Key takeaways:
- New legislation in Pennsylvania makes many noncompete clauses in employment contracts of healthcare providers entered after January 1, 2025, unenforceable.
- A noncompete clause of one year or less in length will still be enforceable, but only if the healthcare provider's employment is not terminated by the employer.
- The law applies to employment contracts with "health care practitioners," which is limited to licensed physicians (MD/DO), certified registered nurse anesthetists ("CRNA"), certified registered nurse practitioners ("CRNP"), and physician assistants ("PA").
- Some health care employers may now be required to provide notice to certain patients when a "health care practitioner" departs an organization.
On July 17, 2024, Governor Shapiro signed into law House Bill 1633, referred to as the "Fair Contracting for Health Care Practitioners Act." Citing concerns that "noncompete covenants in health care inhibit competition that benefits employees and patients," the law provides, "a noncompete covenant entered into after the effective date of this subsection is deemed contrary to the public policy and is void and unenforceable by an employer." An exception is made for noncompete clauses that are "no more than one year," but only if "the health care practitioner was not dismissed by the employer." The effective date of the statute is January 1, 2025.
There is also an exception for noncompete clauses that are part of a sale or other transaction resulting in a change in the ownership of a business entity. This exception includes:
- (1) the sale of an ownership interest or all or substantially all of the assets of the business entity;
- (2) a transition that results in the sale, transfer or other disposition of the control of the business entity, including merger or consolidation; or
- (3) the health care practitioner's receipt, by purchase, grant, award, issuance, or otherwise, of an ownership interest in the business entity.
In each of these circumstances, the health care practitioner must be a party to the sale, transfer or other disposition. It's unclear whether a noncompete is enforceable where the health care practitioner is only granted a small or nominal ownership interest in a health care facility or office.
The statute defines "noncompete covenant" broadly as any agreement "entered into between an employer and a health care practitioner" that "has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competing employer after the term of employment." An employer is "a person or group of persons that employ a health care practitioner at a health care facility or office," while "health care practitioner" is defined as medical doctors, osteopathic doctors, certified registered nurse anesthetists, certified nurse practitioners, and physician assistants.
While many noncompete clauses will no longer be enforceable, the statute does still permit contract provisions that allow an employer to recover "reasonable expenses from a health care practitioner." The "reasonable expenses" that can be recovered must be:
- (1) "directly attributable to the health care practitioner and accrued within the three years prior to separation,"
- (2) "related to relocation, training and establishment of a patient base," and
- (3) amortized over five years from the date of separation.
Of note, an employer may only recover reasonable expenses directly attributable to the health care practitioner if the health care practitioner voluntarily terminated employment.
Finally, the statute includes a new patient notification requirement following the departure of a "health care practitioner." The notice must be provided within 90 days of the departure of the health care practitioner and disclose the following:
- (1) the health care practitioner's departure,
- (2) how the patient may transfer the patient's health records to maintain care with the departed health care practitioner or begin care with another health care practitioner, and
- (3) that the patient may be assigned to a new health care practitioner within the existing employer if the patient so chooses.
The patients who must be notified are those who (1) have an ongoing outpatient relationship with the heath care practitioner of two or more years and (2) have seen the health care practitioner within the past year. There are no details provided about the form in which the notice must be provided. There is also no express requirement to notify a patient of where the health care practitioner will render future services.
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