be unwilling to change it later.

Kevin Pho: And my final question, Tod. Tell us your take-home messages to the KevinMD audience.

Tod Stillson: My take-home message is, doctors, I want you to think about yourself as being independent. The call to action for you is to exert yourself as a micro business. See yourself as a business. Exert yourself in the marketplace as an independent person, and begin to really create the right environment for yourself to practice and flourish as an independent medical provider of professional services.

That’s through a micro corporation first of all, but when it comes to the micro contract of it, be aware of non-competes, be aware of their relationship and how they impact you, and do everything you can to preserve your autonomy in the marketplace as a doctor. That’s what we talk about at SimpliMD all the time, and that’s what a lot of physicians are tuning into now more and more. And so do what you can to preserve your autonomy.

Kevin Pho: Tod, as always, thank you so much for sharing your perspective and insight, and thanks again for coming back on the show.

Tod Stillson: Great. Thank you, Kevin. It’s great to be with you.