“I’m sorry, Mrs. Jones, I can no longer be your doctor-at least not this side of the county line.”
Patients would no doubt find it strange to hear these words from their family doctor, but longstanding law in Indiana says doctors may enter into noncompetition agreements that
prohibit them from treating patients in certain geographic areas for a limited time.
In March, the Indiana Supreme Court issued its first comprehensive ruling on physician noncompetition agreements in more than 20 years and provided some much-needed guidance on whether such agreements are enforceable.
In fact, the court’s new decision may have a significant impact on the enforceability of existing physician noncompetition agreements, change the way such agreements are drafted in the future and affect whether physicians can continue to treat their patients.
In Central Indiana Podiatry PC v. Kenneth Krueger, the Indiana Supreme Court examined the enforceability of a noncompetition agreement between podiatrist Kenneth Krueger and his former employer, Central Indiana Podiatry. Krueger’s noncompetition agreement prohibited him
from practicing podiatry for two years within a geographic area that included 43 counties in central Indiana.
During his employment with CIP, however, Krueger apparently practiced in only three of those counties-Marion, Tippecanoe and Howard. Krueger argued, among other things, that his noncompetition agreement was void and unenforceable because it was overbroad and unreasonable, and because such agreements are against public policy.
Banned in some states
The American Medical Association strongly discourages noncompetition agreements with physicians, and some states have banned them altogether. But the Indiana Supreme Court reaffirmed in the Central Indiana Podiatry case that physician noncompetition agreements are not per se void as a matter of public policy in Indiana.
The Indiana Supreme Court further noted that the legislature should address the thorny public policy questions surrounding physician noncompetition agreements. Unless the legislature acts, the court’s ruling makes it clear that such agreements will continue to be legal and enforceable in Indiana.
Although physician noncompetition agreements continue to be legal in Indiana, the CIP case reaffirmed that such contracts must be reasonable to be enforceable.
The court acknowledged that CIP had a
legitimate, protectable interest in preserving its patient relationships. But the court also held that the geographic scope of Krueger’s noncompetition agreement was “clearly overbroad” because it restricted Krueger from practicing podiatry in numerous counties where he had not practiced podiatry on CIP’s behalf.
The court further concluded that, to be reasonable, physician noncompetition agreements “must be limited to the area in which the physician has had patient contact.”
Therefore, a doctor whose agreement prohibits him or her from treating patients in Marion County may be able to set up a new office in Hamilton County and treat those patients who are willing to drive to the doctor’s new location, depending on the terms of the doctor’s noncompetition agreement. Of course, the original medical practice will likely attempt to accommodate the doctor’s former patients by directing them to another qualified physician in the practice.
The CIP case also contains new guidance regarding physician noncompetition agreements-more than can be adequately addressed in the space of this column. But, most importantly, the court’s holding that physician noncompetition agreements must be limited to the area in which the physician had patient contact will have a lasting impact on doctors, medical prac
tices and patients in Indiana.
When signing noncompetition agreements, doctors need to consider carefully how such an agreement will affect their futures, especially in light of the ongoing trend of doctors choosing group practices or hospital employment over opening solo medical practices.
Medical practices whose physician noncompetition agreements do not conform with the new guidance may have difficulty enforcing their agreements and will need to take a hard look at their current and future agreements to ensure that the contracts comply with the court’s new guidance.
Patients will continue to face the real possibility of their doctor leaving his or her group practice and no longer being able to treat the patient within a certain geographic area.
Unless the Indiana Legislature unexpectedly acts on this issue, patients may indeed hear their doctor say, “Let’s schedule a follow-up appointment-two counties over.”
Storey is an attorney with Indianapolis-based law firm Baker & Daniels LLP, where he concentrates his practice in health care and litigation.Views expressed here are the writer’s.