President Joe Biden showed a flair for the dramatic when he mentioned fast-food cashiers as victims of noncompete clauses during his 2023 State of the Union address. But he stretched the truth only slightly.
Prior to a 2016 settlement, Jimmy John’s sandwich shops required minimum wage workers to sign these anti-competitive agreements, which prevent employees from striking out on their own or switching to a nearby competitor for a set period of time. Under the old rules, departing Jimmy John’s employees had to wait two years before working for any rival within a 2-mile radius. More recently, McDonald’s enforced internal no-poach pacts, which blocked franchisees from stealing talent from each other.
BIDEN’S PROPOSED BAN ON NONCOMPETE AGREEMENTS IGNORES THE CONSTITUTION
Such arrangements are now rare in the fast-food industry. Yet noncompete clauses are nearly universal in healthcare, and the effects can be devastating.
Doctors put down roots in their communities. They sometimes spend years building relationships of trust. When the time comes to launch an independent practice, flee a toxic work environment, or pursue a different employment opportunity, they are stymied. They must either move far away, where nobody knows them, or wait for two years or longer for their contracts to expire.
These employed doctors, which include nearly 60% of all physicians, are fenced in with fewer opportunities as healthcare systems expand their reach. Legal departments carefully tailor the contracts to withstand challenges, which most physicians are afraid to pursue or unable to afford.
Patients ultimately lose. When doctors quit a healthcare group and move beyond the geographic reach of a noncompete clause, the system reshuffles their patients to other providers based on corporate convenience rather than consumer choice. A botched sandwich order can be annoying, but starting over with a new doctor can be life-altering.
South Carolina has a chance to correct the power imbalance with Senate Bill 164, which cleared the state Senate on Feb. 2 and moved to the House. If the measure passes, it would be a double win for South Carolina patients. Besides ending medical noncompete clauses, the bill would kill a second type of unfair trade practice called a certificate of need, or CON.
South Carolina has been trying to end its CON laws since at least 2007 and came close in 2022, when a repeal bill passed in the Senate but died in the House. These laws, which exist in various forms in 38 states and Washington, D.C., require special government permission to expand or improve or provide certain healthcare services. The hurdle for newcomers is formidable because many states, including South Carolina, let incumbents with certificates in hand contest and block would-be rivals’ applications.
Hospital systems welcome the interference on their behalf. If something similar existed in fast food, Jimmy John’s and McDonald’s could not only have stopped their employees from leaving but also stopped mom and pop sandwich shops from opening nearby.
CON advocates claim the state-sanctioned monopoly power is necessary to prevent redundant investment and keep healthcare costs under control. But federal antitrust agencies debunked this claim as far back as 2008. “Such arguments provide inadequate economic justification for depriving healthcare consumers of the benefits of competition,” the Justice Department and Federal Trade Commission wrote in a joint statement.
Decades of real-world experience confirm the harm. California, Texas, and 10 other states, covering 40% of the U.S. population, have survived for years without CON laws. The result in these states is more hospitals and surgery centers per capita, along with more drug and alcohol treatment centers, dialysis clinics, and hospices. The expanded choice lowers costs, raises quality, improves access, and gives patients more control.
Relief from CON laws could come in the courts, but judges have shown reluctance to intervene in the legislative process. The Institute for Justice, a public interest law firm that opposes CON laws, has sued to stop their enforcement in Iowa, Kentucky, Nebraska, North Carolina, and Virginia. In one case, the 6th U.S. Circuit Court of Appeals described CON laws as a “failed experiment” but affirmed the government’s right to pass and enforce “unjust,” “unfair,” “unwise,” “foolish,” and “stupid” laws.
This judicial deference puts pressure on lawmakers to step up on behalf of patients. Besides the effort in South Carolina, bills have been filed in Alaska, Oklahoma, and Iowa that would repeal or curtail CON enforcement. Other states should join the movement.
Established providers hate competition. Hospital associations oppose all efforts to overthrow noncompete and CON schemes. The fear of competition exposes their lack of confidence in their business models. Yet everyone wins when service providers must contend for talent and customers, just like fast-food joints.
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Marcelo Hochman is a Charleston-based facial plastic surgeon and president of Independent Doctors of South Carolina. Jaimie Cavanaugh is an attorney at the Institute for Justice in Arlington, Virginia.
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