When it comes to non-competes in the health care industry, the doctor/patient relationship has sometimes taken a back seat to business considerations. That is changing in Indiana, where a new law adds requirements for physician non-competes that will make it easier for patients to follow their doctor to a new practice group or medical center.
Statute Sets Requirements for Physician Non-Competes
The new Indiana statute, applicable to non-competes signed on or after July 1, 2020, imposes a variety of requirements that a physician non-compete must satisfy in order to be enforceable. Under the new law, a physician non-compete must provide that:
- The doctor will be entitled to receive a copy of any notice provided by the employer to the doctor’s former patients regarding his or her departure.
- The employer will provide the doctor’s new contact information to any former patient who asks for it.
- The doctor is entitled with the patient’s consent to receive access to or copies of a former patient’s medical records in a format similar to that used by the employer.
- The doctor is entitled to “purchase a complete and final release” from the non-compete at a “reasonable price.”
The statute defines former patients as patients the doctor saw or treated within the preceding two years. The statute further provides that the buyout provision will not prevent the employer from obtaining injunctive relief.
Does the Statute Apply to No-Solicits & Other Questions
Most of these requirements are relatively straightforward. The requirement that patients be provided with the doctor’s new contact information upon request is hopefully just a codification of existing practice. It is similar to the requirement that FINRA announced last year that brokerage firms must provide a stockbroker’s new contact information upon request.
One open question is whether the statute applies to no-solicit provisions or only to true non-competes. The statute uses the term “physician noncompete agreement.” Other recently enacted non-compete statutes – such as the Illinois Right to Work Act – specify that they do not apply to less burdensome restrictions like no-solicits.
The Indiana statute contains no such exclusion. Until there is case law clarifying the issue, the better practice for drafters would seemingly be to include the statutory requirements in any physician agreement with post-employment restrictions.
Another potential issue is that the statute does not actually require the employer to provide contact information to patients or a copy of the notice to the doctor as a condition of enforcing the non-compete. It simply says the non-compete must contain such provisions. A doctor defending enforcement of a non-compete on these grounds would have to argue that the employer’s failure is a material breach of the non-compete agreement excusing his or her compliance.
What Is a “Reasonable Price” for Buyout?
The new requirement that the non-compete allow the doctor to buyout the non-compete at a “reasonable price” is likely to be the most difficult to apply in practice. The statute does not define reasonable price or establish any procedure for determining a reasonable price.
Texas has a physician non-compete statute that has a similar “reasonable price” buyout provision. But Texas statute also provides, in the alternative, for a buyout at a price “as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties.”
Given that the Texas statute appears to have been a model for the Indiana statute, it is surprising that Indiana did not include a similar process for setting a reasonable price. The Indiana legislature may have decided that the parties could work out such a process on their own.
James L. Komie is an attorney with Howard & Howard in Chicago, IL. He regularly writes and speaks on new developments and trends in the law regarding non-competes and trade secrets, as well as issues relating to the financial services industry.