Thursday, December 12, 2013

The Doctor Is In (or Out)? Physician Non-Compete Agreements

"Only those who regard healing as the ultimate goal of their efforts can, therefore, be designated as physicians.” — Rudolf Virchow

He was a 19th century physician widely regarded as one of the most influential doctors of his time, but Rudolf Virchow clearly did not foresee that medicine would be big business one day.  It’s such big business that physician practices – and in some cases hospitals – work like crazy to make sure that patients don’t follow good doctors when those doctors seek employment elsewhere. 
But even if the profession is forgetting about patients, state laws are not.  Citing patient care and protection as the reason, some states prohibit physician non-compete agreements.  Colorado, Delaware and Massachusetts do so by statute.[1]  Pennsylvania hopes to follow suit with legislation sponsored by the Pennsylvania Medical Society, which would oppose the use of non-competes in physician employment contracts.
Other states have simply prohibited the use of non-competition agreements among professionals, a category in which physicians clearly fall.  Alabama is one example, which not only disallows non-competes for physicians,[2] but also for physical therapists.[3]       
But in the great State of Michigan, where I practice, non-competes are routinely enforced against physicians.  In the last year, I’ve handled three cases involving non-compete clauses in physician employment agreements – all of which were enforced.  In this post, I described the perilous hearing in which a court ordered my cardiologist clients to refrain from practicing at several different hospitals.  Six months ago, I obtained an order on behalf of a physician practice group against three doctors who violated their non-compete agreements.  Last spring, I settled a case in which my opponent represented a podiatry practice and sought patient records to support his non-compete claim.  The enforceability of the non-compete provision in that case was never at issue.
But does this mean that Michigan doesn't care about patients?  Hardly.  In the case I mentioned above involving patient records, Isidore Steiner, D.P.M. v. Bonanni,[4] the Michigan Court of Appeals upheld the sanctity of the Michigan physician-patient privilege and ruled that non-party patient records may not be disclosed in a business dispute involving physicians.
Unlike HIPAA, which allows for the disclosure of patient records in a lawsuit upon the entry of a qualified protective order,[5] Michigan’s physician-patient privilege provides greater protection of patient information, allowing for disclosure only with the patient's consent.[6]  In my case, this meant the only way the plaintiff could prove a violation by my client was if my client admitted it.  The only way the plaintiff could prove damages was through an affidavit by my client stating the amount of revenue he had earned as a result of any breach.    
Therein lies the rub: on the one hand, Michigan courts will enforce non-compete agreements against doctors.  Of course, there must be proof of a violation.  But if a main source of that proof cannot be disclosed by the physician accused of the violation, how do plaintiffs enforce their contractual rights? 
The court in the Steiner case recognized this problem, but instead of addressing it, punted:  
[W]e say that it is not our role to address either the wisdom of a physician's efforts to restrict with whom a patient may consult or the appropriate business or legal means by which a corporation can effectively protect its practice. Instead, our limited role is to decide whether the names, addresses, and telephone numbers of nonparty patients are protected from disclosure by law.[7]
It seems nearly all states – their courts and their lawmakers – have recognized the importance of the patients in the medical process (and thank goodness for that).  But it begs the question: what is the future of non-compete agreements in the medical profession?  How do we balance patient care and protection with the profession's business interests?  Is a uniform act the answer?  Or should the ad-hoc approach that being taken in each state the better way to go?
I’m interested in your feedback.  Sound off!  I’ll share your comments in a future post.
Liza Favaro
Non-Compete Counsel     

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[1] COLO. REV. STAT. § 8-2-113(3); DEL. CODE ANN. tit. 6, § 2707 (2005); MASS. ANN. LAWS. ch. 112 § 12X.
[2] Anniston Urologic Assocs., P.C. v. Kline, 689 So. 2d 54 (Ala. 1997).
[3] Benchmark Med. Holdings, Inc. v. Barnes, 328 F. Supp. 2d 1236 (M.D. Ala. 2004). 
[4]  807 N.W.2d 902 (Mich. Ct. App. 2011).   
[5] 45 CFR 164.512(e) (providing for disclosure of “protected health information in the course of any judicial or administrative proceeding” if it is subject to a “qualified protective order”).  A qualified protective order is one that prohibits the parties from “using or disclosing protected health information for any purpose other than the litigation or proceeding for which such information is requested” and “requires the return to the covered entity or destruction of the protected health information (including all copies made) at the end of the litigation or proceeding.”  45 CFR 164.512(e)(1)(v).
[6] Steiner, supra; Mich. Com. Laws 600.2157 (“[e]xcept as otherwise provided by law, a person duly authorized to practice medicine [8] or surgery shall not disclose any information that the person has acquired in attending a patient in a professional character, if the information was necessary to enable the person to prescribe for the patient as a physician, or to do any act for the patient as a surgeon”).
[7] Steiner, supra, at 276.

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