Featured Guest: Kimberly Ruppel

What she does:  Kim is a partner at Dickinson Wright in Michigan and Chair of Dickinson Wright’s Healthcare Litigation and Telehealth Task Forces.  Kim has over 20 years’ experience as a commercial litigator who represents healthcare providers, insurers and benefit plans in healthcare contract litigations (including enforcing and defending non-compete agreements), licensing and regulatory disputes, governmental fraud and abuse investigations, HIPAA compliance counseling, and insurance claims and coverage disputes.    

On risk with noncompetes:  "The individual provider doesn't want to be limited from performing his or her clinical services anywhere that they want. But the main objective, I think, from the employer side is to protect intellectual property, patient lists, confidential information, business strategy, and even just depending on the employer if there is any kind of financial investment in the physician with respect to training, or sign on bonus, or payment of continuing ed expenses. So where the employer is putting additional money into and as an investment its employees it wants to protect that investment … There's a decision, a business decision, to be made. Is the hospital going to file a lawsuit and sue its former physician. And then there's legal risk in that, there's financial risk in that, and there's the public relations risk in that. So there's certainly that thinking does come into play when considering the risk of litigation with a noncompete"

Transcript

Scott Nelson  0:01  
Welcome to The Risky Health Care Business Podcast, where we help you prepare for the future by sharing stories, insights, and skills from expert voices in and around the United States health care world with a mission to inform, educate, and help health care organizations and individuals, ranging from one doctor practices to large integrated systems and organizations throughout the dental, medical, and veterinary health care industry with risk, while hopefully having some fun along the way. I'm your host, Scott Nelson, a guy that grew up in Ohio and has been working all over the United States during my 20 plus year and counting career in the health care industry, with a commitment to accelerating health care performance through creativity, not just productivity. Let's dive in.

Noncompete agreements in health care are legal provisions that restrict the ability of health care professionals to work in certain competitive environments after leaving their current employer. Initially designed to protect health care organizations from scenarios like losing sensitive information and investment in employee training, these clauses have sparked a significant debate over their impact on the industry and it's workers as well as the quality of care provided to patients.      

The primary goal of a noncompete agreement in health care, as in other industries, is to protect the business interests of health care providers by restricting the ability of their employees to join or start competing entities within a certain geographic area and for a specific period after leaving employment.  In theory, noncompete clauses safeguard a health care entity’s investments in their staff, intellectual property, proprietary information, and other confidential information and business interests, such as unique treatment methods or patient retention strategies, that could potentially give competitors an advantage. Additionally, these agreements can serve to maintain a stable workforce by deterring employees from leaving abruptly and ensure that the investments made in employee training and development yield returns for a reasonable duration.  Noncompete clauses help prevent situations where a departing health care professional might take with them not only intimate knowledge of the operational practices and strategic initiatives of their former employers but also potentially siphon off patients to a new practice, thereby directly affecting the former employer’s market share and revenue.

On April 23, 2024 the Federal Trade Commission voted to finalize a new rule to prohibit employers from enforcing noncompetes against workers.  According to the FTC one in five Americans, totaling nearly 30 million people, are subject to noncompetes.  The Commission determined that noncompetes are an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.  The final rule prohibits employers from entering into new noncompetes with workers on or after the effective date. The rule also prohibits employers from enforcing existing noncompetes with workers other than senior executives.

Proponents of this decision feel that noncompete agreements can hinder career progression for health care professionals, limit patient choice, and potentially drive up health care costs by reducing competition. In some regions, these agreements have created scenarios where specialists are scarce, affecting patient access to timely and essential medical care. Moreover, such restrictions can lead to a concentration of talent in larger systems that dominate the market, stifling innovation and diluting the quality of health care services.

The American Hospital Association, a critic of the FTC's decision and rule, said in a statement "The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals' ability to care for their patients and communities."

Recent legislative actions in the federal government and various states have aimed to limit or ban the enforcement of noncompete clauses in health care, reflecting a growing recognition of their potential to harm both health care providers and consumers. As the health care industry continues to evolve, the balance between protecting business interests and ensuring an open, competitive market for health care services remains a contentious and critical issue.

In this episode I'm speaking with Kim Ruppel about noncompete agreements and risk in health care.  Kim is a partner at Dickinson Wright in Michigan and Chair of Dickinson Wright’s Healthcare Litigation and Telehealth Task Forces.  Kim has over 20 years’ experience as a commercial litigator who represents health care providers, insurers and benefit plans in health care contract litigations (including enforcing and defending non-compete agreements), licensing and regulatory disputes, governmental fraud and abuse investigations, HIPAA compliance counseling, and insurance claims and coverage disputes. Let's talk with Kim about noncompete agreements and risk in health care.

Kim, welcome to the show.

Kim Ruppel  4:22  
Thanks, Scott. Happy to be here.

Scott Nelson  4:23  
Before we begin our conversation about risk in health care and noncompetes. I'd like to take a moment to talk about your background and work. What is your work in health care as an attorney?

Kim Ruppel  4:38  
I am primary a litigator, which is why I'm working on noncompete related issues, but I also deal with regulatory compliance, licensing investigations, general governmental investigations, and counseling; so counseling health care clients on risk avoidance and also defense of litigation sometimes on the affirmative side as well.

Scott Nelson  5:04  
In general, how do you view and think about risk in health care?

Kim Ruppel  5:08  
Always top of mind, to be honest, you know whether it's risk from the just practice of medicine. So from the patient care perspective, the quality of care, that's always top of mind. Patient care is the number one priority for our health care clients, absolutely. But then also the risk involved in health care regulatory scheme is very big to health care providers are mainly focused on providing quality health care, and often don't realize the extent that the federal and state governments are involved in regulating their practice. That's where we come in and try to give that advice and help them stay out of trouble.

Scott Nelson  5:49  
With potential for the federal government or state governments to get involved. Why is it important to think about risk? What are examples of potential risks? What should individuals and organizations be thinking about?

Kim Ruppel  5:59  
Well, the risk is inherent in the way that the practices have financial arrangements, so that when a physician is involved in any kind of financial arrangement with whether it's an employment arrangement, whether it's a contract with another practice, there's always the risk, that Stark or anti kickback issues will come up. Those are federal laws but most states have similar laws. And those laws basically prohibit a physician from accepting what's known as a kickback, a financial remuneration, for referring patients, for referring business based on the volume or value of their services. Those are the things that government tends to frown on. And with the idea that that will improve patient quality, and prevent providers from, you know, trying to put profit above patient care.

Scott Nelson  6:55  
Transitioning to noncompetes. Let's start with a history and general education background. What are noncompetes and how did we get here today? 

Kim Ruppel  7:03  
Noncompetes, the real basic idea is preventing someone from being employed in a similar context. When the government gets involved in this way that the FTC has just recently, what they're trying to do is prevent unfair competition. And I stress the unfair because businesses compete all the time. And that is sort of the nature of our American capitalist system. So it's the unfair part that we're focusing on. In 2021, the executive branch issued an executive order that said noncompetes were disfavored. And that the federal agencies would begin to develop these kinds of guidance that is coming down now. So it's been a couple of years, obviously, since the executive branch took a stand on this. And now we finally got the agency, the FTC anyway, is involved in issuing its guidance. The DOJ and NLRB likely will as well, but this is the sort of the first step.

Scott Nelson  8:07  
According to the FTC in a recent fact sheet about noncompetes roughly one in five Americans, totaling nearly 30 million people, are subject to noncompetes. The American Medical Association says between 37% and 45% of physicians are affected by noncompetes. So who has them and who's involved in a noncompete?

Kim Ruppel  8:25  
I think the most common would be a hospital that employs physicians, and would want to prevent their employed physicians from leaving work and going to work for a neighboring hospital, probably a very common scenario. And the concern would be not only the physician would be taking patients with them might take knowledge of a business strategy, expansion perhaps or any kind of different practice area that would be pursued, and just any kind of general confidential information. So that that's what we see most commonly, as far as in the employment on, you know, physician and provider side.

Scott Nelson  9:06  
Why have noncompetes?  What is the risk in having or not having a noncompete?  One might argue from an individual perspective there is risk in having a noncompete because it limits opportunities.  And from the organization position, there is risk in not having a noncompete because of potentially taking patients and confidential information such as business strategy.  Where is risk with a noncompete?

Kim Ruppel  9:26  
That's the push pull, right? So the individual provider doesn't want to be limited from, you know, performing his or her clinical services anywhere that they want. But the main objective, I think, from the employer side is to protect it's, as you mentioned, intellectual property, patient lists, confidential information, business strategy, and even just depending on the employer, if there is any kind of financial investment in the physician with respect to training, or sign on bonus, or payment of continuing ed expenses, that kind of thing. So where the employers is putting additional money into and as an investment its employees it wants to protect that investment.

Scott Nelson  10:13  
Let's get into the recent FTC decision and Final Rule on noncompetes.  On April 23 the Federal Trade Commission voted 3-2 to finalize a new rule that prohibits employers from entering into new noncompetes with workers on or after the effective date and also prohibits employers from enforcing existing noncompetes with workers other than senior executives.  Of the approximately 26,000 comments the FTC received on the rule, a significant number came from health care employees, especially doctors.  What happened to get to this decision? And what does it mean for healthcare professionals and organizations?

Kim Ruppel  10:43  
I am not surprised at the number of comments in that proportion. Because I think that it does affect health care, probably as much or more as many other sectors. And for that reason I think it's very important to the health care sector. I will say that, from the perspective of nonprofit institutions, as most hospitals are, the FTC does acknowledge that it doesn't have authority over those entities, except to the extent that they might also be have financial arrangements with, say a not for profit, physician practice, for example, which is often the case. But the the fact of the matter is a lot of physicians do work for multiple employers, a physician may have his or her own private practice, also do rounds at a hospital, and may also want to do rounds at a another neighboring hospital. And so if they are restricted by a noncompete provision, they're limited in where they can work. And from the individual physician perspective, that limits their patient care, that limits their their income, and is just a practical hassle, really.

Scott Nelson  11:53  
Does this decision decrease, increase, or create risk to individuals and organizations in health care?

Kim Ruppel  12:01  
Frankly, I think it increases the risk, certainly, until everything sort of settles down. And there's a general understanding of what will and will not be enforced, right, so the the FTC rule isn't effective currently, the issuance of the rule is effective now, it's it's been published, which means that in 120 days or September of this year, the rule will be effective. However, there are also multiple lawsuits that have been filed almost immediately after the rule was announced. And it remains to be seen how those lawsuits will play out, which will probably take anywhere from a year to two, before there might be a determination whether the FTC actually has the authority to issue these this guidance. So there's that and then what do what do health care providers do in that interim? I've had lots of clients asked me that already. And, frankly, I think that the best way to go forward is to continue doing what they've been doing with the understanding that a noncompete might not be effective as long as they think it will be. And then there are other protections that can be applied in the interim to hopefully mitigate that risk.

Scott Nelson  13:16  
Thinking about the phrase letter of the law versus spirit of the law with 3 parts of this decision and final rule, the first being the final rule prohibits employers from enforcing noncompetes with workers other than senior executives and the final rule defines senior executive as workers earning more than $151,164 who are in a policy-making position, president, CEO, or equivalent roles, if they have final authority not limited to merely advising.  Is this a broad take and open to interpretation?  I've seen individuals and organizations across the country that over-title, under-title, and positions outside of this "senior executive" position, director and manager level positions, that make more than $151,164 and could be argued are in a policy making position over a department or division.  To me, this final rule seems very broad and open to interpretation.  

Kim Ruppel  14:07  
Absolutely and sure that the FTC will issue some regulations that will hopefully clarify and maybe, you know, solidify what that means. But in the meantime, employers really are going to have to try to figure that out as best they can. And maybe that's something that will be baked into an employment agreement. This is a policymaking position, the salary amount, the compensation amounts could be set based on the number that is in this rule, which to me seems a bit artificial, right, so but it's playing a game, it's it's following the rules and if the employers can determine who their policy making official or executives, right, are, then that takes a little bit of the gray out of the argument. But that's something that I think probably will be subject to litigation unless there's a little bit more clarification as to what that means.

Scott Nelson  15:04  
The second letter versus spirit part is Section 910.3 of the final rule that talks about exceptions and there are two that I noted. One is this final rule does not apply to the sale of a business entity and the other is if it's inapplicable.  There are always potential exceptions to rules but these two strike me as the sale exception attempting to differentiate and separate just one group from the rest in this remedy, and the inapplicable exception again strikes me as broad and open to interpretation.

Kim Ruppel  15:30  
Right, right. I do think that it makes sense, this exception to be honest, because what the FTC has stated that it's trying to do is to prevent unfair competition in an employment context. So when you're talking about the sale of a business, that's a little different animal, and is a transaction that is between two willing participants, that should be any way, negotiating and bargaining at arm's length. When an employer and employee aren't necessarily on equal playing fields. So the FTC is trying to be more protective in that situation. When you've got a sale, that the noncompete provisions are important to the purchaser generally more often, because they want to make sure that what they're purchasing, they're not going to have somebody coming into interfere with their new business by either taking away their employees or just competing in another way. So when the sale happens, the noncompetes follow typically, to the purchasing entity, so that they can maintain that their business expectation of what they believe that they're purchasing.

Scott Nelson  16:45  
If I'm a doctor, a physician, or a dentist, or a veterinarian, and I'm an owner in selling my business and I now have a noncompete with buyer, which becomes the new owner, does a noncompete extend to the staff or solely with the seller and previous owner?

Kim Ruppel  16:58  
That would depend on the situation, I believe, because oftentimes in a practice, maybe it's the physicians, the dentists, the vets that are restricted by the noncompete, but the administrative staff are not typically, but there might also be some sort of nonsolicitation provision, so that the medical professionals might be allowed, not allowed, rather restricted from soliciting employees of the former entity, unless they, you know, were going along with the transaction.

Scott Nelson  17:28  
The applicability of this exception, when it's inapplicable, what are possible examples? How would one define that and say well this situation doesn't fall under this rule?

Kim Ruppel  17:38  
So one of the exceptions is really kind of an a retro activity idea. And that's common in most statutes or most regulations, where the rule is effective going forward. So the rule is not going to go backwards in time and say, okay, all these lawsuits that are already pending throughout the country, challenging noncompetes, we're going to wipe those out. And I think that that from a fairness perspective, makes sense to me because, you know, there are different scenarios and different noncompetes that may be challenged throughout the country, that the FTC isn't trying to come in and say we're going to wipe all that that slate clean.

Scott Nelson  18:18  
The third and final letter versus spirit part that jumped out to me is section 910.4a of the final rule which states that it won't limit or affect enforcement of state laws. Is this something, that as a federal rule, organizations and entities could utilize creative solutions and move this into a state situation and bypass the FTC rule and make it a state issue?

Kim Ruppel  18:38  
It could, I mean, this that provision I thought it was a little confusing, to be honest, because they're saying that the FTC rule will not apply to state laws but the federal rule or the final FTC rule will preempt state laws that conflict. So I guess what they're saying is states you can go ahead and you know, develop your own laws or sets of rules as long as it doesn't conflict with what we've said.

Scott Nelson  19:06  
Considering this final rule in it's entirety, what are your thoughts as it moves forward in health care?

Kim Ruppel  19:11  
It is a very broad rule, I think, it's, it doesn't give any, it gives very little discretion to, like I said, parties that are bargaining at arm's length on equal playing field, a physician who's just coming out of medical school, for example, is looking to get a job and probably has no bargaining power with respect to where, you know, they're negotiating for employment, which is different than say, somebody who has been practicing for a decade or more and, you know, has an established practice and maybe is a medical director running a clinic, etc. and they might have a little bit more bargaining power with an employer. So it doesn't the final rule doesn't give any kind of discretion in those two scenarios. A lot of state laws are different and I'm from Michigan so Michigan's rule is basically one of reason. So that noncompete provisions as long as they're reasonable. And that's obviously subject to interpretation, they can be enforced. Not to say that all are. So there are other states that prohibit all noncompetes entirely. And I think that the FTC has sort of leaned that way. But I think that it's going to, it's going to take some time to figure out exactly how that applies.

Scott Nelson  20:29  
Will this FTC decision have significant impact in health care and potentially how much? You'd mentioned the FTC jurisdiction and that it doesn't apply to all organizations. You'd also mentioned lawsuits. The American Hospital Association is a critic of this rule and the decision and said in a statement, that the only saving grace is that this rule will likely be short lived with courts almost certain to stop it, before it can do damage to hospitals ability to care for their patients and communities. In your opinion, how significant is this rule? How much impact will it have? And how much will it help?

Kim Ruppel  21:01  
If the rule stands I think it will have significant impact. It could lead to you know, hospitals not being able to protect their own economic and patient interests, and intellectual property, etc. I think that there are ways to, you know, mitigate that, certainly, but if, if this broad of a rule is applied and enforced and remains in effect, I think it will have significant impact from the individual provider perspective, that may be a better position, because individual providers will be able to leave jobs with some more ease. But there still would be restrictions that would I'm sure come into play.

Scott Nelson  21:47  
Along the lines of your previous comment about people and organizations continuing to do what they've been doing and see how things settle down and will be enforced.  What could individuals and organizations be doing proactively?  Or what if there are organizations and individuals that have not been doing anything? What are some things they could or should be doing to protect themselves?

Kim Ruppel  22:05  
Certainly confidentiality agreements in employment agreements, I think is absolute, that protects the employer from the physician or anybody else leaving and discussing information that should be maintained within the organization. Same goes for nondisclosure agreements, you know, similar concept, where there's defined information, the definition being in the employment agreement, that information cannot be shared or disclosed in any fashion, the intellectual property that can be also protected in a separate way, where it's not part of a noncompete, it's part of an employment agreement, you're not allowed to share the intellectual property of the organization, that sort of thing. Something that we're using also is a little bit more of a short term fix. But certainly, on the hiring side, if there is a sign-on or commencement bonus paid, that, you know, a physician could be asked to sign a promissory note to repay that amount if they don't stay the length of term that they're signed up for. So that if they leave, you know, they have a two year agreement, they leave after a year one, they pay back half of their bonus. And that can be a financial incentive for somebody to stay for the length of their term.

Scott Nelson  23:21  
What are potential obstacles that doctors, health care professionals, and organizations may face with this new rule or noncompetes in general? What can be done to work through and past those?

Kim Ruppel  23:31  
Where I see the problems with our clients is everybody, the hospitals in particular, physician practices, always looking to acquire quality talent, right, and to acquire quality talent, you've got to be competitive, and you've got to present an attractive offer. And sometimes to retain people, the employer might have to consider whether the noncompete could be forgiven or lessened. Maybe you do let the physician work at a hospital that's maybe not next door, but you know, a certain distance away that doesn't interfere with business. And that way you're able to retain the desired physician. It's all about setting out expectations from the get-go. And whether that's in an employment agreement as a contract, a policy guideline that they an employer might require employees to agree to certain set policies, that sort of thing. But I think that communication is the key, transparency is very important, and you know, just thinking ahead a little bit, and certainly engaging your legal counsel.

Scott Nelson  24:43  
You had an interesting point earlier about people wanting to enforce these, if they wanted to walk away from a noncompete.  Over the last few years I've seen a change with individuals and organizations on both sides of noncompetes.  Several years ago if a person left, the employer might make an effort to enforce a noncompete, depending on the situation and think about if that is something they wanted to take on or let it go. Over the last one to two years as courts began to strike down noncompetes more organizations decided not to enforce a noncompete or fight it. 

Kim Ruppel  25:10  
That make sense to me too. I've seen that and I think there's a decision, a business decision to be made, right, like is the hospital going to file a lawsuit and sue its former physician, and then there's legal risk in that, there's financial risk in that, and there's the public relations risk in that. Suing doctors doesn't always look so good when the public is like, why are you suing my doctor, he, I just want him to take him or her to take care of me, I don't want you know to have to worry about what hospital he he or she is aligned with. So there's certainly that thinking does come into play, when considering the risk of litigation with a noncompete, and also that can be negotiated without litigation, right, so if some physician wants to leave, another hospital wants to hire that physician away, there can be negotiation about maybe a buyout scenario that acknowledges the former employers investment in the physician and the value that the physician is bringing to the new employer.

Scott Nelson  26:12  
So there are additional or alternative solutions that do not include or are outside of a noncompete to resolve these types of situations, such as the negotiated settlement example?

Kim Ruppel  26:21  
Absolutely. And sometimes, what I see too, is, are the noncompetes restricting a physician from clinical activities versus administrative. So a physician could be employed to oversee, say, a practice area within a hospital or within just a practice, a private practice. And they're performing an administrative function rather than a clinical function. And that's distinguished in a noncompete. And so courts don't like to limit where physicians can actually practice medicine. However, there's a little bit of a difference that, you know, I've seen courts treat with the administrative practice. So there's two different ways to look at things as far as that goes. And I've also seen noncompetes that contain provisions where if an employer terminates the physician without cause, then the noncompete goes away, which is the right thing to do, right, if there's somebody that's, you know, you've been fired, and now you're going to be held to a two year noncompete, that doesn't seem fundamentally fair. So many noncompetes contain that kind of a restriction or limitation.

Scott Nelson  27:33  
Do you expect this to be the evolution of noncompetes into something else, creating alternative solutions or replacements, or no impact at all?  For example, if noncompetes go away could there be an increase in utilization and change in strategy for nondisclosure agreements and other protections for intellectual property and confidential information? 

Kim Ruppel  27:51  
What I could also see, what I have seen is sort of a no poach agreement between employers so that one hospital makes an agreement with the hospital down the road, we won't take your doctors for this long after they've left your employment. Okay, fine, that that could be enforceable, because again, that is an arm's length negotiation between equal bargaining players. However, there is an issue, that can be the issue there was an antitrust consideration. So that depending on the how broad that restriction is, if it is truly limiting the flow of employment, then I could see the DOJ coming in and governmental agencies coming in to say, no, that is unfair restriction as well.

Scott Nelson  28:40  
Looking forward into the future of risk in health care, and expanding beyond risk with noncompetes, how can organizations and individuals be prepared?

Kim Ruppel  28:48  
I think examining the contracts that they have currently, you know, knowing the developments of the law, to be able to stay ahead of it. And like I said, even with the FTC rule, for example, this may not really be effective for say a couple of years until the lawsuits have concluded. But knowing what the FTC is, has in mind and trying to stay ahead of that, I think that is best practice, to try to, you know, create your contracts or revise your contracts accordingly. And, you know, be prepared to be able to protect the organization or protect your individual clients as well.

Scott Nelson  29:27  
That's a great point to conclude our conversation.  Kim, thank you very much for your time and sharing your thoughts and experiences today.  I really appreciate it.

Kim Ruppel  29:34  
Thanks, Scott. Happy to do it.

Scott Nelson  29:38  
Thank you for listening to The Risky Health Care Business Podcast. You can listen to all episodes from the resource center page of the SpringParker website, springparker.com, or click the Listen link in the show notes to listen and subscribe for free on your platform of choice. And remember, accelerating health care performance is achieved through creativity, not just productivity.