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Employmentnon competition agreementsRestrictive Covenants


By July 18, 2012No Comments

Under Massachusetts law, public policy dictates that physician non-compete agreements (and other restrictive covenants) should not interfere with a patient’s ability to select a physician of their choice.  Accordingly, non-compete agreements that restrict a doctors’ ability to practice medicine are unenforceable.   The relevant law is Massachusetts General Laws (M.G.L.), Chapter 112, Section 12X.

In recent years, the medical industry has become dominated by large health care organizations that have purchased hospitals, clinics, and medical practices that were previously independently owned and operated.  These entities have merged into jointly-managed “hospital groups.”  Sometimes, these hospital groups have an affiliated medical practice (many times the affiliated medical practice has a name other than the name of the hospital.  For example, a hospital known as “Greater Boston Regional Medical Center” may have an affiliation with a medical practice known as, “Financial District Pediatrics.”)  Although such hospital affiliated medical practices are separate entities in a legal sense, for all practical purposes they are extensions of the hospital group.

Hospital groups (and affiliated medical practices) typically compete with private medical practices, and offer patients integrated health care options and economies of scale.

In many cases, a medical practice’s ability to admit patients to a particular hospital (“hospital privileges”) is an attractive quality for potential patients, particularly where a hospital is well-known and has a good reputation.  Typically, hospital privileges are approved by a committee of hospital staff physicians, in accordance with the hospital’s by-laws and regulations.

Interestingly, hospital groups often require their physician employees to sign a provision in their employment contracts providing that upon termination, the physician agrees to resign his/her hospital privileges.  In such cases, when the physician leaves the employ of the hospital group, the physician has to go through the entire application process from the beginning. Many times, the hospital privilege approval committee is made up of other physicians who work at a hospital affiliated medical practice.

Requiring a doctor to resign her/his hospital privileges simply because s/he separated her/his employment from the hospital group, appears to be aimed at deterring physicians from joining a private medical practice that might compete with the hospital group and/or to prevent competition with the new, private medical practice group.  This might well be viewed by the courts as the functional equivalent of an illegal/unenforceable non-compete agreement, in violation of Massachusetts law.

If a physician left the hospital group to practice at a competitive private medical group-and both the physician and the private medical practice otherwise meet the hospital’s regulations to obtain/retain privileges- the physician could arguably be denied hospital privileges (and be prohibited from admitting her/his patients to the hospital) for the sole reason that s/he is no longer an employee of the hospital group, thus effectively preventing private medical practices from competing with the hospital group.

In Parikh v. Franklin Medical Center, 940 F.Supp. 395, D. Mass (1996), Judge Ponsor ruled that a clause requiring a physician (an anesthesiologist) to resign his staff privileges at a hospital in the event of termination (of the partnership between the practice and the physician) violated M.G.L. c. 112, Section 12x, the Massachusetts law prohibiting the imposition of restrictive covenants upon physicians.  The Parikh case involved a convoluted fact pattern and complicated legal issues beyond the scope of this blog.  Nevertheless, one of the legal issues in that case involved whether or not a physician partnership agreement that required one of the physicians to both a) surrender 10% of his partnership income if he practiced medicine outside of a particular geographical location; and b) resign his hospital privileges in the event he left the medical practice.  The Court held that these restrictive covenants violated M.G.L. Chapter 112, Section 12X. Id.

Hospital Groups may respond to the Parikh case in a number of ways, including the following: a) there is a legitimate business interest in requiring the physician to surrender his/her hospital privileges; b) the physician can always re-apply for his/her privileges, thus eliminating any anti-competitive aspect of the contractual restriction; and c) hospital privileges, by definition, are discretionary and based on the practices’ long term relationship and affiliation with a hospital.  Id.

On the other hand, if there is truly no anti-competitive motive for requiring a physician to resign her/his hospital privileges when s/he moves from a hospital group to a private medical practice, then consider the following: if both the physician and the private medical practice otherwise meet the qualifications to obtain (or retain) hospital privileges once the physician separates from the hospital group, then one might question why the hospital privileges cannot simply be transferred to the physician at her/his new medical practice vs. forcing the physician to resign and re-apply.

As with all non-compete matters, enforcement by the courts is highly fact-specific.  Oftentimes a minor difference in a particular fact pattern may change a court’s decision regarding whether or not a restrictive covenant is enforceable.  In any case, Massachusetts courts may once again be confronted with the issue of whether forcing an otherwise qualified physician to resign her/his hospital privileges for the sole reason that s/he leaves the employ of the hospital group, violates M.G.L. Chapter 112, Section 12X.