Indiana Senate Approves Ban on Doctor Noncompete Agreements

On February 7, 2023, the Indiana Senate passed a bill to outright ban noncompete agreements between doctors and their healthcare provider employers, though with an amendment to remove restrictions on referral incentives. Senate Bill (SB) 7, which must still be approved by the Indiana House of Representatives, would take effect on July 1, 2023, but would not apply to agreements “originally entered into” prior to that date.

Noncompete agreements in the healthcare setting are typically used to prohibit doctors from working for another healthcare provider within the same geographic area or for a certain amount of time after leaving their positions, or both. Proponents of the ban on noncompetes argue that it will increase competition and reduce healthcare costs. Opponents of the legislation have argued such agreements are important for employers and healthcare providers to protect trade secrets and their significant investment made to recruit and employ doctors.

In passing SB 7, state lawmakers approved an amendment removing part of the bill that would have prohibited referring physicians from receiving any compensation or incentives from healthcare companies or other physicians in the same network for referring a patient. Indiana senate lawmakers did not vote on two other proposed amendments to place limits on noncompete agreements as opposed to an outright ban.

SB 7 comes after Indiana passed a law in 2020 requiring doctor noncompete agreements to include buyout clauses and provisions allowing doctors access to the medical records of consenting patients. Specifically, the law requires that doctors be allowed to purchase a “complete and final release” from the non-compete terms “at a reasonable price” following their employment.

The Indiana House of Representatives is currently considering a separate bill, House Bill (HB) 1292, that would specify that a reasonable price for a noncompete agreement buyout not exceed $75,000 if: (1) the physician is employed by a hospital system in Allen County, Indiana; (2) the physician has completed at least eight years of employment with the hospital system; and (3) “the physician practices primary care and specializes in family medicine.”

The passage of SB 7 comes in the wake of increased scrutiny and regulation of non-compete agreements, including by the Federal Trade Commission (FTC) and some states that are requiring income thresholds for employees to sign non-compete agreements. In January 2023, the FTC issued a proposed rule to prohibit the use of non-compete clauses and preempt state laws that provide lesser protections.

Ogletree Deakins will continue to monitor and report developments with respect to the legislation and will post updates to the firm’s Indiana, Unfair Competition and Trade Secrets, and Healthcare blogs. Important information for employers is also available via the firm’s webinar and podcast programs.