On April 29, 2024, a federal judge in the Southern District of Ohio dismissed a lawsuit brought by a group of physicians accusing the health-care provider Adena Health System of anticompetitive conduct, including through the use of noncompete clauses in physician contracts. The decision in Cohen et al v. Adena Health System et al concluded that Plaintiffs failed to show antitrust injury through bare allegations of harm to the broader market for orthopedic services, and that the physicians’ personal inability to practice for a year or difficulties in finding space to practice might be sufficient for Article III standing, but not for antitrust standing. The opinion also suggested skepticism that physicians, rather than patients or the government, were the right parties to bring such claims.
Plaintiffs’ Claims and Defendants’ Motion
Plaintiffs Brian Cohen, Aaron Roberts, and James Thompson are physicians previously employed by Defendants Adena Health System, a non-profit healthcare corporation operating hospitals in southern Ohio, and Adena Medical Group LLC, which employed the physicians (collectively “Adena”). Plaintiffs had employment agreements with Adena that included provisions prohibiting them in the eight surrounding counties from providing medical services of any kind for a period of one year after ending their employment at Adena, or from soliciting Adena patients or employees after ending their employment. Plaintiffs alleged that they decided to depart Adena and began talks to enter into a joint venture and eventually work for a different healthcare group, OhioHealth, once their one-year prohibition on practicing in the counties expired. Plaintiffs tendered their resignation 120 days in advance of their departure; however, Adena terminated them 30 days into their notice period for the stated reason that Plaintiffs had breached the non-solicitation and confidentiality provisions in their employment agreements.
Before the federal lawsuit was filed, Adena filed a state court lawsuit against the three doctors alleging breach of their employment agreements by seeking to recruit other physicians from Adena to form a competing practice while still employed by Adena. Plaintiffs counterclaimed based on federal antitrust law. The counterclaim was dismissed based on lack of subject matter jurisdiction. Adena’s state court claims continue to be litigated.
The federal lawsuit was subsequently filed, alleging that Defendants had monopoly power in the eight-county area of Southern Ohio as the dominant provider, and as the only hospital operator in certain counties. Plaintiffs maintained that Defendants illegally acted to maintain its monopoly in violation of Section 2 of the Sherman Act by imposing “excessive non-compete restrictions,” as well as manipulating real estate lease and purchase agreements to prevent Plaintiffs or competitors from securing space to open a competing practice. The complaint also alleged that Adena mandated its physicians refer patients for orthopedic services only to other Adena-employed physicians in most instances, and that the termination and state court litigation against Plaintiffs was part of an effort to “dissuade other healthcare entities from doing business with Plaintiffs.”
Plaintiffs argued that because the market area already suffered from a shortage of medical providers, the restrictive covenants acted as a barrier to competition without serving a legitimate business purpose—Plaintiffs claimed that the physicians hired by Adena generally had prior training and experience. Consequently, they did not possess “trade secret information or the kinds of ‘customer information’” that might justify a noncompete. The Complaint referenced the then-proposed, now final FTC rule broadly banning noncompete agreements in health care to support their argument that such restrictions result in “fewer and less qualified service options” for patients.
Defendants’ motion to dismiss argued that Plaintiffs failed to identify the relevant product and geographic market, nor did they plausibly allege that Defendants had monopoly power in the pleaded markets. Moreover, Defendants characterized the allegations of injury Plaintiffs alleged to the market—reduced “supply and accessibility of high-quality orthopedic services to patients in Southern Ohio”—as “conclusory” and unsupported by any factual allegations. The motion argued that Plaintiffs’ grievances were personal, rather than indicative of harm to the broader orthopedic physician market, and largely caused by their own decisions to sign agreements with the noncompetition restrictions, and to then resign. Without facts showing injury to competition, Plaintiffs lacked antitrust standing.
The Court’s Opinion
The opinion in Cohen turned primarily on the evaluation of whether Plaintiffs had antitrust standing under Associated Gen. Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983), which requires courts to determine whether the plaintiff “is a person injured by reason of a violation of the antitrust law” such that they can sue under the relevant antitrust statute by evaluating “the plaintiff's harm, the alleged wrongdoing by the defendants, and the relationship between them.” Id. at 529. In the Sixth Circuit, this analysis boils down to two primary factors: whether the plaintiff can “(1) prove an antitrust injury; and (2) demonstrate that they are the proper party to bring the antitrust suit.”
Plaintiffs failed at the first step. Specifically, the court found that because there were four Adena and four non-Adena medical centers in the area for patients to choose from, preventing three physicians from practicing for a single year did not “eradicate competition” between those groups or within the market. The court rejected allegations that patients suffered ill effects in the form of reduced care quality as conclusory given the absence of any specific facts regarding adverse effects on patient care. Without concrete facts to support a claim of patient harm, the idea that a small group of physicians prevented from practicing for a year had enacted competitive harm was an implausible basis to show antitrust injury. Even if Plaintiffs had been able to show harm to patients, the court also pointed out that either patients or the government would likely have been more appropriate enforcers.
The court further held that the pleading insufficiency was the nature of the alleged harm itself and that could not be cured. Hence, leave to amend was denied.
Implications in Light of the FTC’s Recent Rule on Noncompete Clauses
The decision comes on the heels of the FTC’s recent finalization of a rule broadly banning noncompete clauses in employment agreements. The rule is premised on the theory that such provisions violate Section 5 of the FTC act as an unfair method of competition. As the Cohen Complaint observes, the rule was driven in part by concerns, expressed in public statements by the FTC, that noncompete agreements increase costs for patients in healthcare.
However, the new FTC rule would not have changed the outcome in Cohen, because it does not apply to nonprofit healthcare organizations such as Adena Health Care. In the remarks of FTC Commissioner Rebecca Kelly Slaughter, she acknowledged that limitations on the FTC’s jurisdiction prevented their rule from extending to nonprofits, but made clear that she did not believe as a matter of policy that noncompete clauses in employment agreements at nonprofits were beneficial, pointing to portions in the record of rulemaking that included “powerful stories from healthcare workers who are employed by nonprofits about how noncompetes hurt patients and providers.”
Commissioner Slaughter urged other agencies to use their authority to pursue other “angle[s] of attack” in this area. However, for now, Cohen suggests that notwithstanding the FTC’s views on the harm caused by noncompetes, private litigants with nonprofit employers may face significant hurdles in bringing antitrust challenges to noncompete agreements absent concrete facts demonstrating harm to the competitive process.
