Health systems say the proposal would upend the industry. The Federal Trade Commission says ending such pacts would enable Americans to earn more.
Hospitals are voicing their objections to a proposal that would prohibit noncompete agreements.
The American Hospital Association has sent a letter to the Federal Trade Commission expressing opposition to the proposed rule. In noncompete agreements, employees agree that they won’t work for a competing business for a certain period of time after their employment ends.
The FTC says eliminating noncompete clauses would expand career opportunities for 30 million Americans and raise wages by $300 billion annually. The FTC proposal would bar employers from forming new noncompete agreements or maintain existing agreements.
The hospital association contends that the FTC lacks the authority to enact such a rule, saying Congress hasn’t given the commission that authority. Hospitals also said the proposal would hurt the healthcare industry that continues to suffer from the COVID-19 pandemic.
“Even if the FTC had the legal authority to issue this proposed rule, now is not the time to upend the health care labor markets with a rule like this. The COVID-19 pandemic exacerbated existing shortages of skilled health care workers, and these shortages will persist well beyond the pandemic,” the hospital association stated in the Feb. 22 letter.
The hospital association also says that the proposal to end noncompete agreements “would profoundly transform the health care labor market – particularly for physicians and senior hospital executives.”
“It would instantly invalidate millions of dollars of existing contracts, while exacerbating problems of health care labor scarcity, especially for medically underserved areas like rural communities,” the AHA stated.
The FTC argues that noncompete agreements prevent workers from pursuing jobs with other companies that offer better pay.
Lina Khan, the FTC’s chairwoman, says prohibiting the noncompete clauses is a matter of fairness for workers.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” Khan said in a statement. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
The FTC also says eliminating noncompete agreements would make it easier for entrepreneurs to create innovative companies.
Hospitals argue that federal regulators shouldn’t employ a one-size-fits-all approach to eliminating noncompete agreements, since health systems employ executives and physicians, along with jobs that require less training.
The hospital association also points out that another federal agency - the U.S. Department of Health & Human Services - has documented the pandemic’s toll on the healthcare workforce. At the peak of COVID-19 hospitalizations in January 2022, roughly 1 in 5 hospitals reported critical staffing shortages, the health department said.
The AHA contends that if the FTC moves to end noncompete agreements, hospitals should be given exceptions.
“If the FTC chooses to proceed with a final rule, it cannot invalidate or ban noncompete agreements without far greater particularized study of the health care labor markets,” the AHA said in its letter to the FTC. “At the very least, any rule that the FTC finalizes must specifically exempt physicians and senior hospital executives.”
The FTC could also give exceptions for other highly-skilled employees established in federal law, the hospital association says.
The U.S. Chamber of Commerce has opposed the FTC’s proposal to eliminate noncompete agreements. The chamber says the move would be unfair to businesses, and the chamber also argues that the FTC lacks the authority.
Heidi Shierholz, president of the Economic Policy Institute, cheered the move to get rid of noncompete agreements. The group says that 36 million workers—27.8% of the private-sector workforce—are required to enter such agreements.
“Noncompetes are ubiquitous, they reduce wages, keep workers from finding better opportunities, and reduce the formation of new firms,” Shierholz said on Twitter.
Under President Biden, the FTC has taken a more aggressive approach in regulating the healthcare industry, particularly when it comes to the mergers of health systems.
Regulators have applied more scrutiny to proposed mergers involving hospitals and health systems in competing markets. The FTC opposed SUNY Upstate Medical University’s plan to acquire Crouse Health, and this month the systems announced they were abandoning their plans.