New Indiana Physician Noncompete Agreement Requirements Become Effective on July 1, 2020

Significant new requirements for physician noncompete agreements in Indiana took effect on July 1, 2020, including mandatory language allowing a physician to purchase “a complete and final release” from a noncompete agreement “at a reasonable price.” The law also includes several provisions related to notices that employers must provide to patients and doctors when a physician’s employment has terminated or contract expires. These requirements apply for any noncompete entered into on or after July 1, 2020.

House Enrolled Act No. 1004, signed as Public Law 93 by Governor Eric Holcomb following the 2020 legislative session, amends the Indiana Code by adding a new chapter with four sections at Indiana Code 25-22.5-5.5.

The requirements are important for employers and healthcare providers in Indiana. While some states deem noncompete agreements to be per se void for physicians, the Indiana Supreme Court has interpreted the law of Indiana to allow such physician agreements with reasonable restrictions.

Required Buyout Clause With a “Reasonable Price”

The most noteworthy provision of the law is the required buyout clause contained in section two of Chapter 5.5. A noncompete’s provisions must allow a physician “whose employment has terminated” or whose contract has expired to purchase a “complete and final release” from the noncompete terms “at a reasonable price.” The term “reasonable price” is not defined in the statute.

The law states that if the physician does not exercise the purchase option, “then the option to purchase provision may not be used in any manner to restrict, bar, or otherwise limit the employer’s equitable remedies, including the employer’s enforcement of the physician noncompete agreement.” This language seems meant to prevent a physician from arguing that the purchase option is the measure of damages or that there is a lack of irreparable harm.

Relatedly, section four states that the new statutory language is not to “be construed to prohibit, limit, impair, or abrogate …any other right, remedy, or relief permitted by law or in equity.” This language seems to be intended to preserve the right of the parties to pursue equitable and injunctive relief, even when a purchase amount has been listed.

The undefined term “reasonable price,” and who determines what constitutes a reasonable price, are likely to be subjects of debate among attorneys.

Additional Required Provisions in Physician Noncompete Agreements

Physician noncompete agreements must include several other provisions relating to the end of employment or contract expirations for physicians.

Part one of section two of the new statutory Chapter 5.5 relates to departing physicians. Under this section of the Indiana Code, an agreement’s language must include a provision requiring a physician’s employer to provide the departing physician with a copy of any notice about the physician’s exit that “was sent to any patient seen or treated by the physician during the two (2) year period” prior to the physician’s departure. Patients’ names and contact information are to be redacted from any copy of the notice provided to the departing physician.

Part two of section two specifies a provision requiring the physician’s employer “to, in good faith, provide the physician’s last known or current contact and location information to a patient” who asks for it and who has seen the physician in the two years preceding the physician’s end of employment or contract expiration.

A physician noncompete agreement must also include a provision that provides the physician with access to or copies of medical records of consenting patients (a) who each receive a copy of the notice about the departing physician or (b) who ask for the physician’s contact information in parts one and two, respectively, of the same section two.

Another required provision related to notice and disclosure prohibits employers from providing patient medical records “in a format that materially differs from the format used to create or store the medical record[s] during the routine or ordinary course of business, unless a different format is mutually agreed upon by the parties.” Employers may use either “[p]aper or portable document format copies” for the records provided. The “person or entity required to create, copy, or transfer a patient medical record” for reasons governed by the law may “charge a reasonable fee for the service as permitted under applicable state or federal law.”