This Week in Surgery Centers: Alex Taira – The Impact of the FTC’s Ban on Noncompete Agreements

Alex Taira – The Impact of the FTC’s Ban on Noncompete Agreements

Here’s what to expect on this week’s episode. 🎙️

The FTC’s recent ban on non-compete agreements has left most people with more questions than answers.

In our latest episode, we sit down with Alex Taira, the Regulatory Policy and Research Manager at ASCA, to dissect the FTC’s ruling and its potential impact on the surgery center industry. Here are the key takeaways:

🔍 FTC’s New Ruling: The Federal Trade Commission has implemented a comprehensive ban on new non-compete agreements for all workers, including senior executives, and voids most existing agreements.

📉 Reason Behind the Ban: Research indicated that non-competes negatively affect labor markets by restricting worker mobility and lowering wages.

🏥 Impact on Healthcare: The reception is mixed. Provider groups generally support the ban, while large healthcare employers, including hospital groups, oppose it. Surgery centers may face challenges in retaining employees as a result.

💡 Navigating the Changes: ASCA suggests focusing on alternative employment and retention strategies, such as fringe benefits, and staying informed about state vs. federal regulations.

⚖️ Legal Challenges: Immediate legal challenges have arisen, notably in Texas, questioning the FTC’s authority. A decision is expected by July 3rd, but surgery centers should prepare as if the ban will take effect in September.

Listen to the full episode for an in-depth discussion on how this ruling could shape the future of surgery centers and what steps you can take to stay ahead.

Episode Transcript

0:00
Alex, welcome back to the podcast.

0:03
Hi, Erica, thanks for having me.

0:05
Can you share a little bit about your role at ASCA, please?

0:10
Sure.

0:10
I am the regulatory policy and research manager at ASCA.

0:14
I’ve been at ASCA since 2017 and I work in the government affairs department, primarily federal regulatory affairs.

0:20
So mostly Medicare is probably what people have heard from me, but supporting a little bit of everything that we do at ASCA, I would say nice.

0:29
I know I always look forward to your your emails and articles.

0:33
I was glad that we were able to catch up because we have all been seeing so much in the news about the FT CS ban on non compete agreements and trying to decipher exactly what it means and how it will impact surgery centers has really been pretty tricky.

0:49
So let’s break it down.

0:50
Can you please explain the basics of the FT, CS new ruling on non competes and why it was implemented Totally.

0:59
So yeah, maybe to set the basics a little bit.

1:03
I’ll try not to use too many acronyms here, but for people that aren’t aware, the FTC is the Federal Trade Commission.

1:10
They’re an independent federal agency with five commissioners, no more than three from the same party.

1:16
And the current kind of policies around non competes were first introduced in a proposed rule in January 2023.

1:23
So a little over a year ago actually and the FTC had said that they had seen some research showing that non competes negatively affect labor markets, so basically not allowing workers to move freely.

1:36
And they said that non competes were causing lower wages for workers that are both under non competes and not under non competes.

1:42
They said there were about 30 million or one in five American workers under non competes.

1:48
So back a year ago we actually commented on that proposed rule opposing the rule.

1:52
ASCA did and we didn’t take a stance on non compete specifically as a policy, but we did feel that the proposed rule and the kind of blanket ban on non competes was an overreach of FTC authority.

2:08
So then kind of Fast forward to now and this finalized rule, they voted three to two in favor of the non compete ban and we can get into maybe a few more specifics in a bit.

2:19
But in general the rule adopts A comprehensive ban on any new non competes for all workers and that includes senior executives.

2:27
It also voids existing non compete agreements.

2:30
So that’s a big factor in the rule except for senior executives.

2:34
So if there’s an existing non compete, they qualify senior executives as workers in what they call policy making positions that are earning more than a set wage, in this case $151,000 a year.

2:47
And the rule is set to become effective sometime in the fall.

2:50
We’re not entirely sure about the exact date, but it’s looking like early September.

2:56
Yeah, that’s I saw that date as well.

2:58
And yeah, it’s been really interesting because even going back the last few years like in the news and the podcast, I feel like I’m always sharing updates about like certain states that are making waves or or things like that.

3:09
So it’s really interesting to see it come at a federal level.

3:14
I think at least from what I’ve been seeing like chatter online, the rule has confusing language regarding how it applies to non profit entities specifically.

3:23
So can you take a minute to just explain that further?

3:30
Sure.

3:30
Yeah.

3:31
I mean, many people who commented on the proposed rule and ASCA included actually were concerned about how widely the rule was going to be applied, especially for nonprofit entities.

3:42
So there’s many organizations not just in healthcare but in other industries that are technically recognized as tax exempt nonprofits like by the IRS, but really operate kind of as your normal revenue maximizing entities, business entities, that kind of thing.

3:59
And the proposed rule did address it somewhat, but there was obviously concern that for example entities like non profit hospitals would entirely avoid the non compete ban which might have kind of disproportionate effects on the healthcare industry.

4:13
So the FTC did address this a bit in the final rule.

4:17
Basically they said that claiming non profit or tax exempt status would not be enough to claim an exception from the ban.

4:24
And they kind of outlined this two-part test that has these complicated elements.

4:28
But basically, is your business actually engaged in a business only for charitable purposes?

4:33
And do any of your members drive a profit?

4:36
And if you know your farmers are driving a profit, then you won’t be exempt via your nonprofit status or whatever.

4:43
So it’s a little confusing there.

4:44
But I think they were kind of trying to address the commentators who were saying, you know, this is going to be unequally applied in some industries.

4:52
Yeah, that feels a little subjective for some, right.

4:55
I mean, I guess there’s some, some ways to answer that in black and white.

4:58
But yeah, that’s that’s interesting and also confusing.

5:04
So what has the reception been among the healthcare community as a whole and what are some of the kind of major stakeholders saying that since the ban was finalized?

5:17
Yeah, I would say reception has been mixed.

5:20
In general, as you might expect, provider groups have generally been in favor of the ban while facilities or large healthcare employers have been opposed.

5:30
So kind of makes sense when you think about it.

5:33
I mean a non compete ban restricts labor movement.

5:36
So in an environment like kind of where we are currently where there’s maybe a low supply of some types of providers, they will be able to almost always find better employment somewhere else.

5:49
If they’re able to move freely and obviously they’re not compete restricts their movement.

5:54
So we’ve seen hospital groups like the American Hospital Association and the Federation of American Hospitals come out strongly opposed to the ban.

6:02
And then physician groups like the American Academy of Family Physicians have been supportive.

6:06
There wasn’t or at least I haven’t seen a statement yet from the American Medical Association, but they have been supportive of non compete bans in the past.

6:14
So I think you’re kind of seeing this split between the providers who are kind of the employees in this situation and the facilities who are the employers and on opposing sides of this.

6:26
Yeah.

6:26
And I think, I think at face value, like when I first saw the first articles, it felt like it should be a win for surgery centers like let surgeons, nurses and other staff move freely from job to job.

6:39
You know, in a perfect world, leaving hospitals for for surgery centers, you know, let them all migrate out.

6:46
But can you tell us why in practice this might not be the case?

6:53
Yeah.

6:54
And I want to be careful here because I think, I mean I’m sure you’re aware surgery centers are unique facilities and that I think there are more diverse ownership and administrative structures in our industry than in hospitals or maybe other facility types.

7:09
So this is kind of why we are careful in our comments to focus on whether the FTC really has the authority to put forward this regulation rather than are non competes good or bad because we knew, you know this might affect our members differently.

7:25
You know in general non competes are a tool to retain employees.

7:28
So I can see how facilities like surgery centers might use non competes as an essential protection against poaching from larger competitors.

7:38
I mean it takes time and energy and resources to train employees, physicians and surgery centers are often not the biggest fish in the pond.

7:48
There’s probably somebody in your health ecosystem, your immediate health community that could could come in and offer maybe an above market employment offer especially if non competes are there.

8:00
So you know I think for some surgery center employees this will be seen as a good thing because they’ll have more employment mobility.

8:06
From the administrative side though, you know, I think there might be instances where the independent AS CS find it very difficult to retain some of their employees because there might be these other offers on the table.

8:20
Yeah, that makes sense.

8:21
And think about it like with broad strokes.

8:23
So from Asca’s perspective, this ban going into effect will be beneficial for some members but won’t be beneficial for others.

8:32
So you’re coming at the at it at the viewpoint of like does could the FTC even do this at all?

8:40
Yeah, I think we’re thinking like we don’t necessarily.

8:44
We understand that there might be instances in which non competes are beneficial depending on your kind of administrative organizational type.

8:51
So we don’t necessarily want to say whether or not there should be a broad policy in support or opposing either way.

9:00
I think one of the things that we focused on is, you know, does the FTC have a good rationale for putting forward this ban?

9:07
You know, are there the effects that they say there are?

9:10
And you know, specifically in the healthcare industry, is the ban going to have the effects that it intended and do they have the authority to kind of intervene in this way?

9:21
I mean, we talked about the nonprofit status, which they somewhat addressed, but still this is going to have large scale effects on, you know, kind of the balance of power and healthcare, especially between employers and employees.

9:33
And you know, is the FTC the appropriate agency?

9:36
This is five commissioners.

9:38
You know, are they the right people to kind of make this large change that it’s not going to affect a surgery center, it’s going to affect everybody.

9:46
So that’s kind of where we’re coming at it from a national organization perspective, Sure.

9:51
Yeah, that makes sense.

9:53
So looking at your your membership base and just surgery centers in general, what do you think are some strategies that ASCs might adopt to navigate any challenges coming their way?

10:06
Yeah, I think it’s going to be interesting to see what kind of the employment strategies are to navigate the ban.

10:15
I’ve seen a lot of people say that you need to be thinking about different non maybe salaried ways to employ and retain employees.

10:25
So whether that’s fringe benefits, that kind of thing.

10:29
I also think that you should be aware, I mean you made a mention earlier that about state versus federal and I think there are some cases in which states might already have these non competes in effect.

10:43
And I think the federal, the FTC actually said that they want this ban to be more of a regulatory floor.

10:47
So there might be instances in which states are already banning these non competes and you might need to be aware of kind of state level regulation that’s exceeding the federal regulation as well.

10:58
I think it’s kind of in flux right now and we’re going to get to maybe some legal challenges in a second, but I would definitely be aware of that September date and kind of if you have non existing non competes be aware of you know what might happen to those after the September 5th date.

11:13
Again there is that kind of carve out for our existing non compete agreements from senior executives.

11:19
So might want to be familiarizing yourself with what is a senior executive.

11:24
The FTC uses this policy making position terminology which can be a bit confusing but really taking steps to kind of prepare yourself and maybe thinking about alternative ways in which you can retain employees outside of a specific you know, contractual agreement like a non compete.

11:42
Yeah, even that term senior executive feels subjective too.

11:46
I mean obviously they’re they’re dropping numbers in the salary front so that makes it a little bit more black and white.

11:51
But at a small organization, a senior executive could look very different than at a huge organization.

11:58
So totally yeah.

12:00
And they they had said in the rule they didn’t want to, you know, define roles.

12:05
So they didn’t want to say you’re in a senior executive if you’re AC suite, right, for example, or if you have a certain officer title.

12:11
So they did kind of go into this more subjective, vague policy making test like do you make decisions that affect your business, you know, your organization’s business, But I think it can.

12:23
It’ll get a little confusing.

12:25
You know who all is subject to the rule in the future for sure, if it, you know, if it goes into effect as anticipated, yeah, definitely.

12:32
You had mentioned this, but perfect segue, What are the next steps in terms of like legal challenges or adjustments to the ruling and how might things like that affect its implementation?

12:46
Yeah.

12:46
So we saw basically immediate legal challenges.

12:49
And I would say the most prominent of those are happening down in Texas in the US District Court in the Northern District of Texas.

12:58
So there’s a lawsuit from Ryan LLC, which is a tax consulting firm.

13:03
And they’ve been joined by the US Chamber of Commerce, who sounds official, but they’re basically the association that represents businesses.

13:10
And they’ve challenged focusing kind of on the FTC legal authority here.

13:14
Like, is the rule based on any sort of factual evidence about constricting labor supply and lowering wages.

13:22
There’s also an aspect of because the rule invalidates potentially existing non compete contracts non held by senior executives.

13:31
You know, is this an overreach by, you know, Retroactive rule making gets all into all this legal jargon.

13:37
But really the important thing to know is that the court set an expedited schedule and said that they would be rendering a decision by July 3rd, which again is about two months prior to the expected effective date.

13:50
And what’s on the table is really a partial or a complete stay of the ban.

13:55
I do want to be careful here though in that, you know, I don’t want to say one way or another.

14:00
I think it’s too early to say what the court will decide.

14:03
So I don’t want people to think like, oh, we’ll just wait for July 3rd before preparing, you know, to see what we should do by early September.

14:11
And I think surgery centers, businesses should be operating as if the effective date will go into effect and then be keeping an eye maybe on the July 3rd decision date, certainly ask that we’ll be keeping track of that and we’ll put out communications to our members and to the larger industry as we know what happens there.

14:30
Yeah, it’s great advice.

14:31
And I expect nothing less than Texas to start firing off lawsuits as soon as they.

14:36
Of course.

14:37
Yeah, as soon as they kind of.

14:38
It’s funny, almost all like legal challenges to major rules come from Texas.

14:43
I think it’s it’s, yeah, well, I think that’s all great advice.

14:48
And as always, we’ll put a ton of links to all the stuff you’ve already published in the episode notes.

14:54
So your members and and other people in the industry can have those as a quick reference ’cause I think what you guys are doing is great just in terms of summarizing it, kind of staying neutral and just letting AS CS know what you know what to expect.

15:08
So we do this every week with our guests.

15:11
What is one thing our listeners can do this week to improve their surgery centers?

15:18
Yeah, I guess I think I have to go fully shameless here and just say get involved with ASCA and there’s a lot of ways you can do that.

15:26
I think you know we just had a great in person conference at our annual conference in Orlando just last month and you know we’re anticipating obviously another great conference next April to May and just in Denver.

15:38
So be looking forward to that.

15:40
But there’s a lot of other ways.

15:42
I know David Opong Wadi, our lead lobbyist at ASCA would say you could donate to the pack and that we’re always fighting an uphill battle against other industries.

15:51
You know, in terms of funding and legislative advocacy kind of attached to that, You could participate in the fly in.

15:58
We had members come in in February and meet with 161 congressional offices and advocate for policies that you know are favorable for ASC.

16:07
So I think there’s a number of ways to get involved and if you want to have more information on that, obviously please contact me or anyone, you know what, ASCA, yeah, I’m gonna butcher this number.

16:19
But I think it was Bill at ASCA this year at the conference who shared that something like 75% of AS, CS, who’s let, who did not pass accreditation were not members of ASCA.

16:31
Take that with a grain of salt.

16:33
It was some number very close to that.

16:35
But I was really just impressed by the impact that you do have on your members and their ability to operate efficiently.

16:44
Yeah.

16:44
And I mean, not to be alarmist or anything, but, you know, we might, we’re going into an election cycle.

16:49
So there’s going to be a lot of potentially policies on the move.

16:52
We saw a lot of policies potentially changing in 2020, you know, as the administration shifted, as the election year got going.

17:00
So there’s a lot to keep, keep an eye on and stay involved.

17:04
And I think, you know, we’ll be trying our best to keep members and everyone in the community informed.

17:10
Perfect.

17:11
Thanks so much for coming on, Alex.

17:14
Thanks, Erica.