April 25, 2024
Yesterday we sent you information regarding a new FTC Rule on the issue of noncompetes. Here’s additional information that is focused on the Rule in relation to nonprofit agencies:
How the FTC noncompete ban affects nonprofit providers
ALEX KACIK, MODERN HEALTHCARE, 4/25
The Federal Trade Commission’s ban on noncompete agreements will apply to some healthcare nonprofits, lawyers said.
The FTC voted to issue a final rule Tuesday that stops most employers from issuing and enforcing contract terms restricting employees from working for a competitor. Multiple lawsuits were quickly filed, challenging the FTC’s authority to issue such a broad decree.
Noncompete clauses are widely used in contracts between physicians and hospitals, and among many other parts of the healthcare industry. The ban prevents employers from using noncompete provisions in new contracts and invalidates noncompete clauses already in place, except for senior executives. As a result, many healthcare companies’ recruitment and retention strategies may shift.
Here’s how the noncompete ban affects the healthcare industry.
Will the noncompete ban apply to nonprofits?
Not all nonprofit healthcare organizations will be exempt from the ban, lawyers said.
An entity must be “organized to carry on business for its own profit or that of its members” to fall under the commission’s purview, according to FTC statute.
However, the agency still has jurisdiction over certain aspects of nonprofits including for-profit subsidiaries, joint ventures with for-profit affiliates, health plans and clinically integrated networks, attorneys said.
“It is clear, generally, that the concept of nonprofit entities are not covered by the FTC rules, but if you peer behind them and find they are driving profits to members or a for-profit entity, then the FTC will assert their jurisdiction,” said Robert Horton, a labor and employment lawyer at the law firm Bass Berry & Sims.
In the final rule, the FTC offers an example of a nonprofit hospital that employed 100 physicians. The commission would have jurisdiction “because the organization engaged in business on behalf of for-profit physician members,” the rule states. A nonprofit hospital could also fall under the FTC’s purview if it has “ceded effective control to a for-profit partner,” according to the regulation.
If a for-profit subsidiary is deeply integrated into a nonprofit’s operations, the entire organization may be subject to the noncompete ban, said Doug Wolfe, a lawyer at the law firm Wolfe Pincavage who advises nonprofit health systems.
Even if the FTC’s ban doesn’t apply to nonprofits, those organizations should still be paying attention, said Eliot Turner, an attorney at the law firm Norton Rose Fulbright who focuses on antitrust disputes. The final rule could spur legislative action as state policymakers consider bolstering existing laws or introduce bills designed to limit noncompete agreements, he said.
“If an employer attempts to enforce noncompetes, employees can raise FTC’s ban as evidence that enforcing them is unreasonable,” Turner said.
What changed from the proposed to final rule?
The FTC created a carve out for senior executives in the final rule.
Existing noncompete agreements with senior executives, defined as workers who earn more than $151,164 a year and are in policymaking positions, can remain in place. But employers are barred from enforcing new noncompete provisions with senior executives.
The final rule exempted any businesses involved in a sale from the ban, as well. The proposed rule had a 25% ownership threshold tied to the exemption.
In addition, the final rule eliminated a requirement for employers to formally rescind existing noncompete agreements. Under the final rule, employers will have to provide workers with notice that existing provisions will not be enforced.
How are employers adjusting?
In the lead up to the FTC’s regulatory move, fewer employers planned to use noncompete agreements, according to a survey set to be released next month by law firm Littler Mendelson.
Nearly two-thirds of respondents who use noncompete provisions said they are less likely to use them due to recent regulatory and legislative activity. The survey, conducted in February and March, polled more than 400 in-house lawyers, executives and human resources professionals. About 10% of the respondents were from the healthcare industry, according to the survey.
Many nonprofit healthcare organizations will err on the side of caution, meaning they will be more likely to use nondisclosure agreements and trade secret laws rather than noncompete provisions, Wolfe said.
If the ban on noncompete provisions is implemented, healthcare providers may extend the duration of employment contracts, said Mark Peters, a labor and employment lawyer at the law firm Holland & Knight.
In addition, the ban would decrease the valuation of healthcare companies if a competitor is allowed to open a business in the same market, and operating costs would rise as employers increase salaries and benefits, Peters said.
Which organizations have sued to block a noncompete ban?
Tax firm Ryan LLC filed a lawsuit Tuesday immediately after the FTC vote and the U.S. Chamber of Commerce filed a lawsuit Wednesday morning.
Both lawsuits allege Congress did not grant the FTC rulemaking authority, despite the commission’s claims that it has jurisdiction under the FTC Act.
The organizations are seeking to block the rule, which is set to take effect 120 days after it’s published in the Federal Register. The courts may decide to delay the ban while the court cases are ongoing, lawyers said.
“If ever a federal agency attempted to pull an elephant out of a mousehole, this is it,” the lawsuit filed by Ryan LLC in the U.S. District Court for the Northern District of Texas alleges.
The ban represents an “unlawful and unprecedented exercise of bureaucratic power,” the U.S. Chamber of Commerce alleges.
In response to the lawsuits, an FTC spokesperson said in a statement its legal authority is crystal clear and the commission looks forward to winning in court.
“In the FTC Act, Congress specifically ’empowered and directed’ the FTC to prevent ‘unfair methods of competition’ and to ‘make rules and regulations for the purposes of carrying out the provisions of’ the FTC Act,” the spokesperson said.
How are healthcare associations responding to the noncompete ban?
The American Hospital Association said in a statement the only saving grace of the regulation is it will likely be short-lived as courts are poised to stop it.
“The FTC’s final rule banning noncompete agreements for all employees across all sectors of the economy is bad law, bad policy and a clear sign of an agency run amok. The agency’s stubborn insistence on issuing this sweeping rule — despite mountains of contrary legal precedent and evidence about its adverse impacts on the health care markets — is further proof that the agency has little regard for its place in our constitutional order,” Chad Golder, AHA general counsel and secretary, said in the statement.
The American Academy of Family Physicians supports the ban, which will ensure doctors can continue to provide high-quality care that their communities need, Dr. Steven Furr, president of the academy, said in a statement.
“We are also encouraged to see that the FTC intends for this ban to extend to many nonprofit entities. Nonprofit health systems often have significant financial assets and employ a large portion of physicians and clinicians,” he said in the statement.
The noncompete ban will create an “uneven playing field” for nonprofit and for-profit hospitals, the Federation of American Hospitals said in a statement.
“The ban makes it more difficult to recruit and retain caregivers, while at the same time creating an anti-competitive, unlevel playing field between tax-paying and tax-exempt hospitals — a result the FTC rule precisely intended to prevent,” FAH President and CEO Chip Kahn said in the statement.
——————————
On Tuesday, April 23rd HHS released its 2024 National Strategy for Suicide Prevention, a 10-year, comprehensive approach to suicide prevention that provides recommendations for addressing gaps and meeting the needs of at-risk populations.
The updated strategy issues recommendations related to suicide calls, treatment, crisis services, surveillance, research, and health equity in suicide prevention.
The strategy also includes additional support for mobile crisis response teams, more youth suicide prevention activities through programs such as 4-H, improved data partnerships across federal agencies and new resources for suicide prevention on railways.
For the first time, the strategy is accompanied by an action plan, which identifies more than 200 actions that will be taken across the federal government over the next three years.
Additional information can be found in the Substance Abuse and Mental Health Services Administration (SAMHSA) press release.
———————
Five Takeaways from the CMS Medicaid Managed Care Final Rule
Source: HMA
This week, our In Focus section reviews significant Medicaid policy announcements from the Centers for Medicare & Medicaid Services (CMS). For example, both the Medicaid and Children’s Health Insurance Program Managed Care Access, Finance, and Quality Final Rule (CMS-2439-F) (CMS fact sheet available here) and the separate Ensuring Access to Medicaid Services Final Rule (CMS-2442-F) (CMS fact sheet available here) were released April 22, 2024.
Taken together, these two final rules create new flexibilities and requirements aimed at enhancing accountability for improving access and quality in Medicaid and the Children’s Health Insurance Program (CHIP) across the fee-for-service and managed care delivery systems and provide targeted regulatory flexibility in support of this goal.
We focus today on the approved changes, including:
- In lieu of services and settings (ILOSs)
- The Medicaid and CHIP quality rating system (MAC QRS)
- Medical loss ratios (MLRs)
- Network adequacy
- State directed payments (SDPs)
Following are HMA’s insights on the key takeaways in each of these major areas for states, managed care organizations (MCOs), providers, and other stakeholders. In addition, HMA experts will discuss the final rule during a LinkedIn Live on event at 2:00 pm (EDT) April 25, 2024. Go to the HMA LinkedIn feed to watch.
In future weeks, HMA will review the Ensuring Access to Care final rule.
In Lieu of Services (ILOS)
The final rule makes clear that CMS remains committed to the conviction that ILOSs can play an important role in supporting state and MCO efforts to address many of the unmet physical, behavioral, developmental, long-term care, and other enrollee needs. At the same time, CMS continues to put forward requirements in this area to ensure adequate assessment of these substitute services and settings in advance of approval, ongoing monitoring for sufficient beneficiary protections, and financial accountability for related expenditures.
The final rule presents an opportunity to leverage ILOSs to improve population health, reduce health inequities, and lower total healthcare costs in Medicaid and CHIP, including by addressing unmet health-related social needs as well as through other avenues. To take full advantage of this opportunity, states and MCOs must ensure that they are prepared to meet the accountability measures outlined in the final rule and partner with existing providers and community-based organizations that already provide such services and settings.
Medicaid and CHIP Quality Rating System
CMS finalized most proposed provisions related to mandatory quality measures, the process used to update these measures, the ability of states to include additional measures, and the ability of states to apply an alternative QRS if desired. On this last point, CMS is making several modifications to its MAC QRS proposal to clarify the scope of and to reduce the implementation resources needed for an alternative MAC QRS if a state elects to implement one.
States will be required to collect from MCOs the data necessary to calculate ratings for each measure and ensure that all data collected are validated. This will require MCOs to assess their capability to produce the mandated data upon request by states and, to the extent possible, to assess baseline performance on measures and proactively operationalize strategies to improve performance where necessary.
Medical Loss Ratios
The final rule aligns Medicaid and CHIP MLR QIA reporting requirements with the private market to ensure that only those expenses that are directly related to healthcare QIAs are included in the MLR numerator. CMS notes that this provision will allow for better MLR data comparisons between the private market and Medicaid and CHIP markets as well as reduce administrative burden for MCOs participating across these markets.
MCOs will need to model the impact of QIA expenditures that are no longer available for inclusion in the MLR numerator to ensure that a resulting failure to meet any minimum MLR requirements can be avoided, and, if it is projected to occur, a strategy can be developed and executed to avert the problem. CMS made this requirement effective as of the effective date of the final rule with no delay because it believes it is critical to the fiscal integrity of Medicaid and CHIP, adding urgency to MCO compliance action here.
Network Adequacy
The final rule makes clear that CMS has been persuaded that it needs to increase oversight of network adequacy and overall access to care through a new quantitative network adequacy standard. To measure network adequacy, the agency intends to implement wait time standards, complemented by secret shopper surveys to support enforcement.
Wait time standards and secret shopper surveys present opportunities for states, MCOs, and providers to collaborate to enhance access where needed and ensure compliance with the final rule. Undertaking secret shopper surveys ahead of implementation of the wait time standards (effective the first rating period beginning on or after three years after the effective date of the final rule) to determine the current performance relative to maximum wait times is a proactive step that is worth consideration by states and MCOs and can also be employed to foster dialogue with providers to address any areas of concern identified.
State Directed Payments
CMS is adopting its proposal in the final rule to use the average commercial rate as a limit for SDPs for inpatient and outpatient hospital services, nursing facility services, and professional services at academic medical centers. CMS believes that this approach represents a reasonable limit that is supportive of appropriate fiscal guardrails, while still affording states the flexibility to achieve SDP policy goals. States and providers will need to account for this requirement, along with others, as SDPs are developed going forward.