Hospitals Take Note: Tennessee Physician Non-Compete Law Changes Again

Tennessee's corporate practice of medicine statute has historically prohibited hospitals and their affiliates from imposing general post-employment covenants not to compete on physicians employed independently of a bona fide practice purchase. Rather, hospitals and their affiliates have been limited to prohibiting only the direct solicitation (and sometimes treating) of former patients. However, on May 23, 2011, the Tennessee legislature amended the state's corporate practice of medicine statute. As discussed more fully below, the amended statute, in conjunction with an existing Tennessee statute on physician covenants not to compete generally, appears to allow hospitals to elect, with respect to physicians employed independently of a practice purchase, either a covenant not to solicit or a more general covenant not to compete.

Like many states, Tennessee prohibits the corporate practice of medicine. However, both the Tennessee corporate practice of medicine statute and a separate section of the Tennessee Code addressing physician non-competes generally except from the prohibition hospitals' and their affiliates' employment of physicians, with the exception of radiologists, anesthesiologists, pathologists and certain emergency physicians, if several conditions are met. Included in these conditions is the requirement that any restrictions placed by hospitals on an employed physician's right to practice medicine upon the termination or conclusion of the employment relationship must comply with certain limitations. Previously, the nature and extent of the limitations varied depending on whether the physician was employed in connection with a bona fide practice purchase and, for physicians employed independent of a practice purchase, how long the physician has been practicing in the community.

Physicians Employed Following a Practice Acquisition

The May amendment did not change the post-employment practice restrictions for those physicians whose practices have been purchased by hospitals or hospital affiliates. For physicians whose practices have been purchased, hospitals may still only restrict physicians' right to practice medicine as follows:

The hospital may impose reasonable geographic restrictions, provided that the maximum non-compete area is the greater of the county in which the primary practice site is located or a 10-mile radius from the primary practice site. The duration of the restriction must be 2 years or less, unless the...

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