Health Law Talk

Introduction (00:01):
Welcome to Health Law Talk, presented by Chehardy Sherman Williams Health Law. Broken down through expert discussion, real client issues and real life experiences, breaking barriers to understanding complex healthcare issues is our job.

Conrad Meyer (00:21):
And good morning, good afternoon, whatever time it is when you’re listening to this podcast, another edition of Health Law Talk here at Chehardy Sherman Williams. Conrad Meyer on the mic with Rory Bellina. Chris Martin, rounding out the wealth and depth of healthcare knowledge here at the firm. Gentlemen, good to see you

Rory Bellina (00:40):
Guys. Good afternoon. Good

Chris Martin (00:41):
Afternoon.

Conrad Meyer (00:42):
It’s been a minute since all three of us have been kind of in the studio to talk about some healthcare topics, so I’m glad to see everybody’s here. That’s good.

Rory Bellina (00:50):
It’s been a busy time. You

Conrad Meyer (00:52):
Just say the least. Right? I mean, it’s been a busy year, I think, for all of us to try to find time to come in and sadly, we’ve had a lot of important issues that have come up in 2024 that I think have affect clients, and I think we got a really big one today, especially in Louisiana, that I think is important. And I think we’re going to hit on it pretty hard. I know we’ve been talking about it for years, and that’s non-competes. Sure.

Rory Bellina (01:21):
Yep. I think today’s topic is going to be, we’ll call it the Louisiana Revised Non-Compete Senate Bill 1 65. If anyone wants to go check it at home. It came out of the 2024 regular session. It was co-authored by a handful of Louisiana senators, a lot of big names here, especially in the healthcare world. And it goes into effect January 1st, 2025. So it’s given our clients and practices time to understand and digest it, but we’re going to kind of walk you through it and talk about the things we like, the things we don’t like, the things that we think may be missing and possible issues we see with it going forward.

Conrad Meyer (01:59):
Absolutely. Chris, I know you and Rory both have clients that deal with non-competes. What have been some of the main complaints that you’ve heard of in terms of non-competes from your clients previously prior to this bill?

Chris Martin (02:18):
Well, from the physician side, I think the main concern is for specialists for instance, that if say they were doing business with a certain large healthcare system, they’d literally have to move out of the state to carry on their profession if the non-compete was enforced. So it literally, I think had a dampening effect for certain specialties to come to Louisiana.

Rory Bellina (02:58):
And I always thought too, putting aside the aspect of losing that physician, but you’re losing that physician’s family, you’re losing one of the statistically top earners from an income standpoint to the state. You’re losing their dependence mean, we’re talking about Louisiana who already has a declining population, and we have obviously hurricanes with natural disasters, and we have a real issue here with healthcare serving or getting access to the underserved population. So Louisiana’s had so many things going against it and so many things causing, let’s just not even talk about physicians. We’re just causing people to move away. And then the fact that we have such an expansive allowance of non-compete for physicians here in Louisiana for them, for these bigger systems to be able to have these in place where, like Chris said, to get outside of the non-compete, they’re going to have to leave. So we’re losing them. We’re losing their spouse, their kids, that income, that tax revenue base, and they’re probably not going to come back. Why would they come back? And then if they want to move again, they’re going to have another non-compete issue to do with. So we’re losing that family line forever.

Conrad Meyer (04:09):
And we watched the evolution of that non-compete over the years. I mean, I’m sure you guys have seen it when we get the list of the restricted area or the covered area or the geo, whatever the defined term is for the restrictive covenant. And before I used to see, especially in the greater New Orleans area, I saw Orleans Parish, Jefferson Parish, St. Tammany, sort of the trio than St. Bernard. And then suddenly it got to the point where it was going from five or six parishes to 10 to 15. And I think at one point I saw one with over 30 parishes, and I was like,

Rory Bellina (04:41):
And then creeping into Mississippi for some systems.

Conrad Meyer (04:45):
And I was like, when does this end? That’s just nuts. Y’all remember seeing the evolution of that? I mean,

Chris Martin (04:53):
Absolutely. Absolutely. The non-compete provision used to be a couple of lines, and then they started listing all the parishes and it ends up being half a

Conrad Meyer (05:04):
Page. Oh, then it added, it was non-solicitation, and then you had to do the non raiding clause in terms of that. I mean, the restrictive covenant just grew like a bean stalk, like a jack. It’s just magic beans. Let’s just make it as big as possible.

Rory Bellina (05:18):
Sure. And when you go back to the reason of why did we have non-competes, is it really an issue of your concern that that provider is going to take patients and open up a clinic and compete? Is it a penalty? I think a lot of people will answer that question differently on why were these put in place. Probably in the beginning it was because you were really concerned that if you lost one your, let’s say a junior pediatrician, that they’re going to open up a pediatrician clinic after they’ve learned everything from you and take population, then they could open up theoretically right next door to you. But I think we’ve shifted away from that a lot. And now it seems a lot more of a stick of we’re putting this in there and yeah, we’re investing in you and we’re going to teach you a lot. But I don’t think that it matches. I don’t think that the penalty of it really matches what the providers are getting anymore. I could be wrong with, that’s just mine.

Conrad Meyer (06:14):
No, I think it’s a stick. Absolutely. Because now at least I know we talked about this before, the three of us have, but I’m seeing the stick include not only just the larger geographic area, but then you have the without cause termination extended from 90 to maybe 120 or 150 days or some long period of time. So you’re stuck in that job when you do the withdrawal. And then on top of that, the buyout, adding the damaged buyout for moving the non-compete. In other words, if you just terminate and you bought, you have a buyout if you want to get out of that one or two year deal, whatever the deal is, and it’s a full year salary.

Rory Bellina (06:56):
And Chris and I had a common client a while back where the non-compete just didn’t make sense. And it came from a practice who just says, this is the standard non-compete that we give to everyone, but this non-compete was for a anesthesiologist who typically does not really have a patient per se.

Conrad Meyer (07:15):
So what’s the point of

Rory Bellina (07:16):
That, right? I mean, you’re not going to a certain surgery center. You want that person to put you to sleep. You’re going there because of the surgeon. So I really think it’s just become this thing that’s little monster where we have non-competes and so many people have signed non-competes. So now everyone gets a non-compete, and it’s going to be for all 64 parishes plus Hancock and Harrison and creep into Mississippi. And the effect of it does not match, I think what the goal was.

Conrad Meyer (07:46):
So what, Chris, what does the new law, I mean, can you walk us, I know you have some highlights, and I know we talked about this, but where does this now start? I know Rory mentioned January 1st, 2025. What is your take on, if you can tell our listeners who might not be aware of what this is, what does it do now to non-compete starting in 2025?

Chris Martin (08:09):
So if we start with primary care physicians, that’s probably the biggest change is starting in 2025. Primary care physicians, which are defined as physicians who predominantly practice general family medicine, general internal medicine, pediatrics, obstetrics, gynecology, those specialties or those categories of practices cannot have a non-compete that’s longer than three years. And it’s the other important part of it. It’s limited to three parishes as I understand it. So the amount of time and the scope of the non-compete have been radically changed.

Rory Bellina (09:04):
And

Conrad Meyer (09:05):
I dunno if it’s three years, I think it can be two years max, but I think after the third year of working.

Rory Bellina (09:11):
Oh, that’s right. So I’m sorry. Yeah, where the numbers come, I had to read this. Isn’t that right? A few times as well. It cannot exceed three years from the effective date of the contract. So if you go by statute, the rule is that an OEE can’t be longer than two years. That’s right. 23 by statute, 22 years. This is now clarifying that if it’s for a primary care physician, the overall non-compete cannot be more than three years from the effective date. So if you go work for a system and on let’s say today, July 3rd, 2024, you sign a five year deal or whatever, and they have that two year, well, once you reach three years into it, then it’s over. So if you keep re-upping, or let’s just say you have a one year contract, but you have that two year, if you just keep re-upping, you cannot have a non-compete that goes three years after the effective date. So if you sign a contract today, July 3rd, 2024, no matter how many times you could work there for 30 years, and typically that’s how most non-competes work right now, is that the non-compete, the clock on the non-compete doesn’t start until your last day,

Conrad Meyer (10:25):
Until the termination of the agreement.

Rory Bellina (10:26):
Until the termination of the agreement. So in my example, if you work there for another 30 years until 2054, then your non compete goes two years past that. This revision says no. No matter what happens, your non compete ends July 3rd, 2027. We don’t care how long you’re there. That’s how long it goes. It doesn’t end. The clock doesn’t start two years or three years after you

Conrad Meyer (10:50):
Gone. Does the clock start right now or does it start January 1st?

Rory Bellina (10:55):
Well, effective January 1st, it is three years. It cannot exceed three years from the effective date of your initial contract. So I think your question is what happens to everyone

Conrad Meyer (11:06):
That has one in place? I say I started right now, so I mean, do I get eight months credit or six months credit to the January 1st trigger date? That’s something that’s not clear, at least to me it’s not clear. But

Rory Bellina (11:20):
The retroactivity of this statute,

Conrad Meyer (11:23):
Essentially,

Rory Bellina (11:25):
And actually I don’t think it even,

Chris Martin (11:27):
I think for contracts in existence now, the initial three or the five year term begins to run on January 1st, 2025.

Conrad Meyer (11:36):
That’s what I thought too, but I wasn’t a hundred percent sure on that.

Rory Bellina (11:40):
So you would probably get the lesser of the two.

Conrad Meyer (11:42):
So you have to wait until January 1st, 2025 for the time to start running. That makes sense. We all agree on that.

Chris Martin (11:50):
And the same with the geographic provisions. Those kick in on January 1st. So there’d

Conrad Meyer (11:56):
Be a lot of contract revisions, I think on a system level for some of the systems here and maybe even other the employers to do their revisions on their parishes starting next year.

Rory Bellina (12:05):
And as Chris was stating, no more than two continuous parishes.

Conrad Meyer (12:11):
So in other words, you could do Orleans Jefferson, but not St. Tammany, right? I mean, or Yeah, St. Tammany’s right next to, is

Rory Bellina (12:19):
That considered geographic wise? Is that considered

Conrad Meyer (12:22):
Yeah, because St. Tammany and Jefferson run a line on the lake.

Rory Bellina (12:25):
True.

Conrad Meyer (12:25):
So you can’t really, because they touch each other.

Chris Martin (12:30):
So the statute says that the non-compete agreement must specify the parish where the physician’s principal practice is located.

Rory Bellina (12:40):
That’s interesting

Chris Martin (12:40):
Because, and not more than two contiguous parishes.

Conrad Meyer (12:45):
So you read it as three totals. Yeah,

Chris Martin (12:47):
Three total. But the law doesn’t really discuss how to define or how to determine what that quote principle location

Conrad Meyer (12:54):
Is. They shuffle them around, right?

Rory Bellina (12:57):
Yeah. Your principal practice, if you have clinic in Luling and Mey, if you shared a, and

Conrad Meyer (13:05):
I haven’t looked at that, if there’s a defined term for principal practice. So interesting. Now the specialists are different. I mean, I think they have something, Chris that addresses the specialist.

Chris Martin (13:15):
So the specialist, instead of the non-compete expiring after three years for specialists. It’s a five year sort of provision. So what’s

Rory Bellina (13:31):
The thought behind that?

Chris Martin (13:34):
I think part of the rationale, like you were explaining earlier, Rory is more time and money and resources are put into specialists and they’re probably more valuable, say for a health system. So this statute is recognizing that and giving hospital employers a little more time and a little more leeway with respect to neurosurgeons and orthopedic surgeons and transplant surgeons. So I think that was probably an accommodation in the negotiation.

Rory Bellina (14:13):
Makes sense. And I guess you want the shortest period for your primary cares. The ones that are probably in inmost need for a lot of these clinics.

Chris Martin (14:23):
They’re also the gatekeepers too. They’re the ones, they’re the traffic cops where they refer to the specialists. So you want them to have as much freedom as possible to practice

Conrad Meyer (14:39):
From a public policy standpoint to give patients most access.

Chris Martin (14:43):
And that’s the patient’s introduction usually to the healthcare field, or is that primary care doctor and hopefully not the emergency room. So that’s where they start primary care physicians. And so policy wise, you want to give the public freedom of choice and the physician freedom of decisionmaking when it comes to where they work and not handcuff them too much. Plus we have a shortage of these types, these practitioners, family medicine, internal medicine.

Conrad Meyer (15:22):
This are huge shortage. I totally agree. And I think this is a long time coming. I mean, I think we’ve heard about this before. You know what, a couple of years ago, Rory, we had that attempt that it was failed. Every

Rory Bellina (15:34):
Year there’s an attempt that seems to fail.

Conrad Meyer (15:36):
It seems to fail. This

Rory Bellina (15:37):
One finally made it. I didn’t not have confidence that it would make it, but it

Conrad Meyer (15:41):
Did. It did. Well, you know what? And I want to talk to you about that. I think large employers and systems knew this was coming. I think they knew that the leak and the dike had spread and that it was ready to fall forward. And so what I’ve been seeing is in an effort to sort of lock the dock in, lock the doc in to the hospital or the system, they’ve been paying these doctors retention bonuses. Have y’all seen that?

Chris Martin (16:13):
You were mentioning that? I haven’t seen it yet, but it’s very interesting. Explain that a little

Conrad Meyer (16:18):
More. So maybe about three or four years ago, maybe more than that, I started seeing contracts with not only signing bonuses, but then a subsequent addendum called a retention bonus, where they would pay these physicians a lump sum of money with the goal of retaining that physician at the facility of the system, but then having this long prorata forgiveness period. And a lot of times these doctors would never get counsel to look at this because they thought, oh, it’s simply a retention. It’s not really a full contract, it’s just going to be getting a bonus. But what they failed to do is when they looked at the forgiveness period, and I think I mentioned this to you, Chris, the one I saw recently was eight years. So you’ve got a $200,000 loan that’s only going to forgive $25,000 over eight years. I mean, and to me, that’s just insane.

Chris Martin (17:14):
It’s a form of

Conrad Meyer (17:16):
Indenture. Servitude. Yeah,

Chris Martin (17:18):
Restraint.

Conrad Meyer (17:19):
You got to,

Chris Martin (17:19):
Yeah. The other point in this that I’m noticing is remember these bonuses or repayment provisions used to say plus, or they do say plus interest. And for so many years we didn’t really think about interest. It was 2%, 3%. Well, now it’s 7, 9, 10, 11%. So it becomes a significant, can be a significant component of repayment

Conrad Meyer (17:50):
Obligation. And that’s what I can’t stand guys, because for example, if you’ve got a client, and I’m curious to hear, Rory, your thoughts on both of y’all on this. If you’ve got a client that wants to separate and they’ve got the retention bonus and you’ve got the issue of interest and so forth. Now, I mean to me, and I’m dealing with this right now with a couple of them, it is almost that’s a hammer. It is an absolute hammer. And they’re using this as leverage against the docs. And I really don’t think doctors understand when they sign that thing, what that really means because it’s free money to them. But it’s meant, like we said before, to sort of put the ball in chain.

Rory Bellina (18:32):
Yeah. I’ve always tried to advise physicians that get these bonuses to really save that money until the end of that term and not do anything with it just in case of a repayment. Because you don’t want to spend money. You don’t have to take money out that you don’t have that you’ve already spent.

Conrad Meyer (18:50):
Good luck doing that. Really. I mean, but it’s hard. Here’s a hundred grand. Just put it away. Put it away, put it in that little cookie

Rory Bellina (18:58):
Jar. That’s always been my advice. I don’t know. I don’t know if they listen to me, but that’s what I like. One thing that I thought was interesting in this statute is that the definition of an employer is not defined, and it’s pretty vague. And so one thing I was thinking in a Dell’s advocate approach is there’re going to be some sort of movement as to who the employer is. And does that start the clock over? Meaning if you work for such and such LLC and then you finish your three years, or let’s say at the end of your, let’s say, getting towards the end of your three years when they know you’re non-competes about to lapse, do they try to re-up you under a different entity or a different organization

Conrad Meyer (19:45):
Like assigning it to a practice group LLC?

Rory Bellina (19:48):
Exactly. Or what if your hospital or group is purchased and now you’re employed by another and you’re employed by another company? I mean, I would be concerned that, again, this statute is going to take probably some more revisions to it just to clean these kinds of things up. But I saw that in there as especially with practices being bought all the time, is that okay, well now your employer is now such and such private equity and we’re making all these people resign and this clock starts over.

Conrad Meyer (20:16):
Or do you have the provision in the sale agreements or even the employment agreements that any assignments will carry the same language or whoever buys it or changes, it will be held accountable to all of the provisions contained in the agreement. Something like that.

Rory Bellina (20:33):
Yeah, that’s an option too. And why? Very interesting. And in here, another interesting part that I wanted to get both of y’all’s opinion on is that this is not applying to rural hospitals and FQHCs.

Conrad Meyer (20:46):
I saw that and think

Chris Martin (20:47):
That’s a reaction to the fact that rural hospitals are struggling. FQHCs have a unique purpose. And for instance, they’re not. They have the Federal Torts Act. So you can’t sue A-F-Q-H-C doctor like you normally would under Louisiana law. You have to go through the Federal Torts Act. I think this is a carrot or a benefit to those particular providers, rural health hospitals and FQHCs, to give them a little advantage

Rory Bellina (21:23):
By allowing them to have

Chris Martin (21:25):
To retain, to retain, retain doctors

Rory Bellina (21:28):
If I allow them to have those more strict,

Chris Martin (21:32):
That’s my take on it. What’ll be interesting to see is do we see the rise of less employment of physicians and perhaps some hybrid independent contractor arrangement to get around this?

Rory Bellina (21:49):
Yeah, because the language in here, it says any provision in a contractor agreement, but then it says employer. So are people going to get cute with that and say, well, I’m not really your employer and this really isn’t a contract. I think there’s the way that it was written, I think they’re going to have to come back in and add a ton of definitions because this is going to become a problem for some practices and systems, and they’re going to find ways to work

Conrad Meyer (22:16):
Around it. They better be really careful. Meaning practices, hospital systems, whoever decides to try to skirt this with a 10 99 or an independent contractor because you don’t want to fall into that pit where the IRS as you improperly classify this individual. That should be a terrible situation. And the

Chris Martin (22:34):
IRS, my impression is the IRS is stepping up. Its enforcement of that exact issue of people who are really employees but are being paid and under a 10 99. So

Conrad Meyer (22:48):
What do you do guys, when you have a situation? I want to get, because I know we are going to make this a sort of a quick episode, but what do we tell clients when they are faced with a situation like with this new law, they’ve got a retention bonus that they’ve got time left on it. If they separate from a hospital employer now and they have maybe a productivity contract where they’re owed money on a production basis at the time of separation. So you’ve got this conjoining of issues when the doctor wants to leave. And I’ve seen that multiple times. I know y’all both have. What advice would you give doctors when they’re facing situations like that and as well as the new non-compete? Chris, see everybody’s licking like, wow, this would be a good question.

Chris Martin (23:38):
I think I would advise against agreeing to a long-term retention bonus. I think what’ll be interesting is if anybody who has a long-term retention bonus right now and wants to challenge the legality of that saying its in effect, it has the same effect as a non-compete provision, which our legislature has now radically changed. It’d be an interesting argument. It maybe be a bit of a stretch, but it has the same effect of restraining

Conrad Meyer (24:15):
Movement. True. It does. And does the system want to challenge that? In other words, would that be something an employer system hospital want to take that step? Very interesting take on that.

Rory Bellina (24:27):
That’s good, Chris. I did not think about that because it says the first two words in this statute, say any provision which, well, any provision in a contractor agreement, which restraints, so it’s not saying a non-compete provision. It’s saying any

Conrad Meyer (24:44):
Provision

Rory Bellina (24:45):
Which restraints from practicing medicine. So perfect example, this loan, these repayment things, I would 100% be comfortable arguing that if my client leaves in a certain window, let’s say the window is five years, which does not jive with this, I would be very comfortable saying that that is a provision that is restraining my client from practicing medicine. Because if they leave just like a non-compete, they’re going to pay a penalty. They’re going to have to pay back these funds plus interest,

Conrad Meyer (25:20):
Not about the docs that have been at the employer over now for five, seven, ten years. And they call you up and say, can I get out of this now? What’s the answer?

Chris Martin (25:32):
Well, unfortunately, I think the way the statute’s written,

Rory Bellina (25:36):
It’s effective as the effective date

Chris Martin (25:39):
Is January 1st, 2025. So they’re going to have to wait.

Rory Bellina (25:42):
Yeah, it says at the end of this act, it says, for any agreements that are in existence as of the effective date, that three or five years starts on the effective date. So January one and the geographic provisions are the same thing. So for anyone in that situation, their clock is going to start January one of 25.

Conrad Meyer (26:01):
Got it. So what are the take homes from this? So we got a new specialist five year trigger, a primary care, which is broadly defined, Chris, for a three year, don’t do long-term retentions, make sure it’s only two contiguous parishes with your primary parish being stated where you work. And we don’t start till January, 2025. Is that sort of the, and it’s any provision, it doesn’t have to simply stay, not compete, provision, anything that could restrict, right. Wow. Yep.

Chris Martin (26:32):
It’s a big change.

Conrad Meyer (26:33):
Yes,

Rory Bellina (26:34):
It’s a big change. I think we will start to see, obviously new agreements coming out next calendar year. We’re going to have to make sure that they comply. Chris, US three are going to have to make sure that it complies with us. But then I think we’ll start to get the interesting phone calls in, what would that be, 20, 27 for the first batch of people that that’s going to be the first batch. So in the end of, we’ll say end of 25, end of 27,

Conrad Meyer (27:05):
I agree with everything you just said. What happens with the doctor that comes to you and says, Hey, I started on January 1st, 2025 and now it’s December 31st, 2027, and I just left. Can they enforce the non-compete? And I want to say if he just would’ve stayed one more day. Right. Hopefully

Rory Bellina (27:29):
That doesn’t happen anyway. And look, this is, this all a little bit hinges on what’s going on on the national FTC level with that. We

Conrad Meyer (27:39):
Didn’t even touch that today. I

Rory Bellina (27:41):
Know that’s a whole other episode. I just wanted to briefly talk about that. I mean, the ftc,

Conrad Meyer (27:46):
It’s been challenged right now. Correct?

Rory Bellina (27:48):
It’s been challenged in Texas, which Louisiana would fall under it. I know it’s been challenged in numerous states. We all listened to a webinar on that. And then the Supreme Court just came down with a pretty scathing opinion against these agencies. The

Conrad Meyer (28:00):
Chevron. The Chevron.

Rory Bellina (28:02):
So I would not, we

Conrad Meyer (28:03):
Haven’t even touched

Rory Bellina (28:04):
That. I would not be surprised if that completely goes away. And all we’re left with is our Louisiana version.

Conrad Meyer (28:11):
Well, I guess our legislators thought very highly of our physicians. So we’ll see how it turns out, I guess. Alright. Well, gentlemen, I thank you very much for this. I think this was a very interesting conversation. One that we need to continue. I mean, I think we’ve got a lot of topics and I’m glad Chris, I’m glad to have you come back in the studio. It was so good to see you. Yep. Enjoyed it. Thank you. And Rory, thank you very much. And for all those who are listening, thank you so much for listening to Shahar Sherman’s Health Law Talk. We’ll see you next time. Have a good day.

Introduction (28:45):
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