What the FTC’s New Protections From Non-Compete Agreements Mean in a Mostly Non-Profit Hospital Industry
Michelle Long, Matthew Rae, and Kaye Pestaina
Published:
Introduction
In April 2024, the Federal Trade Commission (FTC) approved a final rule barring employers’ use of non-compete clauses in certain employment contracts. Non-compete clauses are used in many industries to prevent employees from taking a job with a competitor or starting a related business within a certain amount of time or distance. The FTC estimates that one in five workers (about 30 million) are subject to a non-compete clause. The regulation, which is set to take effect in September 2024, already faces multiple legal challenges, and possibly more to come, with plaintiffs claiming that the FTC exceeded its regulatory authority. Plaintiffs in of those cases were granted a preliminary injunction in July 2024, enjoining the FTC from enforcing the rule against them while the case makes its way through the courts.
This policy watch use 2022 data from the American Hospital Association (AHA) Annual Survey Database to present the number and share of hospital workers by occupation who may not be covered by the federal protections against non-compete agreements because they work for a non-profit hospital (see Methods section for details).
Overview of Rule
The American Medical Association estimates that non-compete clauses are common in health care and affect 37%-45% of physicians. The extent to which these non-competes are enforced or enforceable is unclear, though they may alter market dynamics. Less is known about the share of other health care professionals subject to non-compete clauses.
The FTC only has authority over companies organized to make a profit, so the new regulation will not apply to many non-profit hospitals, which comprise most U.S. hospitals and the majority of hospital workers. Not all tax-exempt hospitals fall outside the FTC’s jurisdiction. The FTC is authorized to regulate these entities if they are, in a fact-specific determination, a “profit-making enterprise,” and tax-exempt status is just one factor it considers. While the regulation might still apply to a non-profit hospital claiming tax-exempt status if it is “organized for profit,” the FTC can only make this determination on a case-by-case basis. (Also not generally covered are hospitals run by state and federal governments, which are typically regulated by specific public-sector employment laws whose employment practices differ substantially from private sector employers.)
A broad swath of employment relationships will be covered, including independent contractors, interns, and apprentices. Affiliations and employment arrangements between physician practices and hospitals are often complex, and some non-profit hospitals are affiliated with for-profit hospitals and medical groups. The new rule leaves open the question of whether it would apply to clinicians in these types of hospital relationships.
Hospital Worker Data
According to KFF’s analysis of 2022 AHA survey data, about 7.2 million people worked at a hospital. Two-thirds (67%) of them (about 4.8 million) worked at non-profit hospitals and may not be covered by protections under the FTC’s new non-compete agreement regulation.
In 2022, hospitals employed about 2.2 million nurses, 68% (nearly 1.5 million) of whom worked at a non-profit hospital (Figure 1). (Nurses include registered nurses and licensed practical (vocational) nurses.)
Nursing assistive personnel provide basic nursing procedures under the supervision of a registered nurse, licensed practical nurse, or other health care professionals. Nursing assistive personnel can include certified nursing assistants, birthing assistants, and medication aides. In 2022, 64% (417,078) of hospital-based nursing assistive personnel worked for non-profit hospitals and therefore also might not be covered by the FTC non-compete protections (Figure 1).
Among hospital-based health care workers, 71% of technicians, 66% of physicians and dentists, 66% of respiratory therapists, and 62% licensed pharmacists were also employed by non-profit hospitals (Figure 1). (Technicians include those working in radiology, laboratory, and pharmacy.)
Other Considerations
Millions of health care workers could be impacted by the new federal regulations barring the use of non-compete clauses, and there are particular implications for lower-wage workers. That said, although the new rule applies nationally, several states have already taken action to restrict the use of non-competes for certain workers.
Lower-Wage Health Care Workers
Based on the comments the FTC received as well as economic evidence, the agency stated that non-compete clauses can suppress worker wages in part because they can prevent a worker from obtaining a higher-paying job in the same field elsewhere.
Many higher-paid health care workers may be excluded from the new regulation based on their annual earnings and duties. While the final rule would prevent new non-compete clauses for workers in “senior executive” roles—defined as those earning more than $151,164 annually who are in a “policy-making position”—it does not extend to existing non-competes for these workers. Nonetheless, data from the Bureau of Labor Statistics (BLS), which the rule references, suggest that most non-federal hospital health care workers earned well below this “senior executive” salary threshold in 2023. The FTC also presented evidence that many lower-wage workers, including hair stylists and fast-food workers, are subject to non-compete clauses.
Some of the lowest-paid non-federal hospital health care workers are nursing assistants and pharmacy technicians, who, on average, earned less than the national average annual salary of $65,470 in 2023. Nursing assistants at non-federal hospitals had an average annual salary of $40,820, pharmacy technicians made $49,950, and licensed practical and vocational nurses earned $56,450 (Figure 2). Non-compete clauses may make it more difficult for lower-paid workers to obtain a higher-paying job in their field with a different employer.
State Non-Compete Restrictions
Many states have limited the use of non-compete agreements in at least some health care employment contracts (Figure 3). Four states have laws prohibiting non-competes for nearly all workers in those states (CA, MN, ND, and OK). The District of Columbia prohibits non-compete agreements for most workers earning less than $150,000 per year, or less than $250,000 for most physicians. Eleven other states prohibit non-competes for certain health care professionals (AL, CO, DE, IN, MA, MD, MT, NM, NH, RI, and SD). The new federal regulations establish a federal “floor” of protections, and these state laws will continue to apply. Applying a uniform standard across the country, the rule explains, could help alleviate confusion resulting from the patchwork of state laws, especially considering recent increases in interstate remote work.
Implications For Consumers
The implications of the rule for access to health care providers, especially those already in short supply, such as behavioral health care providers, are not yet clear. While some health care industry groups commented that a prohibition on non-competes could exacerbate workforce shortages, particularly in underserved areas, several comments from providers and patients indicated that non-compete contracts can create access barriers for patients when providers have to move long distances to continue practicing in their field. On the other hand, some health care industry commenters expressed concern that if non-compete agreements are prohibited, physicians may be inclined to leave markets with lower reimbursement in favor of markets with higher reimbursement rates, potentially, they say, increasing health care costs. Whether, and to what extent, the new rule may influence these access issues is an open question.