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Competition
May a Physician Compete Against His or Her Former Practice?
If you are in a group medical practice, you might wonder, “Can I or another doctor in this practice set up a competing practice?” “Will a non-competition agreement prevent it?” These questions are crucial both to the existing group and the physician who would set up the competing practice. In this article I give a brief roadmap of the issues relevant to when a physician sets up a competing practice. I give legal and common-sense advice to all concerned parties. The issue is important because, when a physician leaves a group to set up a competing practice, invariably the former group is unhappy and litigation is a real threat. THE CONTRACT MIGHT NOT BE WORTH THE PAPER IT'S WRITTEN ON. After termination of employment (see Termination clauses in physician employment and contractor agreements), a contractual non-competition clause usually is unenforceable. Under California law, a physician ordinarily may compete with his or her prior practice or group, even if the physician signed an agreement that prohibits competition. Of course, there are exceptions to this rule. In relevant part, a non-competition clause can be enforceable if it was (i) entered into as part of the sale of a practice; or (ii) entered into pursuant to a partnership agreement or shareholders agreement that prohibits a withdrawing doctor’s competition in a limited geographic area. WHO GETS THE PATIENTS OR REFERRAL SOURCES? Although a non-competition agreement usually is unenforceable, the departing doctor still may not engage in unfair competition. Unfair competition includes the use of confidential information and trade secrets of the practice, including for example lists of patients or referral sources. In general, the law prohibits a doctor from using data from the practice, but only if the following two elements exist: (i) the data is a trade secret; and (ii) the doctor misappropriates the data. As to the first element, given current HIPAA restrictions, usually we can assume that a patient list is a trade secret. Referral sources require an analysis of the facts and circumstances to determine whether they are trade secrets. As to the second element, once the practice or group has proven that the data at issue is a trade secret, it then must prove that the doctor misappropriated (stole) the data. California courts look to whether the departing doctor actually solicited the group’s patients or referral sources, as opposed to merely announcing a change in professional affiliation. In other words, the physician may announce his or her new status, but may go no further. The distinction between solicitation and mere announcement is a shifting line, however, and the departing doctor must take great care not to cross it. California law for physicians makes the issue even more complex and contradictory due to the prohibition against patient abandonment, and the obligation to notify patients of the change. See my article, Who owns the patient’s medical records? Also read Leaving a medical practice / closing a medical practice. WHO GETS THE EMPLOYEES? The rule for the solicitation of office managers, nurses, technicians and other employees is similar to the rule for the solicitation of patients. A departing doctor may not solicit or ask the employees to leave the former group. Rather, the departing doctor may only announce the move. The doctor must then back off, and permit the employees to initiate the next contact – by requesting to join the departing doctor in the competing practice. For more on this, read Stealing employees. Finally, please keep in mind that the law of competition is by its nature fluid and gray. There are few hard and fast rules, and no guarantees can be given on the outcome of any particular dispute. Moreover, the costs of litigation (let alone losing in litigation) are such that one does best to avoid it altogether. Use your common-sense, and above all, act in a decent and fair manner. Courts try to protect the good guys in a dispute, so be that person. This article only gives a short roadmap of the issues raised by a departing physician’s competition with his or her former group or employer. There is a lot more to this subject than introduced here. Before you do anything, get competent legal counsel to help you.
Stealing Employees - May a Physician Solicit Away Your Employees?
California law protects the right of physicians to change employment, and of competitors to hire one another’s employees. Hence a former physician or a competitor may hire your employees. What they can’t do, however, is steal your employees. This article explains the difference. I also give you some practical measures to protect yourself. EMPLOYEE'S DUTY OF LOYALTY An employee / physician may not solicit your other employees while he is still working for you. While in your employ, the physician owes you a fiduciary duty of loyalty. A physician breaches that duty by soliciting away your other employees to work for a competitor. The key word is “solicit.” The departing employee / physician may not solicit other employees to leave. The departing physician, however, may announce that he is leaving, and other employees may choose to go with him. He may only announce his departure, then back off and wait for other employees to initiate contact and ask if they can go with him. For more on this concept, see my website article, May a physician compete against his or her former practice? PREPARING TO LEAVE Before leaving employment, the employee / physician may make some preparations to compete, but he still owes you the duty of loyalty. It’s a fine line between preparing for a new gig, and breaching the duty of loyalty. In brief, at some undefined point during his preparations, the physician must either resign or make full disclosure to the employer of his plans for leaving. The undefined point is when the physician is actually harming his employer. In most cases, the physician should resign when he can’t avoid a conflict of interest. WORKFORCE RAIDS California law protects employers from raiding by competitors. An employee / physician or competitor may not take a large proportion of your employees with the intent of driving you out of business. You must prove the employee or competitor had bad intent. Evidence of intent includes emails, texts, and witness testimony about what the bad employee or competitor did or said when soliciting your employees. CONFIDENTIAL INFORMATION The departing physician may not take your trade secrets or confidential information, and a competitor may not hire him to gain access to same. For example, the physician might have access to confidential information about your patients or referral sources, and your competitor hires him to get the confidential information. California law prohibits this bad conduct. For more, see my website article, May a physician compete against his or her former practice? PROTECT YOURSELF FROM THE DEPARTING EMPLOYEE You can protect yourself from unfair raids on your employees. When an employee/ physician announces his intention to leave, you don’t need to let the physician hang around. At that point, the physician is more a liability than an asset. Consider terminating employment so that you can cut off the physician’s easy access to your other employees. Further, by paying salary you just finance his transition to your competitor (although you might have to pay the physician’s salary if you have a contractual notice period for termination). In addition, advise the physician that you’ve retained counsel, and you intend to protect your employees, confidential information and trade secrets. PROTECT YOURSELF FROM NEW HIRES Imagine that you just hired a physician from a competing practice. The roles are reversed — now the competitor is looking to sue you for raiding its workforce. All of the above rules apply to you. Be especially careful with the new hire who intends to bring his entire team or group. The new hire might have breached the fiduciary duties we talked about above – he might have solicited the team to go work for you, a competitor. Don’t be complicit in the bad conduct. Instead of targeting the competitor and taking an entire group or office from it, recruit from multiple sources. Certainly don’t talk about how the competitor’s loss of the entire group will cripple it. Further, interview each new hire to be sure that no illegal conduct occurred in their transition, and that no one brings any data from the old practice. Have them all sign written representations to this effect. You should talk with an experienced attorney whenever you lose or gain a key employee. Do not go it alone.
Who Owns the Patient's Medical Records?
In this article, I explain who gets the patient medical records after a physician leaves a group medical practice. I propose a structure that is fair and resolves the problem up-front for all sides. SUMMARY OF CA LAW Medical records are the property of the medical provider that prepares them, for example, the group practice or hospital. Patient records do not belong to the patient, nor do patient records belong to the physician. The group practice owns the patient medical records. The patient has a right to view the original medical records, and to get copies. The medical provider must send the copies within 15 days after the patient’s written request. The provider may charge 25¢ per page plus a reasonable clerical fee. For diagnostic films, such as an x-ray, MRI, CT and PET scans, the charge can be the actual cost of copying. The provider may even demand payment before sending the records. CA law does not require that the physician group transfer patient records to a departing physician. Rather, transferring records between providers is considered a professional courtesy. There is no deadline for transferring records, no penalty for failure to transfer the records, and the transferring group may charge a fee for the service. For this reason, the only way for a departing physician to require the transfer of medical records is to have the patient demand the records. The patient must send a written demand to the old provider requesting the records. Remember that the law does not require the old provider to send the records to the departing physician, but only to the patient — although it strikes me that the old provider must send the records to the address required by the patient, which might be the departing physician’s new address. WHAT ABOUT PATIENT ABANDONMENT? Most physicians leaving a group practice argue that the physician must give notice to the patients to avoid patient abandonment. The group’s counter is that it will continue the patient’s care, hence the patient is not abandoned. CA law does not decide the winner of this argument. You should avoid this argument altogether by using my notice procedures below. My notice procedures comply with the CA Medical Board’s requirements on patient abandonment, and using them will resolve, up-front, the whole mess of patient abandonment and who gets the patient records. THE CONTRACT SHOULD DECIDE WHO GETS THE PATIENT RECORDS Physicians in group practices usually work under employment agreements, contractor agreements, and sometimes shareholder agreements. (I have many articles on these contracts in the sidebar to the right.) Whatever contract you use, it should have provisions for giving notice to patients when the physician leaves the group practice. If the contract doesn’t have such provisions, then both sides should agree to a notice procedure before the physician leaves. Clearly it’s best to have a contract fix the notice procedures at the beginning of the relationship, because the two sides frequently can’t agree on anything at the end, by the time of departure. Send the notice only to patients of the departing physician. The notice should include the following: 1. State the last day the physician will be available to render medical care at the group’s facilities. 2. State the physician’s new contact data, and give the patient a choice to move with the physician or stay with the group. 3. Give instructions on how the patient can obtain or transfer his or her medical records. For example, the notice might have 2 boxes that can be checked – one that keeps records at the practice, and one that transfers records to the departing physician. The contract should state whether the physician or the group is responsible for sending out the notice and who pays the cost. The contract also should give a deadline for transferring patient records, for example, within 3 business days after the patient’s request. Delay is unfair to the patient, of course, and it also acts as a de facto non-competition clause against the departing physician. If a patient can’t wait, delay will drive the patient back to the group for continuing care. The American Medical Association confirms the above notice procedures in its Opinion 7.03 (Records of Physician upon Retirement or Departure from a Group). The Opinion states that it’s unethical to withhold from a patient information about his or her physician’s new practice; and that the notice should give patients the option to have their medical records forwarded to the departing physician. In conclusion, if you take nothing else away from this article, please remember that the departing physician and the medical group each risks charges of unprofessional conduct if it makes the transfer of patient records difficult for the other or for the patients.