Indiana Adds New Restrictions on Physician Noncompete Agreements

Indiana recently enacted legislation that will create new restrictions on physician noncompete agreements. Indiana Code 25-22.5-5.5 will affect physician noncompete agreements originally entered into on or after July 1, 2020. Under the terms of the new legislation, a physician noncompete agreement must include and satisfy certain provisions in order to be enforceable, including the following:

• A provision requiring the employer to provide the physician with a copy of any notice that concerns the physician’s departure from the employer and that was sent to any patient seen or treated by the physician during the two years preceding the termination of the physician’s employment or the expiration of the physician’s contract

• A provision that requires the employer to, in good faith, provide the physician’s last known or current contact and location information to a patient who requests such updated information for the physician and was seen or treated by the physician during the two-year period preceding the termination of the physician’s employment or the expiration of the physician’s contract

• A provision that provides the physician with access to or copies of any medical record associated with a patient described in the preceding provisions upon receipt of the patient’s consent

• A provision that provides the physician, whose employment has terminated or whose contract has expired, with the option to purchase a complete and final release from the terms of the enforceable physician noncompete agreement at a reasonable price

• However, in the event the physician elects not to 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.

• A provision that prohibits the providing of patient medical records to a requesting physician in a format that materially differs from the format used to create or store the medical record during the routine or ordinary course of business, unless a different format is mutually agreed upon by the parties

The new legislation does not address common noncompete provisions such as geographic limitations or duration of the noncompete. The new requirements also do not extend to auto-renewals of physician employment contracts originally made effective prior to July 1, 2020. These requirements specifically apply to physicians, as there was no mention made for non-physician provider noncompete agreements.

Brian Heaton, partner at Krieg DeVault and member of the firm’s healthcare practice group, said, “This new law certainly creates new obstacles for employers of physicians, but considering the legislature at one time was considering an outright ban on physician non-competition obligations and most of these requirements are things employers are likely already doing, the end result is not as bad as it once seemed. Because of some uncertainties under the law, most notably how non-solicitation provisions are impacted and how a ‘reasonable price’ will be calculated for a purchase of a release, the new law creates yet another thing for employers and physician employees to negotiate up front and fight about at the end of their contracts.”

With all that physician employers have been dealing with in regard to COVID-19, these new contract requirements may have slipped through somewhat unnoticed. On the surface, the provisions seem straightforward. However, physician noncompete agreements have long been an area of contention regarding reasonableness and enforceability. This new law just added another layer of complexity, requiring physician employers to work carefully to ensure full compliance.