Following along with the trend of limiting physician non-competes, Illinois courts have taken steps to limit the instances in which non-compete provisions are enforceable. Illinois courts have historically disfavored non-compete provisions and considered them unlawful restraints on trade. That said, the courts will hold such non-compete provisions to be enforceable when ancillary to a valid contract or business relationship, deemed reasonable to protect a legitimate business interest and supported with adequate consideration. In other states applying a three-factor test such as this, the employment opportunity itself is considered adequate consideration for a non-compete provision included in an employment contract. However, Illinois appellate courts have generally held (with some exceptions) that a non-compete is not enforceable without either two (2) years of consecutive employment or some other type of consideration (i.e. raises, bonuses, promotions). Even in instances in which the employee voluntarily resigned within the two (2) year period, some Illinois courts have refused to enforce the post-employment non-compete provision. Until the Illinois Supreme Court addresses this issue, it is advisable for Illinois practices to offer additional compensation, in the form of a signing or commencement bonus, or some other form of tangible consideration, in exchange for the physician-employee’s agreement not to compete following employment.
| Legal Updates |
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In the ever-changing environment of health law, staying up-to-date on the new and revised laws, regulations and guidance is critical.
That said, finding the time to research these updates can be overly burdensome, especially for smaller practices.
Wade, Goldstein is dedicated to assisting practices in staying ahead of the legal updates and regularly posts articles,
advisory opinions and legal summaries regarding the new laws and regulations that will have an impact on its daily operations.
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On May 1st the U.S. Department of Justice (DOJ) filed a False Claims Act (FCA) complaint alleging Medicare Advantage fraud against UnitedHealthcare’s parent company, UnitedHealth Group, Inc. (UHG). The complaint alleges that UHG obtained inflated risk adjustment payments based on untruthful and inaccurate information about the health status of beneficiaries enrolled in UHG’s Medicare Advantage Plan. That complaint comes shortly after the government decided in February to intervene in a whistleblower suit first brought by James Swoben in 2009 related to that same issue.
By way of background, Swoben claims that UHG’s Medicare Advantage Plans retrospectively looked at patients’ diagnostic codes with the sole purpose of finding unreported or under reported codes, but deliberately designed their chart reviews and audits to prevent the discovery of unsupported or up-charged codes. By doing so, UHG sought increased reimbursement from Medicare based on the make-up of its Medicare Advantage Plan’s patient population. Swoben alleges that those chart reviews violated the FCA based on UHG’s certification that the patient diagnostic codes accurately portrayed their patient population as determined by due diligence performed through UHG’s chart reviews. However, because UHG only focused on the positive payment adjustments and not potential negative payment adjustments, that certification was false. The DOJ, in their complaint, states that the due diligence requirement under CMS prohibits a Medicare Advantage Plan from designing a chart review procedure that does not “look both ways”. A Medicare Advantage Plan must implement compliance programs that exercise reasonable diligence to ensure the data being submitting is accurate, regardless of whether it will effect the Plan in a positive or negative way. UHG is the nation’s largest Medicare Advantage Organization. The potential damages for this case exceed $1 billion. That would place the Swoben-UHG case among the top whistleblower-promoted cases on record. The DOJ has also combined Swoben’s lawsuit with another whistleblower suing UHG under similar pretenses. Our firm has been monitoring this case as a result of its impact on our clients and the overly burdensome Medicare Advantage audits that they continue to encounter. Although the DOJ has made clear that chart reviews and audits are an essential part of the insurance companies’ duties under the FCA, the Medicare Advantage Plans cannot conduct audits in a manner that only ensures increased payments. Accordingly, the Swoben-UHG case may have an impact on the method in which Medicare Advantage Plans audit providers moving forward. Given the recent trend of states’ imposition of limitations on non-compete clauses in physician contracts, questions have arisen whether such trend was a result of an Obama Administration program which would see its conclusion with the new Trump Administration. It appears that former President Obama did take a number of steps designed to eliminate barriers to competition, such as non-compete provisions in employment contracts. Specifically, in April 2016, President Obama signed an executive order requiring governmental agencies to propose actions to increase competition. Further, in October 2016, President Obama published a State Call to Action on Non-Compete Agreements which urged states to limit the enforcement of non-competes against employees. However, both of these actions came at the heel of an already increasing trend among the states to limit non-compete provisions in employee contracts. Accordingly, although it is clear that President Obama intended to encourage this regulatory state trend, he did not initiate the trend himself.
The question remains, however, whether the Trump Administration will take action to thwart state limitations on non-compete provisions. Although President Trump did not focus on such employment issues in his campaign or initial agenda, President Trump is known for his status as a businessman and has himself used strict non-competes in his own business contracts. Further, given the pro-business makeup of President Trump’s cabinet, it is unlikely that the Trump Administration shares former President Obama’s views on non-compete provisions. That said, given President Trump’s push toward anti-regulation and the promise to repeal two regulations for every one that is passed, it is also unlikely that he will be encouraging governmental agencies to impose any regulation hindering states from limiting the use of non-compete provisions. Rather, the Trump Administration will likely take a “hands off” approach to this issue and leave the matter up to the states, thereby suggesting that the trend toward non-compete limitations may continue along its previous path. Regardless of the current administration, state employment laws are constantly changing, whether such changes are related to non-compete provisions, wage and hour requirements, or otherwise. As state laws change, employment contracts with future employees must change as well. Accordingly, employers must be careful about using the same employment contract for former, current and future employees. Whereas certain provisions in a contract may have been permissible ten (10), five (5) or even one (1) year ago, they may now be prohibited by law. Including such unlawful provisions in employment contracts may result in the entire contract being deemed invalid. To avoid this possibility, it is critical that any new employment agreement be reviewed by an attorney with knowledge of these changing laws. In line with the recent trend of states imposing limitations on physician non-compete clauses, New Mexico’s Senate Bill 325, signed into law in April 2015, prohibits provisions in agreements which restrict the right of healthcare practitioners (including physicians, osteopathic physicians, dentists, podiatrists and certified registered nurse anesthetists) to provide clinical healthcare services (i.e. non-compete provisions). That said, the law does give medical practices some rights to protect their interests. Specifically, practice agreements may contain non-disclosure provisions relating to confidential information; non-solicitation provisions of no more than one (1) year; and impose reasonable liquidated damages provisions if the practitioner does provide clinical healthcare services of a competitive nature after termination of the agreement. In addition, healthcare practitioners employed by the practice for less than three (3) years may be required, upon termination, to pay back certain expenses to the practice, including loans; relocation expenses; signing bonuses or other incentives related to recruitment; and education/training expenses. Finally, the law does not limit non-compete provisions in agreements between shareholders, owners, partners or directors of the practice. The specific language of the law is available at: http://www.sos.state.nm.us/uploads/files/SB325-CH96-2015.pdf.
On November 22, 2016, a U.S. District Court in Texas granted an injunction enjoining the Department of Labor from implementing and enforcing the new Overtime Final Rule that was scheduled to go into effect on December 1, 2016. As many know, the new Overtime Final Rule updated the existing salary levels for exempt employees to ensure that such levels will continue to provide a useful and effective test for exemption. Prior to the new rule, the salary level was set in 2004 at $455 per week or $23,660 per year. The new overtime law raises the salary threshold to $913 a week ($50,440 a year). The new law will also increase the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($134,004 annually) and provides that every three years, beginning January 1, 2020, the salary levels will be raised to the threshold to the 40th percentile of full-time salaried workers in the lowest census region. In 2020, the salary threshold is expected to be $51,168 and $147,524 for the highly compensated employees. The Department of Labor has filed an appeal to the court’s decision. A summary of the Overtime Final Rule and updates can be found here: https://www.dol.gov/featured/overtime.
This summer, three (3) northeastern states passed laws which impose restrictions on non-compete provisions in employment, partnership and ownership contracts with physicians. Specifically, Connecticut’s, Rhode Island’s, and New Hampshire’s new laws greatly limit those instances in which a physician may waive his/her right to practice within a geographic location. In Connecticut, effective July 1, 2016, physician non-compete provisions must be limited to one (1) year after a for-cause termination by the employer and fifteen (15) miles from the physician’s primary practice site or another office expressly set out in the non-compete provision. See the complete Connecticut Public Act No. 16-95 at https://www.cga.ct.gov/2016/act/pa/pdf/2016PA-00095-R00SB-00351-PA.pdf for these and other limitations imposed on physician non-compete provisions. The new Rhode Island law, effective July 12, 2016, extends the limitations on physician non-compete provisions even further by prohibiting such provisions in all instances except those in which a physician is restricted from competing with a practice he/she sells. In such instances, the physician may be restricted from competing for a period of five (5) years. See the complete law prohibiting Rhode Island non-competes against physicians at http://webserver.rilin.state.ri.us/Statutes/TITLE5/5-37/5-37-33.HTM. Finally, the new New Hampshire law, effective for new and renewal agreements as of August 7, 2016, placed an absolute prohibition on non-compete provisions which limit a physician’s ability to practice medicine in a certain geographic location. See the complete language of this prohibition at http://www.nhms.org/sb417-non-compete-clauses-physician-contracts.
In addition to the enactment of new laws, the Supreme Court of Nevada also made a ruling this summer which may have an impact on an employers’ decisions whether, and the extent of which, to include a non-compete provision in their employment agreements. Specifically, on July 21, 2016, in Golden Road Motor Inn, Inc. v. Islam, 376 P .3d 151 (2016), the State Supreme Court held that an unenforceable non-compete provision in a contract rendered the entire contract unenforceable. Accordingly, whereas other states may permit their courts to “blue pencil” an unenforceable non-compete by revising it in a manner that is consistent with state law, the Nevada Court held that it was not the position of the courts to make such revisions. See the entire Nevada Supreme Court opinion at http://caselaw.findlaw.com/nv-supreme-court/1743327.html. On December 7, 2016, the U.S. Department of Health and Human Services’ Office of Inspector General (“OIG”) published the final rule codifying revisions and additions to the Anti-Kickback Statutes’ (“AKS”) safe harbors and Civil Monetary Penalties Law’s (“CMPL”) exceptions. Pursuant to this final rule, effective January 6, 2017, new safe harbors have been added to the AKS for: (1) certain cost-sharing waivers for pharmacy and ambulance services; (2) discounts as part of the Medicare Coverage Gap Discount Program; and (3) free or discounted local transportation services to established patients. In addition, new exceptions have been added to the CMPL for: (1) copayment reductions for certain hospital outpatient department (“HOPD”) services; (2) services promoting access to care while posing a low risk of harm; (3) coupons, rebates and other retailer rewards programs; (4) discounts and waivers for the financially needy; and (5) copayment waivers for a patient’s first fill of a generic drug. Additional information regarding these safe harbors and exceptions, including the specific criteria necessary to meet each, is available on the federal register at: https://www.federalregister.gov/documents/2016/12/07/2016-28297/medicare-and-state-health-care-programs-fraud-and-abuse-revisions-to-the-safe-harbors-under-the.
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