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Nevada Attorney General and FTC Scrutinize Nevada Healthcare Company’s Alleged Anti-Competitive Behavior Concerning Use of Non-Compete Agreements

Posted in Non-Compete Enforceability, Practice & Procedure

On August 6, the Nevada Attorney General announced the filing of a lawsuit and settlement against Renown Health (“Renown”), a Reno, Nevada based company, alleging violations of state and federal antitrust law.

At the same time, the Federal Trade Commission filed a complaint, also alleging anti-competitive behavior.

Renown had recently acquired two of largest cardiology practices in Reno, Nevada starting with Sierra Nevada Cardiology Associates (“SNCA”) in 2010, followed by Reno Heart Physicians (“RHP”) in March 2011.  Prior to the acquisitions, SNCA and RHP allegedly held virtually all of the cardiologists in the Reno area.

The Nevada Attorney General’s lawsuit alleged that Renown Health had violated federal antitrust laws by consolidating the two practice groups resulting in significantly reduced competition.  Prior to the filing, Renown employed roughly 97% of the cardiologists in the metropolitan area.  At the time of the filing, the number had dropped to roughly 88% of all cardiologists in the area, which according to the FTC, still “effectively eliminated competition.”  According to the Attorney General, this reduced competition had the potential to lead to higher prices for cardiology services in the area.  In addition, this could deter doctors from going to competitors and reduce their bargaining power in negotiating employment contracts. Furthermore, the non-compete terms of the cardiologists’ employment agreement allegedly block entry to the market because they allegedly limit doctors’ employment choices.

Under the terms of the Attorney General’s settlement, Renown will suspend the non-compete provisions in the employment agreements with the cardiologists formerly employed by SNCA and RHP.  This suspension will allow cardiologists to terminate employment without breaching terms or being subject to other retaliation as long as certain conditions are met.  Under the settlement, Renown must release a certain number of cardiologists, freeing them from the non-compete agreements and allowing them to practice elsewhere.  Up to ten employees will be permitted to leave by submitting a notice of intent to terminate employment to an Attorney General monitor and then state that they intend to remain in the Reno metropolitan area for at least a year.  Each doctor must provide sixty days notice prior to terminating his or her employment. If fewer than six employees leave during a year, the settlement provisions will continue until six employees leave.

The FTC proposed a similar settlement with Renown, agreeing to suspend its non-compete provisions with the cardiologists for at least 30 days while the FTC considers public comments on the proposed order.  FTC officials have said previously that they are increasing their scrutiny of physician-acquisition deals by hospitals, due to recent increases in merger-and-acquisition activity, so similar actions are likely to occur in the future. According to representatives from the FTC, “When you have high levels of market share concentration, it really begs whether the market is competitive or not.”

In light of the Department of Justice’s recent activity in the high-tech sector concerning no-hire agreements and the FTC’s activities here, companies should be cognizant of the effect of their market share/the use of non-compete agreements in particular markets and the possibility of government regulatory activity regardless of whether the jurisdiction, such as Nevada, permits non-compete agreements.