Physician Non-Competes
Physicians in Texas must comply with the Physician Non-Compete Statute. However, unlike commercial non-competes a physician’s non-compete must contain a buyout provision. Also, the statute grants physicians other protections not found in a commercial setting.
Various types of contracts may contain a physician non-compete: employment contracts, non-compete agreements, compensation agreements, partnership agreements. Any valid physician contract may contain a non-compete clause.
Some states have enacted bans on non-competes against physicians, but not Texas. Hospitals and clinics know that they can restrict your practice when you leave, whether you leave voluntarily or not. Typically, they do not offer training for physicians on the legal aspects of non-competes. So you must educate yourself.
Basics: Non-Compete Restrictions Must Be Reasonable
As with any non-compete agreement, Texas law requires the hospital or medical clinic that places restrictions upon departing physicians to draft them in reasonable terms. This reasonableness requirement applies to three components:
- The time period during which the restrictions apply;
- The geographical area where the restrictions apply;
- The scope of the activities covered, i.e., what activities the physician is prohibited from performing;
A reasonable non-compete agreement must permit physicians to work in their chosen specialty, especially if the community of patients could be at risk if the non-compete is enforced. In Nacogdoches v. Pokala, the court threw out the non-compete because it barred Dr. Pokala from practicing medicine, given that cardiology was his sole area of expertise. Also, the limited number of cardiologists serving the community rendered Dr. Pokala’s services necessary for the town’s overall health. In some instances, Dr. Pokala served as the patient’s primary care physician.
The Physician Non-Compete Statute contains another basic requirement: The restrictive covenants must not be more onerous for the physician than is necessary to protect the hospital’s or clinic’s legitimate interests or goodwill.
For example, if the hospital or clinic uses the same language in all of its physician non-competes but does not enforce those restrictions against some physicians who leave the practice, that conduct indicates that the business interests or goodwill are not important enough to be protected. This conduct of not enforcing non-compete agreements can be used as evidence if the hospital or clinic threatens to enforce its non-compete against you, evidence that there is no “legitimate interest or goodwill” to protect, or else the hospital or clinic would have tried to enforce the other non-competes.
Buyout: Must Be a Reasonable Price
The Physician Non-Compete Statute permits a physician to buy out the non-compete at a reasonable price. The commercial non-compete statute does not offer this opportunity.
The statute does not define or explain what is a fair amount that a physician can be required to pay to buy out the non-compete. The statute provides that the non-compete agreement “must provide for a buyout of the covenant by the physician at a reasonable price.” But what amount is reasonable?
The Texas Court of Appeals held in Sadler Clinic Ass’n v. Hart that “the ordinary meaning of price is not the same as that for damages.” Price is the “amount of money or other consideration asked for or given in exchange for something else; the cost at which something is bought or sold.”
The Sadler opinion indicates that the price of the buyout, paying money to the clinic to cancel the non-compete agreement altogether, should be the price that purchasing the physician’s practice would cost. One method to determine the value of a physician’s practice would be the “book value,” meaning the assets, how much gross revenue the physician brings into the clinic, minus liabilities, and how much it costs the physician to generate that revenue.
There are no other Texas cases explaining this concept, the “reasonable price” of a physician’s buyout. As of the date of this article, the Sadler case is the only opinion directly addressing the subject.
Other Protections: To Assure Continuity of Care
The remaining requirements in the Physician Non-Compete Statute relate to a physician’s right to continue to care for his or her patients. Covenants not to compete should not reduce health care.
The physician’s right to continue seeing patients that he or she treated while working for the clinic creates a direct tension with the clinic’s right to maintain its business and its source of revenue, payment of medical bills for these same patients. Obviously, the hospital or clinic wants to maintain those patients and the income that they represent.
The statute provides limited rights to the departing physician who has signed a non-compete agreement:
- Access to medical records conditioned upon patient consent;
- Access to a list of patients seen or treated within the previous year;
- Ability to continue treating patients with an acute illness.
When a doctor is leaving the practice, some patients want to stay with that doctor. While the physician cannot use persuasive tactics to talk patients into leaving the practice or health system, patients are entitled to know where the physician has gone. If a clinic tries to enforce a rule that would ban the physician from treating patients who prefer this particular physician, such a rule would violate the mandate of continuity of care.
What Should Physicians Do Before Leaving?
These same principles apply to all entities that provide health care: large hospitals, private practices, for-profit hospitals, and nonprofit hospitals. They hire lawyers to file suits to enforce their non-compete agreements.
How do you stay out of the courtroom if you have signed a non-compete? Before you even announce your departure, see an experienced non-compete lawyer to help guide you. These waters are too treacherous to attempt to navigate them alone.
