The Indiana General Assembly recently passed Senate Enrolled Act No. 475 (“SEA 475”), which will ban new noncompete agreements between physicians and covered health care entities entered into on or after July 1, 2025. Governor Braun is expected to sign the bill. As explained further below, the noncompete ban applies to hospitals, hospital systems, parent companies and affiliated managers of a hospital.
Overview
Over the last several years, the Indiana General Assembly has passed a series of laws limiting physician noncompete agreements. In 2023, for example, Senate Enrolled Act No. 7 prohibited newly entered noncompete agreements with primary care physicians. An earlier law required inclusion of a “buyout” provision in contracts with physicians, allowing the physician to avoid enforcement of the noncompete in exchange for paying the employer a reasonable amount. SEA 475 adds several new sections within the physician noncompete agreement provisions of Title 25 of the Indiana Code.
Which Health Care Entities Are Covered?
Beginning July 1, 2025, the following health care entities may not enter into noncompete agreements with physicians:
- a hospital, as defined in Indiana Code 16-18-2-179(b);
- a parent company of a hospital;
- an affiliated manager of a hospital; or
- a hospital system.
The term “hospital system” is defined as: (i) a parent corporation of at least one hospital and any entity affiliated with the parent corporation through ownership, governance or membership; or (ii) a hospital and any affiliated entity with the hospital through ownership, governance or membership. Notably, this noncompete ban does not apply to other physician employers, such as private practices or non-hospital/non-hospital system-owned physician groups.
Who Is a Covered Physician, and What Is the Practice of Medicine?
Unlike Indiana’s prior noncompete ban, which only prohibited noncompete agreements with primary care physicians regardless of employer type, SEA 475 does not make that distinction. Rather, it prohibits any covered entity from having a noncompete prohibiting the “practice of medicine” with any physician licensed to practice medicine or osteopathic medicine in Indiana.
The term “physician” is defined in Indiana Code 25-22.5-1-1.1(g) and means “any person who holds the degree of doctor of medicine or doctor of osteopathy or its equivalent and who holds a valid unlimited license to practice medicine or osteopathic medicine in Indiana.” Notably, the new law does not apply to physician assistants or advanced practice providers.
The term “practice of medicine” is defined in Indiana Code 25-22.5-1-1.1(a) and (b). As clarified in the new law, “practice of medicine” does not include activities that: (i) are solely and exclusively executive or managerial and (ii) do not involve direct patient care.
What Is a “Noncompete Agreement”?
SEA 475 broadly defines “noncompete agreement” as:
“[A] contract, or any part of a contract, to which a physician is a party that has the purpose or effect of restricting or penalizing a physician’s ability to engage in the practice of medicine in any geographic area, for any period of time, after the physician’s employment relationship with a hospital, a parent company of a hospital, an affiliated manager of a hospital, or a hospital system has ended.”
The law provides the following examples of prohibited noncompete agreements:
- Provisions that prohibit the physician from engaging in the practice of medicine with a new employer;
- Provisions that impose financial penalties, repayment obligations or require reimbursement of bonuses, training expenses or similar payments that:
- are applied after at least three years of employment; and
- are based solely or primarily on the physician’s decision to continue engaging in the practice of medicine with a new employer;
- Provisions requiring the physician to obtain the employer’s consent or submit to equitable relief; and
- Provisions imposing indirect restrictions that limit or deter the physician’s practice of medicine with a new employer.
The law clarifies that the following are not considered noncompete agreements:
- Nondisclosure agreements that protect confidential business information or trade secrets;
- Nonsolicitation agreements restricting the solicitation of current employees for one year after employment ends (so long as they do not restrict patient interactions, referrals, clinical collaboration or professional relationships); and
- Noncompete agreements entered into as part of a sale of a business entity where the physician owns more than 50% of the entity at the time of sale.
Curiously, the law does not explicitly address patient nonsolicitation agreements, a commonly used restrictive covenant in the health care industry. However, the broad definition of “noncompete agreement” may arguably prohibit patient nonsolicitation agreements depending on specific facts and circumstances.
Important Timing Considerations
As stated above, SEA 475 does not go into effect until July 1, 2025. It also clarifies that noncompete agreements entered into before July 1, 2025, will not be invalidated, even if renewed or amended after that date.
Other States Passing Similar Laws
With the passage of SEA 475, Indiana joins Maryland, Pennsylvania and Louisiana among states that have recently passed laws restricting noncompetes for health care-related professions. More than 10 other states already have laws that prohibit or substantially limit physician noncompete agreements.
Practical Takeaways
Indiana hospitals and affiliated entities can no longer rely on noncompete agreements to protect business interests and retain physicians (and, by extension, their patient bases). Hospitals should review and revise all template agreements used when recruiting and hiring new physicians, including employment agreements, recruitment agreements and bonus or incentive arrangements containing clawback provisions.
Hospitals should also implement new strategies to enhance physician retention, focusing on creating a superior employment experience and becoming an employer of choice. Strengthening relationships with patients and communities will also be increasingly important.
Please join Hall Render attorneys for a webinar in the coming weeks, which will provide additional details regarding both the legal and practical considerations of SEA 475.
If you have any questions about the topics discussed in this post, please contact:
- Jon Bumgarner at jbumgarner@hallrender.com;
- Kevin Stella at kstella@hallrender.com;
- Dana Stutzman at dstutzman@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
