28 Sep 2016

Determining Reasonable Price for Physician Non-Compete Buyouts: One Size Does Not Fit All!

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By Don Barbo and John Meindl
Becker’s Hospital Review

Increasingly, physicians are choosing to enter employment relationships with larger practices or hospital-affiliated entities instead of owning their own practices. Employment contracts will often include non-competition covenants that restrict the employed physician from competing with the practice during and after the employment relationship has ended. Unfortunately, with the rise in physician employment, there has also been an increase in disputes when the employment is terminated and the physician chooses to compete with the practice.

In some cases, the parties may choose to indicate a specific buy out price or formula for the covenant within the employment contract, such as 1 times the physician’s annual salary. While convenient, setting a price upfront in this manner may not reasonably capture the value of the goodwill or other business interest at risk should the physician choose to compete. Alternatively, the parties may decide to state the buy out price will be based on a fair market value price to be determined at the time of termination, which can be complicated and beyond the capabilities of the parties to determine on their own.  Click to continue.