Keeping Physicians Away from the Competition: Pennsylvania Perspectives on Non-Compete Clauses

Senior executives at major companies have long been asked to sign non-compete agreements, also known as restrictive covenants, that prohibit them from working for a competitor within a certain period of time after terminating employment and/or within a certain geographic radius.

Restrictive covenants have been spreading from CEOs to average workers in recent years. The New York Times reports that 30 million workers have signed these agreements, according to the Treasury Department; that this includes 1 in 5 employees, according to a University of Maryland study; and that it's led to a tsunami of litigation, tripling since 2000, according to an annual survey by the Boston law firm of Beck Reed Riden.

Physicians in Pennsylvania and other states have not been immune to these trends, according to attorneys, doctors, and medical executives, who, as one might perhaps expect, don't entirely agree on the merits of such arrangements.

Restrictive covenants are nothing new to the medical profession, but their use seems to be growing, says Julia Gabis, Esq., an attorney with Julia E. Gabis & Associates. And, physicians tend to wrongly assume they're not enforceable. "I can't tell you how many times I've had someone say, 'My cousin told me they'll never enforce this,'" she says. "Whatever you sign in a contract, you should assume it's valid."

"A lot of people think that — they've heard a rumor that you can't enforce a restrictive covenant for this reason or that reason, or that it is something that probably won't apply to me," agrees Frederick Bloom, MD, president of Guthrie Medical Group in Sayre. "Restrictive covenants are going to be binding on the provider as they're written."

Angela Boateng, Esq., general counsel for PAMED, says restrictive covenants are aimed at one or more of several issues.

"They might prevent or prohibit a former employee from taking patients with them," she says. "Any intellectual property or confidential information that the employee acquired while they were working with a specific employer cannot be taken out. Sometimes, there are practice restrictions in not being able to seek employment within a certain radius … There are also time restrictions, for a period of usually six months to five years."

Pennsylvania law on restrictive covenants is mostly governed by case law, Boateng says, and "unless they are totally egregious, they are usually left in place by the courts." Tricia Lontz, Esq., an attorney with Eckert, Seamans, Cherin & Mellott, LLC, who is counsel to PAMED, says the leading case in Pennsylvania is a 2005 decision, WellSpan Health v. Bayliss, which found the hospital had a legitimate interest in protecting its patient population.

"Generally, Pennsylvania courts will enforce them if they are incidental to an employment relationship, reasonably necessary to protect an employer's interest, and reasonably limited in duration and geographic scope," Lontz says.

Time and Distance

The geographic restrictions can be especially limiting if they apply to not only one's immediate location but all locations owned by the employer, especially if it's an outfit the size of, say, the University of Pittsburgh Medical Center, Boateng says. "A hospital may have a main campus, as well as several satellite sites all over the state," she says. "If you agree not to seek employment within 15 miles of the hospital, this restriction may include not only the hospital, but also each of its satellite sites. As a result, the restriction is a lot broader than it may seem."

Physicians in rural areas and those who are more specialized probably have a better chance to surmount these restrictions, though. "If you're out in the middle of nowhere, and you're the only radiation oncologist, the court may say, 'This is unreasonable.'" Courts also have modified geographic restrictions, Boateng says, also known as "blue penciling" an agreement. "A court might say, 'This is a little unreasonable, so I'm going to drop the geographic restriction from 20 to 10 miles," she adds.

In Gabis' experience, the length of time involved can range from one to five years, while geographic restrictions can vary widely, and their significance is based partly on whether one practices in a population-dense area. "In Philadelphia, a five-mile restriction can be significant," she says. "In less populated areas, it can be 25 miles, or 50 miles. You have to draw a radius around it and make sure you know how far out you're going."

Gabis echoes Boateng's caution about making sure you know whether the restrictive covenant applies to every facility owned by your hospital or practice. "You've got hospitals that are part of a system, and they've got five hospitals, eight 'urgent' centers, and practices all over the place," she says. "It's not just the mileage, but miles from what?"

Situations and Specialties

Bloom suggests that physicians make sure they understand whether the restrictive covenant applies only if they leave voluntarily, or in all cases. "People expect that if they voluntarily leave an organization, the restrictive covenant applies, but some restrictive covenants also apply if they are terminated," he says.

Niki Hinckle, MBA, senior vice president of physician services at Summit Health/Summit Physician Services in Chambersburg, agrees with that point. "You need to get some clarification on that," she says.

Whether a non-compete applies to one specialty or all is another important consideration, Bloom says. "A nurse practitioner, for instance, who is working in orthopedics, if she signs a restrictive covenant, may not be able to leave and practice in cardiology, or primary care," he says.

Bottom line, physicians need to take restrictive covenants seriously, Lontz says. "Physicians unfortunately think, 'Oh, I'm not worried about this.' They think the relationship is going to go fine. And, then after the fact, it's, 'Uh oh, I'm stuck with this.'"

Physician and Administrator Perspectives

As a solo practice internist in Warren, who has contracts with Warren General Hospital, Tim Stanton, MD, says he doesn't think restrictive covenants are common practice in areas like his corner of northwestern Pennsylvania. "There's a physician shortage," he says. "I'd be hard pressed to ever sign something like that."

But, Stanton says he could understand why a hospital in a more populous area might want to keep young physicians from leaving for the competition. And, for early-career doctors, "It would be one of those things you gloss over," he says. "When you approach your position, you're just starting a position — you're not thinking about the end. You approach it in a cavalier way: 'It's no big deal; it will never apply to me,' and therefore you just sign it and move on."

Young doctors should be wary of such agreements, Stanton says. "That could prevent you from doing something you want to do," he says. "It may be more of a negotiable thing than you realize. You could negotiate it down from 60 to 30 miles. That may make the difference between whether you can stay in a community or have to move out of town."

Aaron George, DO, a family physician at Summit Primary Care in Chambersburg, also urges physicians to try to avoid or minimize such restrictions. "They create an artificial geographic barrier that disregards the core of the patient-physician relationship," he says. "They are a threat to access, continuity, and the protection of patients' rights to be cared for by a physician that they know and trust."

Frank Mozdy, MD, MBA, vice president and chief medical officer at Summit Health/Summit Physician Services in Chambersburg, agrees that physicians in highly competitive geographic areas should expect a restrictive covenant. "But, if they're in an area with a shortage, they may be able to negotiate no restrictive covenant, especially specialty by specialty," he says.

"Most health systems, if they want a doctor badly enough, they'll make some exceptions," Hinckle says. "It comes back to, 'How badly is this specialist needed?' For some of the harder specialties to recruit, your job is to find one and retain them and make sure it's a good relationship. You have to balance that out."

Bloom does not think providers should expect to be able to negotiate issues like the geographic radius because it's important to organizations to have standard protocol. "If an organization starts to change it and say, 'Yours is 15 miles' and 'yours is 60 miles,' it becomes more difficult for an organization to enforce a restrictive covenant for everyone," he says. "If you made an exception in one case, other physicians can go to court and say, 'They should have made an exception in my case, as well.'"

Physicians that bristle at the idea of signing a restrictive covenant should realize that these agreements benefit them, too, in the sense that they have greater security that their partners will stick around to build a department or practice with them, Bloom says.

"It encourages the organization to invest in a physician who is new to the practice, knowing that they are going to have some protection for that investment," he says. "And, one of their partners isn't going to be leaving the practice and competing, so given the work they do with their partners to help build the practice, they have assurances as well."

A version of this article appeared in the fall 2017 issue of Pennsylvania Physician Magazine and was reprinted with permission.

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