Lessons from the Aspen Dental Case: The Future of Non-Competes in Healthcare
The recent Aspen Dental settlement has created new questions and lessons about non-competes in the healthcare industry. The 2015 Aspen Dental settlement with the New York Attorney General illustrates how management companies can violate corporate practice laws when using non-compete agreements. Aspen paid $450,000 and agreed to stop controlling clinical decisions, finances, and employment of licensed professionals.
The healthcare transaction attorneys at Daniels, Porco & Lusardi, LLP know that the non-compete environment continues to change, but we can help explain how it might impact your practice. Speak with us about how to proceed through this constantly evolving landscape.
What Are Healthcare Non-Compete Agreements?
Non-compete agreements restrict where healthcare professionals can work after leaving employment. This includes barring doctors or other professionals from working for professionals or opening their own practices within a certain geographic area and time frame. Common professionals impacted by these contracts include:
- Dentists
- Dental hygienists
- Physicians
- Medical specialists
- Nurse practitioners
- Physician assistants
- Physical therapists
- Other licensed providers
Employers like to use non-competes to protect patient relationships, confidential information, and the investment they put into training their staff. Critics often argue that they stifle competition and suppress wages, as well as affect patient access.
In New York, non-compete agreements are enforceable only if reasonable in scope, duration, and geography, and if they protect a legitimate business interest. Ultimately, enforceability depends on the specific facts and circumstances of the case.
Why the Aspen Dental Settlement Matters to You
Aspen Dental Management Inc. operates hundreds of dental offices nationwide through a management services organization (MSO) model. Broadly, the MSO model is a business arrangement where the MSO, as a separate company, contracts out administrative and management services to a doctor-owned professional entity. As noted above, in 2015, the New York Attorney General reached a settlement with Aspen Dental that addressed violation of New York’s corporate practice of medicine and dentistry laws.
While the case spanned multiple issues, one critical component involved the use of non-compete agreements in the context of MSO arrangements. MSOs are not permitted to directly employ healthcare professionals or impose restrictions on them. The Aspen case illustrated some of the issues that can arise when such restrictions aren’t structured properly or are used to exercise control that is in violation of corporate practice laws. The case is indicative of the debate over:
- Corporate influence in healthcare
- Transparency in employment practices
- The enforceability of restrictive covenants
Aspen Dental’s management company controlled practice finances, clinical operations, and used restrictive covenants that effectively dictated where dentists could practice. Because the MSO—not the professional entity—exercised control, its non-compete provisions were deemed improper.
The Decline of Non-Competes Lately
There have been several changes in recent years that affect the use of non-compete agreements in the healthcare industry. These include:
- FTC Proposed Ban: In 2023, the Federal Trade Commission proposed a nationwide ban on non-compete clauses. The Commission noted that these clauses hurt workers and limit competition.
- Reforms in State Law: States such as California, Minnesota, and Colorado have enacted or expanded bans on non-compete agreements, particularly in the healthcare sector. Other states have set income thresholds or notice requirements.
- Pushback from Courts: State and federal courts are paying more attention to non-competes. They are checking for reasonableness and public interest. This concern is especially relevant when these agreements impact patient access to doctors or providers.
Implications for Healthcare Employers
The Aspen Dental case and the broader regulatory climate offer several lessons:
- Reevaluate Employment Contracts: Employers should review existing non-compete clauses for enforceability and fairness. Overly broad or punitive terms may not withstand legal scrutiny.
- Consider Alternatives: Instead of non-competes, consider:
- Non-solicitation clauses (limiting outreach to former patients)
- Confidentiality agreements
- Retention bonuses or equity incentives
- Prioritize Transparency: Clear communication about contract terms, data practices, and employee rights can build trust and reduce litigation risk.
- Monitor Regulatory Changes: Stay informed about FTC actions and state law developments that may impact enforceability.
Compliant MSO Structures
In legal arrangements:
- A physician-owned professional corporation (PC) employs providers
- An MSO provides administrative support
- The PC—not the MSO—may enter non-competes with its employees
To comply, MSOs must avoid influencing patient care, controlling bank accounts, or using profit-based compensation. All clinical authority and ownership must remain with licensed professionals.
Key Takeaways
- Non-competes are allowed in New York if reasonable and tied to legitimate interests
- MSOs cannot impose or enforce non-competes directly
- Improper control or fee-splitting can invalidate restrictive covenants
- Agreements should reflect fair market value and preserve physician independence
Get Help with Healthcare Non-Compete Clauses
There are always lessons to learn, but understanding the legal complexities of the Aspen Dental case can be difficult on your own. Instead, an experienced healthcare attorney knows how to craft your corporate practices to better comply with this fast-changing set of rules around non-compete clauses.
The attorneys at Daniels, Porco & Lusardi, LLP help healthcare organizations structure compliant MSO relationships and draft enforceable, fair non-compete agreements. Contact us today for a consultation.