Physician Non-Compete Agreements and Antitrust

Antitrust claims based on employee non-compete agreements generally fail because the plaintiff cannot establish antitrust standing. In the Eleventh Circuit, the test for antitrust standing requires the plaintiff show (1) antitrust injury and (2) that he or she is an efficient enforcer of the antitrust laws. The first prong – antitrust injury – is satisfied by showing harm to competition itself as opposed to harm to a single individual or competitor. The second prong – the efficient enforcer part of the analysis – is much more complicated. Admittedly, both parts of this test present significant obstacles to non-compete-based antitrust claims. But the conventional wisdom that such claims are never viable is simply wrong.

These claims often involve individuals who enter a non-compete agreement with an employer, separate from that company and then cannot secure employment because they are subject to a non-compete agreement. As courts have repeatedly concluded, these facts do not give rise to an antitrust claim. See, e.g., Caudill v. Lancaster Bingo Co., 2005 WL 2738930, at *7 (S.D. Ohio Oct. 24, 2005). Caudill provides an excellent example. In dismissing the plaintiff’s claim, the Court noted a litany of fatal defects: The plaintiff failed to allege any harm to competition within the relevant market and offered only cursory allegations about his status as a potential competitor in that market. The plaintiff clearly lacked antitrust standing. But nobody should extrapolate from cases like Caudill and arrive at a general principle that non-compete-based antitrust challenges are futile.

Instead, the viability of these claims often hinges on the market dynamics of a given industry. Back to Caudill: Lancaster Bingo Company was engaged in the business of – well – bingo. They distributed bingo and gaming supplies. Consider the plaintiff’s antitrust claim against that backdrop: It strains credulity to suggest that the elimination of one bingo salesman from the Ohio bingo market harms competition. The case is laughable and never should have been filed. But there are some arenas in which this type of antitrust claim needs to be taken seriously. The most obvious is healthcare.

In the vast majority of states, physician non-compete agreements are enforceable. Some states like California and North Dakota ban all employee non-compete agreements. Other states like Alabama and Massachusetts have specific prohibitions against physician non-compete agreements. But these are exceptions to the general rule that courts enforce physician non-compete agreements.

Over the past several years, there has been tremendous consolidation in healthcare. Large regional and national healthcare systems are acquiring smaller systems and adding physicians to their rolls. This trend will continue for the foreseeable future. Consider physician non-compete agreements against this backdrop. Increasingly, physicians work for massive healthcare systems. If they leave one healthcare system subject to a non-compete agreement, they potentially can be prohibited from practicing medicine in a city, county, half a state or more.

This is fertile ground for a non-compete-based antitrust claim, particularly if the physicians involved are specialists. Consider Cardiovascular Institute of the South v. Abel, 2015 WL 1019500 (La. Ct. App. Mar. 9, 2015). In this recent case, CIS sued Dr. Abel, a cardiologist who had left the practice and began working for a competing practice in violation of his non-compete agreement. CIS successfully obtained an injunction that will keep Abel from practicing medicine in multiple counties for the next year or more. The trial court’s ruling was affirmed on appeal. CIS was not an antitrust case, nor would its facts necessarily support an antitrust claim. CIS is not a monopolist.

But replace CIS with a dominant healthcare system that controls a majority of the market for cardiologists in Louisiana (or some smaller market like Baton Rouge). Let’s call that company SLA. Then you have a possible antitrust case. SLA requires all of its cardiologists to sign non-compete agreements. When doctors leave SLA, they cannot practice medicine in a twelve county territory. There is a state-wide shortage of cardiologists (in LA there really is). In this scenario, SLA unquestionably has antitrust exposure. The most significant exposure exists vis-à-vis regulators such as the FTC and/or aggressive state’s attorneys. If you doubt this, read about how the FTC forced Reno Health to let ten cardiologists out of their non-compete agreements. But SLA also has exposure in the form of a private antitrust claim.

Let’s go back to the Caudhill case, discussed supra. There’s a huge difference between Caudhill and the SLA hypothetical. In Caudhill, the bingo worker never had a plausible case. It is virtually impossible for a bingo sales rep to allege that removing him from the Midwest bingo market harms competition. The SLA hypothetical, however, is a much different story. A big piece of the SLA case – and any antitrust case – is how one defines the relevant market. In the SLA case, the relevant market would be a market for cardiology services in some part of Louisiana. It could be even further narrowed based on provider acceptance of Medicaid. It is entirely plausible that:

• There is a shortage of cardiologists in LA.
• There is an acute shortage of cardiologists in certain parts of LA (e.g. Baton Rouge).
• There is an even greater shortage of cardiologists that accept Medicaid patients throughout the state and within that sub-region in particular.
• By subjecting even a handful of cardiologists to restrictive covenants, a monopolist, near monopolist or company that otherwise had market power has engaged in an unfair restraint of trade.

In this scenario, there are two possible variants of a private antitrust claim: The individual doctors – as prospective competitors – potentially could show harm to competition. But the individual doctors likely would face a tough fight on the question of whether or not they were efficient enforcers of the antitrust laws. As such, the second variant of claim – an antitrust claim by a competing practice – is much stronger. If a competing practice that wanted to hire those three cardiologists can show (1) SLA has market power (2) the removal of the 3 cardiologists from the given market harms competition (3) and that it would hire those cardiologists but for their non-compete agreements, then the rival has a plausible antitrust claim. A rival hospital can be an efficient enforcer of the antirust laws and can satisfy antitrust standing. See, e.g., Palmyra Park Hosp. Inc. v. Phoebe Putney Mem’l Hosp., 604 F.3d 1291, 1304 (11th Cir. 2010).

One final note:  Non-compete agreements among medical specialists are more likely to be naked restraints of trade than non-compete agreements among family doctors or general practitioners.  The basic argument for physician non-compete agreements is that such agreements are necessary to protect the practice’s interest in its patients.  In other words, a departing physician should not be able to take those patients with him when the practice paid to develop those patients.  This logic is utterly inapplicable in the context of many medical specialties.  There are many medical specialties in which doctors generally do not have long-term relationships with patients.  If there are no patient relationships at issue, then there is utterly no possible legitimate business interest and any non-compete agreement should be unenforceable.  If a healthcare system with market power is using unenforceable non-compete agreements, that can be antitrust.

The takeaway: Dominant healthcare systems that use aggressive non-compete agreements run the risk of intervention by federal and state competition regulators. Beyond that, those same scenarios can give rise to private antitrust claims. Smaller healthcare systems and smaller medical practices that want to grow but are blocked by non-compete issues need to consider all of their options. That includes both seeking the FTC’s intervention and evaluating a private antitrust claim.

Jonathan Pollard is a trial lawyer and business litigation attorney based on Fort Lauderdale, Florida.  He focuses his practice on competition law and has extensive experience litigating non-compete, trade secret and antitrust claims.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.