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ASCA Opposes FTC’s Ban on Noncompete Agreements

The rule could increase costs for surgery centers

BY ALEX TAIRA | MAY 3, 2024

The Federal Trade Commission (FTC) voted 3–2 to adopt the “Non-Compete Clause Rule,” or the final rule, last week. The final rule states that the use of noncompete agreements is an unfair method of competition and is thus comprehensively banned effective 120 days after the final rule’s publication in the Federal Register. The rule is scheduled for publication on May 7, 2024, corresponding to a September 4, 2024, effective date. The FTC first proposed this policy in a proposed rule released January 2023, which received more than 26,000 public comments in 90 days.

ASCA submitted formal comments opposing the proposed rule, but did not take a position on the appropriateness of noncompete agreements specifically. In the comments, ASCA noted, “Under this proposal, surgery centers and other tax-paying healthcare providers would be subject to restrictions that tax-exempt systems would not. Hospitals are more likely to employ physicians currently, and this rule would allow nonprofit providers to more aggressively engage in noncompetitive behavior that would impede a physician’s ability to eventually move to an ASC or other healthcare provider.”

The final rule “adopts a comprehensive ban on new non-competes with all workers, including senior executives.” Existing noncompete agreements will be voided after the effective date, except for senior executives who are defined as workers in a “policy-making position” earning more than $151,164 per year. The final rule creates a definition for “policy-making position” based on job duties rather than job titles, focusing on roles whose decisions have a significant impact on the business. The FTC expects that approximately 0.75 percent of the workforce are senior executives and would thus be allowed to maintain existing noncompete agreements.

The FTC also clarifies that certain, tax-exempt nonprofit entities would fall under the commission’s jurisdiction and be subject to the noncompete prohibition. FTC states that it can determine on a case-by-case basis whether an organization is engaged in solely charitable business practices or whether an organization’s business operations are intended to generate profit. Those organizations whose business goal is profit for itself or its members would be considered under FTC jurisdiction and subject to the noncompete prohibition, regardless of the organization’s tax status.

The FTC acknowledges receiving many comments requesting the exclusion of some or all of the healthcare industry but was not persuaded. The commission remains unconvinced of negative effects, and “specifically finds that non-competes increase healthcare costs.” The FTC press release states that the final rule is “expected to lower health care costs by up to $194 billion over the next decade.”

The American Hospital Association released a strong statement opposing the final rule, calling it “bad law, bad policy, and a clear sign of an agency run amok.” The Federation of American Hospitals also released a statement opposing the final rule, asserting that the prohibition would make it “more difficult to recruit and retain caregivers … while at the same time creating an anti-competitive, unlevel playing field between tax-paying and tax-exempt hospitals.” On the other side, the American Academy of Family Physicians released a statement supporting the rule. The American Medical Association has yet to release an official statement, but the association has been a supporter of restricting noncompete agreements.

The final rule was subject to legal challenges almost immediately, most notably by the US Chamber of Commerce, the largest business trade organization in the world. On April 24, just one day after the final rule release, the Chamber of Commerce filed a lawsuit in a US District Court in Texas challenging the rule and seeking an injunction that would prevent implementation. Additional legal challenges are expected, and ASCA will monitor the progress of lawsuits over the coming months.

Write Alex Taira with any questions.