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Florida Non-Compete Agreements & Physician Referral Relationships

A recent case out of Florida’s 5th District Court of Appeals deepens a circuit split among the Florida appellate courts regarding non-compete agreements and referral relationships. By way of background, in the state of Florida, non-compete agreements among doctors and other healthcare workers are enforceable. This is in stark contrast to states like Massachusetts and Alabama (among others), where such non-compete agreements are unenforceable and considered violative of public policy.

In Florida, physician non-compete agreements are routinely litigated.   Courts routinely enforce those non-compete agreements via preliminary injunctions. In these cases, the plaintiffs are not fighting just to prevent existing patients from following their doctor out the door. These hospitals and medical practices are just as concerned with future business. Enter the topic of referral relationships. When a medical practice sues to enforce a physician non-compete agreement, they invariably will seek to “protect” referral relationships.

In my view, this is absurd. A hospital or doctor will refer a patient to another practitioner because of that practitioner’s skill. Case in point: When I was in law school, I tore my ACL playing rugby. I went to the doctor. The doctor examined my knee, did one or two functional tests on it and said, “Yep, you tore your ACL.” He then sent me to a prominent knee specialist at Georgetown Hospital named Dr. Klimkiewicz.   Dr. K has done hundreds of ACL’s (probably thousands at this point). He’s the man. My surgery went brilliantly and my left knee is fine. The point is that my primary care doctor was not referring me to Georgetown Hospital generally. He was referring me to Dr. K because of Dr. K’s skill, his experience and his reputation.

Let’s stick with this fact pattern: In our hypothetical universe, Dr. K leaves Georgetown and goes to a big surgery outfit in Arlington that we’ll call Arlington Ortho. Those in favor of enforcing physician non-compete agreements to protect referral relationships would take the following position: Georgetown should be able to prohibit dozens of other doctors, hospitals and medical practices from referring patients to Dr. K in his new practice at Arlington Ortho. Georgetown argues that this restriction is necessary to protect Georgetown’s legitimate business interest in those referral relationships.

This is nonsense. Those referral relationships were never referring to Georgetown Hospital at large. They were referring patients to Dr. K specifically for reasons noted above. Further, the relationships at issue are not of the type that non-compete agreements can reasonably be used to protect. Now let’s get back to Florida:

Certain of the Florida appellate courts have taken the position that medical practices can use non-compete agreements to protect referral relationships. In the view of these courts, the relevant statute, Florida Statutes 542.335, should be read to cover referral relationships. I disagree entirely with these holdings. As noted above, I believe these holdings are flawed at a conceptual level. Return to the hypothetical above: What is Georgetown really protecting in that situation? Because – again – those other doctors and practices were never referring patients to the hospital at large, but instead to the physician based on his experience, skill and reputation. It strains credulity to suggest that if Dr. K is blocked from accepting those referrals that the referring physicians will simply default to sending those patients to Georgetown at large. They won’t. They’ll send those patients to another doctor who has the experience, skill and reputation (maybe at Georgetown, maybe elsewhere).

On the flip side, Florida’s 5th District Court of Appeals has refused to enforce physician non-compete agreements to protect referral relationships. The seminal case on point is Florida Hematology & Oncology v. Tummala, 927 So.2d 135 (Fla. 5th DCA 2006). The essence of that holding: The statute only protects substantial relationships with specific, identifiable existing or prospective patients. Referral sources supply a stream of unidentified prospective patients with whom the plaintiff had no prior relationship. As such, referral sources do not constitute a legitimate business interest under 542.335. The Court reaffirmed that holding in a recent decision, Hiles v. Americare Home Therapy, 2015 WL 9491847 (Fla. 5th DCA Dec. 31, 2015).

This makes sense to me. It’s one thing to enforce a non-compete agreement to prevent unfair competition and to protect goodwill. But in the referral context, the plaintiff – the medical practice – cannot plausibly argue that these interests are at stake.

The Upshot:

  • Geography:  If you are a Florida physician involved in a potential non-compete dispute, your location could have a significant (and potentially dispositive) impact on the issue of physician referral relationships.
  • Supreme Court:  The Florida appellate courts are split on this very significant issue.  The matter will ultimately make its way to the Florida Supreme Court.  Everybody with an interest (particularly the American Medical Association and other groups protecting doctors’ interests) should be preparing to file an amicus brief.

 

Jonathan Pollard is the principal of Pollard PLLC, a Fort Lauderdale-based litigation boutique focused on competition law.  The firm and its attorneys have extensive experience litigating non-compete, trade secret and antitrust matters.  In addition to litigation, the firm routinely advises doctors on non-compete issues.  Pollard PLLC represents clients throughout Florida including Fort Lauderdale, Miami, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville.  Their office can be reached at 954-332-2380.  

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