The Indiana Legislature recently passed a new law called HEA 1004, which goes into effect on July 1, 2020. This establishes new rules for physician covenants not to compete to be enforceable. In addition, the statute sets forth rules for employers and physicians to follow when a physician does change employers, primarily focused around information to be provided to their patient population.

Covenants Not To Compete/Buyout Option

HEA 1004 creates a new law—I.C. § 25-22.5-5.5—and has a provision that, in the event of a physician’s separation of employment, states the physician needs to have an option to purchase a complete and final release from the terms and conditions of the non-compete agreement in his or her contract at a reasonable price.

Patient Notification and Medical Records

This new law provides an enforceable physician non-compete agreement must include the following provisions in addition to the cash buyout option:

Patient notification letter to be provided to physician, details of what needs to be contained therein are set forth in the statute (I.C. 25-22.5-5.5).
The physician’s updated contact information to be sent to all patients seen or treated within the last two years.
Certain medical records to be provided to departing physician contingent on receipt of the patient’s consent. The new law permits the employer to charge a reasonable fee for creating, copying, or transferring a patient medical record.
A contract provision which restricts the employer from providing medical records to a requesting physician in a format that materially differs from the format used during the employer’s usual and customary business practices, unless a different format is mutually agreed upon by the parties.

Analysis

First, since the new law applies to physician non-compete agreements originally entered into on or after July 1, 2020, consideration should be given by physician employers to entering into agreements prior to July 1, to perhaps avoid the cash buyout option.

Second, all physician employers will need to change their standard employment agreements, as well as implement new protocols when a physician leaves their employment. Note that HEA 1004 requires not only the contracts to change, but in addition has created a new statute (I.C. 25-22.5-17), setting forth patient information notification protocols very similar to the requirements set forth in the non-compete law (i.e., I.C. § 25-22.5-5.5). However, the primary difference is that the patient information and notification protocols apply to all healthcare entities regardless of whether or not a physician non-compete agreement exists.

Additionally, what constitutes a “reasonable” price for a physician who wishes to elect the buyout provision under his agreement is currently unclear. The statute does not provide any guidelines as to what is “reasonable;” nevertheless, we at Rothberg have a few ideas as to what may pass the reasonable test if ever contested in a court of law. We are of the opinion that the particular facts and circumstances associated with your type of entity, as well as the area of specialty of your physician should impact the reasonable amount for each buyout.

Conclusion

The Rothberg healthcare team is willing and able to assist all healthcare entities in their need to (1) amend their physician employment contracts, and (2) establish new protocols for when a physician departs so as to be in compliance with HEA 1004.

If you have any questions related to this content, please contact either of us or your Rothberg attorney.

Dennis F. Dykhuizen, Partner｜[email protected]
Phillip W. Smith II, Associate

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Legal Alert: Physician Employers Need to Revise Employment Agreements under New Statute