In a change that has far-reaching implications for the healthcare industry and beyond, the Federal Trade Commission (FTC) recently issued a final rule banning new noncompete agreements with all workers. With the decision, the FTC aims to promote competition and protect worker freedoms. However, the rule also presents new challenges for healthcare providers in an already complex labor market.
Under the rule, existing noncompete agreements also will become unenforceable upon the effective date, 120 days after its publication in the Federal Register. There is an exception for senior executives, defined as workers who have policymaking authority and compensation over $151,164 annually, for whom existing agreements may remain in effect.
Impact & Considerations
The FTC asserts several benefits of the new rule, including:
- Reduced healthcare costs by up to an estimated $194 billion over the next decade, due to increased price competition
- Greater mobility among the healthcare workforce, promoting stronger competition for talent and potentially improving quality of care
- Anticipated 2.7% increase in new business formation, resulting in more than 8,500 new businesses each year, which could include new independent medical practices
- Growth in innovation, with an expected average of 17,000 to 29,000 additional patents each year for the next 10 years
- Increased worker wages by an expected average of $524 per worker per year for the next 10 years
Along with these positive implications, healthcare providers will need to prepare for possible negative consequences of the noncompete ban, such as:
- Increased turnover among healthcare professionals, potentially disrupting continuity of care
- Potential increased costs for recruitment, training, and worker wages, which may offset some of the FTC’s projected decrease in healthcare costs
- Challenges to maintaining competitive advantage, as healthcare providers may need to turn to nondisclosure agreements and other alternatives for protecting trade secrets in the absence of noncompete agreements
- Uncertainty due to legal challenges to the rule, which could indefinitely delay or invalidate its implementation
- Unintended consequences involving nonprofit healthcare providers, which do not fall under the FTC’s jurisdiction and, therefore, may not be subject to the rule, placing them on uneven footing with for-profit providers
How FORVIS Can Help
FORVIS has helped hundreds of healthcare provider organizations manage labor costs and increase workforce efficiency while maintaining a high quality of care. Our experienced consultants are prepared to help interested organizations navigate the FTC ruling in a variety of ways, including assessing workforce engagement, culture, and turnover to understand baseline performance. If performance improvement is needed, we can recommend approaches and tools to assist management in a proactive approach to retain staff. This can help reduce reliance on noncompetes as a retention tool. However, it also will make sense to consider other approaches, including economic measures, to disincentivize key employees from leaving the organization. Our advisors can offer guidance and methods to help protect the organization’s business interests in this regard as well.
For questions or to learn more, reach out to a healthcare professional at FORVIS.