Is it the End of Non-Compete Agreements for Alabama Healthcare Companies? The Federal Trade Commission Proposes a Ban

By: Howard Bogard and Matthew Scully, Burr & Forman

Under Alabama statutory law, “professionals” are exempt from non-compete agreements, which serve to restrict competing activity within a defined geographic area and time period.  The law does not define the term “professional” but, with respect to the healthcare industry, Alabama courts have found that professionals include physicians and physical therapists.  Based on case law, other healthcare professionals who practice independently, have direct patient contact, and are separately licensed might also be found to fall under the professional exemption. 

However, on January 5, 2023, the Federal Trade Commission (“FTC”) announced a Notice of Proposed Rulemaking that would prohibit and rescind all non-compete provisions in employment contracts. The public has 60 days to offer comment on the proposed rule, and a final rule will be published thereafter.

Background on the FTC Act

Section 5 of the FTC Act declares, “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.”  On November 10, 2022, the FTC Commission issued a Policy Statement concerning its interpretation of Section 5, stating that part of its role is to identify unfair methods of competition, which the Commission defined as conduct undertaken by an actor in the marketplace that (1) is coercive, exploitative, collusive, abusive, deceptive, predatory, or overly restrictive, and (2) negatively affects competitive conditions (e.g., reduces output, limits choice, lowers quality, reduces innovation, impairs market participants, or reduces potential competition).

Building off the Policy Statement — as well as President Biden’s July 2021 Executive Order calling for the FTC to limit non-compete agreements — the FTC announced on January 5, 2023 a Notice of Proposed Rulemaking labeling non-compete agreements as unfair methods of competition. The FTC found that non-compete agreements reduce workers’ wages, stifle new businesses and new ideas and hinder workers’ economic liberty.  Indeed, the proposed rule specifically relied upon a study that showed non-compete clauses increase consumer prices and concentration in the healthcare sector.

The proposed rule defines non-compete agreements as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” The proposed rule would:

• Prohibit an employer from entering into or attempting to enter into a non-compete agreement with a worker;
• Require employers to rescind existing non-compete agreements with workers;
• Prohibit any contractual provision that would require a worker to repay training costs upon separation within a specific time period if the required payment is not reasonably related to the actual costs incurred by the employer; and
• Put at risk other agreements (e.g., protection of confidential information) if the agreement could prevent a worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.

Moreover, the proposed rule would define “worker” broadly as any natural person who works, whether paid or unpaid, for an employer, which would include an employee, independent contractor, extern, intern, volunteer, apprentice or sole proprietor who provides a service to a client or customer. The only exception to the FTC’s proposed ban is a limited exclusion for non-compete agreements between the seller and buyer of a business.

Impact on Alabama Healthcare Companies 

Given that the proposed rule reverses over a hundred years of legal precedent enforcing non-compete agreements, it is likely that any final rule will be subject to years of litigation, with the U.S. Supreme Court likely ruling on the FTC’s authority to issue the non-compete ban. If the FTC’s rule is upheld, it would arguably have a marginal impact on Alabama healthcare providers currently protected by the Alabama professional exemption (although it would serve to solidify such exemption). An FTC ban on all non-compete agreements in an employment setting would, however, prevent healthcare companies from using such agreements with employed “non-professionals.”  For example, many dermatology and pathology practices, clinical laboratories, diagnostic imaging centers, and durable medical equipment providers, to name a few, commonly use non-compete agreements with marketing and sales staff and certain employees who are not likely covered by the Alabama professional exemption, such as aestheticians, laboratory technicians, and senior management.  If the FTC’s proposed rule is finalized and upheld by the courts, healthcare companies would be prohibited from using non-compete agreements in any form with employees (both professionals and non-professionals). The question then becomes what tools other than non-compete agreements (such as trade secret laws and confidentiality and non-solicitation agreements) might employers use to protect valuable investments in employees, and how sufficient are these alternatives?

Howard Bogard is a partner with Burr & Forman LLP and is the Chair of the firm’s Health Care Industry Group. Howard may be reached at (205) 458-5416 or hbogard@burr.com. Matthew Scully is a partner with Burr & Forman LLP and exclusively practices labor and employment law. Matthew can be reached at (205) 458-5321 or mscully@burr.com. 

Federal Trade Commission Proposes Rules Banning Non-compete Agreements

By: Brandy Boone, General Counsel

On January 5, 2022, a year and a half after President Biden signed an executive order encouraging the Federal Trade Commission (“FTC”) to limit or ban non-compete agreements, the FTC announced a proposed rulemaking that will prohibit employers from using non-compete agreements that restrict where an employee, or independent contractor, can work after leaving employment. 

The Rule will not only ban the use of non-compete agreements in future employment or contractor relationships, but it will also require employers with current non-compete agreements to notify employees or contractors that the non-compete agreements are rescinded and no longer in effect.  The FTC cites the unfairness of non-compete agreements as a method of competition as the primary reason for the rule, but also estimates the proposed rule could increase worker earnings by almost $300 billion per year, save up to $148 billion on annual health costs, and increase the number of companies within the same industry. 

Specifically within the healthcare industry, this change will likely lead to more competition between hospitals and ambulatory surgical centers for physician employees and contractors. The FTC’s proposed rule seeks public comment, particularly in three areas, (1) whether franchisees should be covered under the rule; (2) whether senior executives should be covered under the rule; and (3) whether the rule should affect low and high wage workers differently.  The public comment period will last 60 days from the date that the proposed rule is published in the Federal Register, and although the notice of rulemaking was announced on January 5^th, it has not yet been published in the Federal Register. 

You can read the rule here and a fact sheet summarizing the rule here.

MAKING SURE YOU’RE NOT SURPRISED BY THE NO SURPRISES ACT’S INDEPENDENT DISPUTE RESOLUTION PROGRAM

by Lindsey Phillips with Burr & Forman, LLP

The No Surprises Act (the “Act”), which became effective on January 1, 2022, was enacted in an effort to provide uniform protections against surprise medical bills. Surprise medical bills often arise when patients unknowingly receive medical care from out-of-network healthcare providers and are billed for the difference between the amount a patient’s health plan would pay for in-network providers and the full amount charged for the medical services received by the patient.

The Act generally prohibits surprise billing in three main categories: 1) when emergency services are provided by out-of-network providers or emergency facilities; 2) when non-emergency services are provided by out-of-network providers at in-network health care facility visits; and 3) when air ambulance services are provided. In these three instances, providers generally are prohibited from billing a patient for an amount that exceeds the in-network limit on cost-sharing.

So, in light of the prohibition on surprise billing, how can out-of-network healthcare providers recover payment for their services? The Act establishes a mandatory Independent Dispute Resolution (IDR) program, that was revised in August 2022, by which out-of-network providers can attempt to receive payment from health plans and insurers for the services they have provided.

The first step is for the provider and health plan or insurer to negotiate a reasonable payment amount. When there is disagreement about the amount owed by the plan or insurer to the provider, either party can initiate an open negotiation period by issuing a notice to the other party within 30 days after the provider’s receipt of the insurer or plan’s initial payment or denial notice. The notice must contain certain information, which includes, but is not limited to, information regarding the services provided and a proposed out-of-network rate for the services and items provided.  Once this notice is sent, the parties have 30 days to reach an agreement on the payment amount owed to the provider. If the parties reach an agreement regarding the payment amount, then the plan or insurer must remit the agreed-upon payment to the provider within 30 days of the agreement.

If the parties are unable to reach an agreement on their own, then either party can initiate the Act’s IDR program by providing notice to the other party and the Department of Health and Human Services (or the Department of Labor or Department of Treasury)[1]. The applicable Department will then provide a list of certified IDR entities. The parties will then have three business days to jointly select a certified IDR entity. If the parties are unable to agree on an IDR entity, then the applicable Department will randomly select an IDR entity.

After an IDR entity is selected, each party must submit a proposed payment amount along with supporting documentation for its proposal. The IDR entity will then select the offer that it determines best represents the value of the services provided. In making this determination, the IDR entity should consider the information submitted by the parties, the Qualifying Payment Amount for the applicable year for similar services, and other factors including, but not limited to, the provider’s experience, quality of outcome measurements, and the complexity of the services provided. The IDR entity should also weigh the credibility of the information received. Once the IDR entity reaches a determination, it must issue a written decision that fully explains the basis for its decision, including the information it relied on in determining which amount best represented the value of the services provided. Once the IDR entity renders its decision, the parties are required to comply with the IDR entity’s decision within 30 days.   

Lindsey Phillips is an associate at Burr & Forman LLP practicing exclusively in the firm’s Healthcare Industry Group. Lindsey may be reached at (205) 458-5370 or lphillips@burr.com.

[1] Oversight of the No Surprises Act’s provisions is conducted by either the Department of Health and Human Services, Department of Labor, or Department of Treasury depending on the nature of the plan, policy, and provider.

Federal Cures Act “Information Blocking” Compliance Date Approaching

The 21^st Century Cures Act (Cures Act), passed by Congress in 2016, included a provision in Title IV, Section 4004 against “information blocking,” defined in the Act as a practice or practices, “likely to interfere with, prevent, or materially discourage access, exchange, or use of electronic health information.”  The Act further required the Office of National Coordinator for Health Information Technology (ONC) and the Department of Health and Human Services (HHS) to promulgate rules (the rules) for enforcement on information blocking.  

The rules, which have been in effect since April 2021, apply the information blocking provisions of the Cures Act to “actors,” defined to include health care providers like physicians and hospitals, as well as health information exchanges and health information technology (HIT) developers or vendors.  They currently require physicians to make the following electronic health information, otherwise known as the United States Core Data for Operability, version 1 (USCDIv₁) accessible to patients in the electronic health record with no delay:  Consultation notes, discharge summary notes, history and physical, imaging narratives, laboratory report narratives, pathology report narratives, procedure notes, and progress notes.  

On October 6, 2022, physicians and other actors will be required to provide patient access to all electronically maintained health records, with the exception of psychotherapy notes and information compiled in anticipation of litigation, to avoid charges of information blocking.  The rules further provide that by December 31, 2022, electronic health record systems must have updated technology to allow easier patient access to electronic health information.

Because HIT vendors are also considered actors and must comply with information blocking rules, physicians who are not yet in compliance or preparing for upcoming compliance dates should work with their HIT vendors to develop a compliance plan for this section of the Cures Act. They should also become familiar with exceptions provided in the rules where delays or denials of access are not considered information blocking.  Finally, physicians should be on the alert for notice from ONC and HHS on the penalties for health care providers for information blocking.  Potential penalties for HIT vendors and health information exchanges found to be participating in information blocking have already been determined by rule to include fines up to $1 million per violation. To date the potential penalties for health care providers found to be information blocking are “disincentives” to be determined by HHS using a formula and criteria not yet developed.

Resources for Physicians on Information Blocking:

https://www.healthit.gov/topic/information-blocking?options=2450b60a-e96a-4f4c-ab17-40aac81e40be

https://www.ama-assn.org/practice-management/digital/new-information-blocking-rules-what-doctors-should-know