Changes to Contract Non-Compete Clauses Favor Physicians

Previously published in Maryland Medicine, Vol 25 Issue 1 – In the fall of 2023, MedChi adopted a resolution that supports the elimination of non-compete clauses in physician contracts and limits their scope; this was the result of many years’ work by MedChi’s Restrictive Covenant Task Force. House Bill 1388 – Labor and Employment – Non-Compete and Conflict of Interest Clauses – Veterinary and Health Care Professionals, introduced by Delegate Terri Hill, MD, prohibits such clauses and was retroactive. MedChi and other health care professional groups strongly supported this bill.

The House of Delegates removed the retroactivity clause because of constitutional concerns (the U.S. Constitution prohibits the impairment of existing contracts), but passed the bill overwhelmingly, despite the objections of MedStar and the Maryland Hospital Association. In the Senate, the same entities pushed for amendments that banned non-compete clauses for those earning compensation less than $300,000 per year, but allowed them above that threshold, so long as the clause did not exceed one year and a ten-mile radius. Their amendments also requested a study on the effect of private equity firms buying physician practices and requested delay of the bill’s implementation until July of 2025.

MedChi worked with Senate Finance Committee Chair Pam Beidle to modify the proposed amendments. As a result, a few modifications were made: the bill measures the ten-mile radius starting from the primary place of employment, increases the salary threshold to $350,000, and expands the study to include all types of acquisitions of physician practices, including those by hospitals. The bill’s effective date remains July of 2025.

The importance of this legislation to physicians cannot be overstated. Despite the modifications (MedChi would have preferred the bill as adopted by the House), significant improvements over the current law were made as the current law posed unknown risks to physicians and would have allowed the opposition to mobilize their considerable resources heading into 2025. The outcome as it stands means that physicians earning less than $350,000 cannot be subject to non-compete clauses, and those earning more than $350,000 are protected from terms that are geographically vague and expansive (for example, when a hospital system measures the distance from any of its facilities in the state rather than the physician’s primary place of employment) and exceeding one year’s time.