A Senate committee approved a bill Wednesday that would ban employers from including noncompete clauses in doctors’ contracts.
The Senate Health and Provider Services committee voted 9-3 in favor of the bill, although some lawmakers voted yes but hope to see amendments before the full chamber votes.
Introduced by Sen. Justin Busch, R-Fort Wayne, Senate Bill 7 aims to reduce health care costs by banning noncompete clauses and referral bonuses for physicians. Several doctors spoke in favor of the bill during the 90-minute hearing, including Dr. Pardeep Kumar, a Terre Haute physician who is the president of the Indiana State Medical Association.
“Physician noncompete agreements can place a heavy burden on physicians who, for one reason or another, separate from an employer,” Kumar said. “Specifically, noncompete clauses … often impose strict time and distance restrictions that force physicians to leave their communities or even the state of Indiana to continue practicing medicine.”
A 2020 law allows doctors to purchase a buyout from their noncompete agreement at a “reasonable price.” However, the statute doesn’t define what price would be reasonable, and Kumar said physicians don’t have leverage buyout negotiations after leaving the job.
Matt Bell also spoke in favor of SB 7, representing Hoosiers for Affordable Healthcare, an organization that wants to reduce costs at the state’s nonprofit hospitals. He said the No. 1 reason people leave jobs today is the “toxic culture” of a workplace, not low pay.
“If we want to promote an environment in which people stay in their current employment, then we change the culture where they’re unhappy,” Bell said. “We don’t need a noncompete agreement that forces indentured servitude to do that. Hoosier doctors and Hoosiers don’t jump from job to job for just a penny more; they’re looking for the right environment to work.”
Sen. Jean Breaux, D-Indianapolis, questioned Bell and said hospitals need certainty about their employees. In response, Bell said hospitals can “do that better by creating a positive culture than … by contractual fiat.”
A representative from the Indiana Chamber of Commerce, which had already stated its opposition, spoke against the bill, as did Dr. Eric Fish on behalf of the Indiana Hospital Association.
Fish said noncompete clauses are “both necessary and useful” and protect hospitals’ investments.
Cara Veale, CEO of the Indiana Rural Health Association, also spoke in opposition to SB 7 and said she’s concerned it would exacerbate staffing challenges in rural areas.
“When we hire rural providers and physicians, it’s imperative that (employers) are able to secure their investment,” Veale said, mentioning companies’ spending on signing bonuses, equipment and office space.
Sen. Liz Brown, R-Fort Wayne, asked Veale about how hospitals currently plan to recoup that investment during the life of the contract. Veale said that “sometimes it is, and sometimes it isn’t” rolled into the contract.
“OK, so I’m going to say that’s bad fiscal management on your part,” Brown said, mentioning a scenario where an employer expects the doctor to stay for 10 years but the contract length is only three.
“If you are paying more for them than what you think you’re going to get in three years, thank you for making that investment in them,” Brown said. “But they don’t owe you when they leave, regardless of whether they have a noncompete.”
Brown spoke the most strongly in favor of the bill of all the senators, including telling one person giving testimony that “this is not involuntary servitude.”
“You don’t get to keep them in your community in perpetuity,” Brown said.
She also introduced an amendment to SB 7 that would ban all noncompetes regardless of profession, calling the clauses “a restraint of trade.” However, Brown didn’t call for a vote on the amendment and told Sen. Busch her intent was not to “blow up” his bill, but to make it clear she believes the policy shouldn’t just be limited to doctors.
“Our workforce is much younger and more mobile, and they’re much more open to moving around,” Brown said. “I think Indiana is a fabulous place to work and grow, and once you’ve finally landed here, I think we have great ‘stickiness’ and you’ll stay. … But the problem is, until they actually get here, they may not want to come here, particularly if they think they can’t leave.”
Jean Leising, R-Oldenburg, was one of three lawmakers who voted against SB 7, along with Breaux and Vaneta Becker, R-Evansville.
“I wish that Sen. Busch had gotten it in order that maybe we could have supported it if there would have been some exceptions for rural hospitals,” Leising said.
Breaux called the legislation “extreme” and said she’d prefer a middle ground rather than a full ban on noncompete clauses.
“I have a difficult time having sympathy for physicians who are unable to understand an executable contract that they themselves have entered into,” Breaux said. “But I also think that there’s some problems with restricting movement once the contract has been fulfilled.”
Busch, Brown and Sen. Tyler Johnson, R-Leo-Cedarville, were among the nine lawmakers – seven Republicans and two Democrats – who voted to advance the bill to the Senate floor.
However, some who voted yes want to see changes made before the chamber votes. In closing, Busch promised before the vote to work toward those changes.