RESTRICTIVE COVENANTS IN EMPLOYMENT CONTRACTS FOR RECRUITED PHYSICIANS

Thursday, March 10, 2016
By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law
 
Early versions of the Stark Regulations, Federal Regulations adopted by the U.S. Department of Health and Human Services (HHS) to implement the Stark Act, prohibited the inclusion of restrictive covenants (sometimes called noncompetition agreements, covenants not to compete or noncompetes), in physician employment agreements, when hospitals subsidized the hiring of a relocated physician.  However, an advisory opinion from the Centers for Medicare and Medicaid Services (CMS) (note:  this was not an OIG advisory opinion) in 2011, seemed to send the message that, under certain circumstances, such restrictive covenants could be used.  This was CMS Advisory Opinion CMS-AO-2011-01, which can be read it in its entirety here.


The Unique Facts Presented to CMS

CMS was presented with the following facts in this particular case:
The employee physician being recruited was a pediatric orthopedic surgeon who was being recruited by the hospital to join a medical practice in its area.  recruited by a hospital to a medical practice. The medical practice was not willing to hire the new physician without a noncompetition provision and other restrictive covenants.  Therefore, given the earlier version of the Stark Regulations adopted in 2007, the practice asked CMS for guidance.  The regulations had been clear that restrictive covenants were not permitted in the employment agreements of physicians whose recruitment was subsidized by a hospital.

The Restrictive Covenant in the CMS Case

The covenant not to compete in the case considered by CMS contained these provisions:
1.    It was only one year in length.
2.    It had a geographic area of a 25 mile radius.
3.    The new employee physician would be working in one of five hospitals within the 25 mile zone.
4.    The recruiting hospital’s service area extended beyond the 25 mile radius, and there were at least three other large hospitals within a one hour driving range.  This meant that, if necessary, the physician employee could remain within the hospital's service area and still be outside of the 25 mile radius of the restrictive covenant.
5.    The restrictive covenant must comply with the state's laws.

CMS opined that, under the circumstances, such a restrictive covenant did not appear to violate the Stark Act.

Note, However, the Strict Limitations on CMS Advisory Opinions

Before relying too heavily on this single CMS Advisory Opinion, in light of the statute and regulations themselves, one would be well advised not to just assume a restrictive covenant in a recruited physician's employment agreement will be valid.  There are many stated and express restrictions on using OIG Advisory Opinions including:

1.    The advisory opinion is issued only to the Requestor of the opinion and cannot be relied on by any other individual or entity.
2.    The advisory opinion may not be introduced into evidence in any matter involving an entity or individual that is not the Requestor of the opinion.
3.    The advisory opinion is applicable only to the statutory and regulatory provisions specifically noted in it.
4.    The advisory opinion does not include any other Federal, state or local statute, rule, regulation, ordinance, or other law that may be applicable to the Requestor, including the Federal anti-kickback statute, section 1128B(b) of the Act (42 U.S.C. §1320a-7b(b)).
5.    The advisory opinion will not bind or obligate any agency other than the U.S. Department of Health and Human Services.
6.    CMS reserves the right to reconsider the questions and issues raised in the advisory opinion and rescind, modify or terminate the opinion.
7.    The advisory opinion is limited to the specific arrangement described in it and has no applicability to any other arrangement, even one which appears to be similar.
8.    CMS does not express an opinion regarding the liability of any party under the False Claims Act or other legal authorities for any improper billing, claims submission, cost reporting, or related conduct.


Therefore, with all of the qualifications and limitations on such a CMS Advisory Opinion, one would be well warned to go to CMS and get its own CMS Advisory Opinion before relying upon the facts and opinions stated in one.


KeyWords: Stark Act, CMS advisory opinions attorney, restrictive covenants lawyer, enforcement of physician noncompetition agreements, noncompetition agreement attorney, covenants not to compete in physician contracts, physician noncompetes, physician employment agreement lawyer, physician employment contract attorney,


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3/10/2016

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