1 00:00:00,160 --> 00:00:03,370 This is Scott Becker with the Becker's Healthcare Podcast. 2 00:00:03,920 --> 00:00:06,810 Thrilled today to be visiting with Andrea Lee. Lena. 3 00:00:06,880 --> 00:00:10,730 Andrea works in digital health. She's a lawyer by background. 4 00:00:10,730 --> 00:00:15,650 She's just also a brilliant thinker about healthcare trends and issues she's 5 00:00:15,650 --> 00:00:19,850 gonna talk to today about what legal and health IT trends and healthcare and 6 00:00:19,850 --> 00:00:22,410 digital trends she's watching. Andrea, 7 00:00:22,410 --> 00:00:24,290 can you take a moment to introduce yourself? 8 00:00:24,840 --> 00:00:27,650 Yeah, sure. Well, thanks Scott. Um, like you mentioned, 9 00:00:27,650 --> 00:00:30,690 I work with digital health companies really across, 10 00:00:30,690 --> 00:00:34,890 across the spectrum in the legal space, so on mergers and acquisitions, 11 00:00:35,280 --> 00:00:38,770 regulatory compliance, um, data privacy. 12 00:00:39,470 --> 00:00:43,130 And so work with them on like their telehealth programs, 13 00:00:43,130 --> 00:00:47,290 the remote patient monitoring, wearables, um, hipaa, healthcare it. 14 00:00:47,310 --> 00:00:51,850 And so I'm based in McGuire Woods Chicago office and help lead our digital 15 00:00:51,850 --> 00:00:53,770 health technology and innovation group. 16 00:00:54,730 --> 00:00:57,890 Thank you. And, and when you look at digital health in innovation, 17 00:00:58,280 --> 00:01:02,010 what are some of the most interesting stories or issues that you're watching 18 00:01:02,010 --> 00:01:03,970 currently as we head into 2023? 19 00:01:04,600 --> 00:01:08,090 Yeah, so two interesting, um, 20 00:01:08,260 --> 00:01:13,250 stories from a legal perspective now that we're heading into 2023 are the first, 21 00:01:13,250 --> 00:01:16,490 which is hot topic across all industries. Um, 22 00:01:16,490 --> 00:01:20,930 and I'm sure you've already talked to some people about this is the fcc, um, 23 00:01:21,290 --> 00:01:25,890 proposed ban on non-competes. So this was earlier this month, 24 00:01:25,890 --> 00:01:30,450 so that'll be January, 2023. The FTC came out with a proposed rule, 25 00:01:30,860 --> 00:01:31,210 um, 26 00:01:31,210 --> 00:01:35,810 saying that it was going to potentially ban all non-competes agreements between 27 00:01:36,250 --> 00:01:38,250 employers and workers in most circumstances, 28 00:01:38,550 --> 00:01:42,330 and then also require employers to rescind any existing 29 00:01:42,750 --> 00:01:44,250 non-compete agreements. 30 00:01:44,380 --> 00:01:48,890 So as background non-competes are typically part of a contract in healthcare 31 00:01:48,890 --> 00:01:51,290 with a physician or a nurse practitioner, 32 00:01:51,290 --> 00:01:55,890 some healthcare executive that prevents the individual from taking a job in a 33 00:01:55,890 --> 00:01:58,570 competing area or competing job elsewhere, 34 00:01:58,570 --> 00:02:02,850 maybe in a certain geographic area or for a certain period of time. 35 00:02:03,230 --> 00:02:06,210 And the idea behind this for the companies is, Hey, 36 00:02:06,210 --> 00:02:10,810 we've provided a lot of resources and capital and we've trained you and we've 37 00:02:10,810 --> 00:02:14,530 provided you all of this information and we don't want you to be able to leave 38 00:02:14,530 --> 00:02:18,130 and then go take it to our competitors. And what they believe is, um, 39 00:02:18,320 --> 00:02:22,250 unfairly competing against them because you're using their information against 40 00:02:22,530 --> 00:02:27,490 them. Um, the FTC is basically saying that, that that isn't right, that, 41 00:02:27,540 --> 00:02:30,650 um, isn't fair for most workers. Um, 42 00:02:30,650 --> 00:02:33,130 and that's prohibiting workers from taking different jobs, 43 00:02:33,280 --> 00:02:36,810 starting their own businesses, et cetera. Um, and this will really, 44 00:02:37,000 --> 00:02:41,330 this is a proposed rule by the ftc, so it is not final. Um, and there's, 45 00:02:41,600 --> 00:02:45,890 I anticipate, and I think most people anticipate lawsuit foods and uh, 46 00:02:46,040 --> 00:02:50,650 lots of, um, dialogue about this before it does become final if it does. 47 00:02:51,260 --> 00:02:55,930 Um, but really important to pay attention to now for any healthcare company. 48 00:02:55,930 --> 00:02:59,640 But I think digital health companies calling that out specifically, um, 49 00:02:59,640 --> 00:03:04,600 because it's such a fast pace changing environment and that's where these 50 00:03:04,600 --> 00:03:08,480 non-competes are so, um, important, right, is if you're saying, oh, 51 00:03:08,480 --> 00:03:12,000 we've got these great new ideas. We're the Amazon of healthcare, right? 52 00:03:12,000 --> 00:03:16,160 We don't want you taking our ideas to our competitor so dear, you know, 53 00:03:16,160 --> 00:03:17,360 healthcare executive. 54 00:03:17,440 --> 00:03:22,080 We're gonna have you not compete for a year or two years after, um, 55 00:03:22,080 --> 00:03:23,040 your employment with us. 56 00:03:23,290 --> 00:03:27,600 So I think it's a really important thing to know is coming potentially 57 00:03:28,050 --> 00:03:32,360 to monitor it and to think about how you're using non-competes today. Um, 58 00:03:32,360 --> 00:03:35,360 and what would happen if you couldn't use those anymore and what are some other 59 00:03:35,360 --> 00:03:38,560 strategies and thinking about that. Um, so like I said, 60 00:03:39,220 --> 00:03:41,920 not final proposed rule, um, 61 00:03:41,920 --> 00:03:45,680 but still super interesting and would be a huge shift, um, 62 00:03:46,020 --> 00:03:47,640 for many healthcare companies. 63 00:03:48,220 --> 00:03:50,600 And, and, and let me ask you a question cause there's, 64 00:03:50,600 --> 00:03:53,240 there's different types of non-competes. For example, 65 00:03:53,430 --> 00:03:56,400 when a hospital hires a physician directly, 66 00:03:56,930 --> 00:03:59,920 he or she might have a non-compete, but, 67 00:03:59,920 --> 00:04:02,760 but the hospitals not necessarily bought assets from that physician. 68 00:04:02,760 --> 00:04:04,760 They didn't buy the practice from that, from that physician. 69 00:04:05,250 --> 00:04:07,440 So hospitals might get much more comfortable, 70 00:04:07,620 --> 00:04:12,560 particularly if there's not big upfront payments in having a physician hired 71 00:04:12,560 --> 00:04:13,600 that doesn't have a non-compete. 72 00:04:13,600 --> 00:04:17,800 Physicians are free to go across the street and so and so on. In contrast, 73 00:04:17,960 --> 00:04:22,920 sometimes physician practices are bought either by a private 74 00:04:22,920 --> 00:04:25,200 equity fund or a health system, 75 00:04:25,940 --> 00:04:30,280 and then there's a non-compete attached to that acquisition. Typically, 76 00:04:30,280 --> 00:04:31,600 there's two kinds of non-compete. 77 00:04:31,660 --> 00:04:35,240 You buy the practice and for three to five years after you bought the practice, 78 00:04:35,420 --> 00:04:39,600 the physicians can't practice within a certain radius or mileage area. 79 00:04:40,060 --> 00:04:43,920 And, and there's also a second non-compete that that goes with the, 80 00:04:43,920 --> 00:04:47,320 the employment agreement that says for a couple years after leaving employment 81 00:04:47,320 --> 00:04:51,950 or you're leaving employment, the physician can't practice. Similarly, 82 00:04:51,960 --> 00:04:55,790 in surgery center partnerships, when a physician invests in a surgery center, 83 00:04:55,830 --> 00:04:59,430 typically there's a non-compete that says that physician can't invest in another 84 00:04:59,430 --> 00:05:03,950 surgery center within 10 20 miles or something like that. Mm-hmm. , 85 00:05:04,160 --> 00:05:09,030 is there a distinction in the FTCs language so far about 86 00:05:09,030 --> 00:05:14,020 employment covenants versus joint venture covenants or acquisition 87 00:05:14,300 --> 00:05:17,500 covenants or right now it's too early to tell what it means for all these 88 00:05:17,500 --> 00:05:18,500 different things? Yeah. 89 00:05:18,650 --> 00:05:23,540 I think they have some language in there about they're considering 90 00:05:23,540 --> 00:05:26,500 an exception for the acquisition concept. 91 00:05:26,590 --> 00:05:30,300 If the individual was like a 25% owner I think, 92 00:05:30,300 --> 00:05:33,900 or there was some threshold, we'll see what happens with that. 93 00:05:33,900 --> 00:05:36,100 I think the commentary has been, okay, that's great, 94 00:05:36,100 --> 00:05:40,700 but that still doesn't necessarily help us if we've got that 25% threshold. 95 00:05:41,480 --> 00:05:46,380 And generally the commentary is the F T C has said in its proposed 96 00:05:46,380 --> 00:05:49,180 rule, it was considering, you know, oh, 97 00:05:49,180 --> 00:05:53,980 do we want this to only apply to hourly workers or do we want it to apply 98 00:05:53,980 --> 00:05:57,840 across the board or et cetera, kind of those different carve outs. 99 00:05:58,210 --> 00:06:00,480 So we'll see. I think they did, 100 00:06:00,480 --> 00:06:02,840 they have explicitly called that out in the proposed rule. 101 00:06:02,950 --> 00:06:07,640 What will be interesting is there's 60 days in order for individuals or 102 00:06:07,800 --> 00:06:09,440 companies or, um, 103 00:06:09,760 --> 00:06:14,040 trade associations or whatnot to make proposals and submit comments on the 104 00:06:14,240 --> 00:06:16,640 proposed rule. So I think after that happens, 105 00:06:16,640 --> 00:06:19,600 we'll have some really good information on, you know, 106 00:06:19,600 --> 00:06:23,600 where the pushback is here and maybe some alternative suggestions like you're 107 00:06:23,600 --> 00:06:24,480 talking about like, hey, 108 00:06:24,480 --> 00:06:28,520 these are two different worlds when we're talking about employment versus we're 109 00:06:28,520 --> 00:06:32,240 talking about you've acquired a company and part of that acquisition value, 110 00:06:32,240 --> 00:06:36,000 right, comes from those non-compete. So that be a huge upset. Um, 111 00:06:36,280 --> 00:06:37,720 and those types of situations. 112 00:06:38,570 --> 00:06:43,440 There's been a lot of the lawyers talking about this non-compete FTC issue a lot 113 00:06:44,140 --> 00:06:47,470 and just starting to hear from, for example, 114 00:06:47,540 --> 00:06:50,830 physicians and health systems, private equity funds. For example, 115 00:06:50,830 --> 00:06:52,430 yesterday a physician called and said, 116 00:06:52,700 --> 00:06:55,510 does this mean I'm gonna be able to get out of all my non-competes? 117 00:06:55,810 --> 00:06:58,950 And of course the response was, we, we, we don't know, we, 118 00:06:58,950 --> 00:07:00,110 we don't know what this means, 119 00:07:00,370 --> 00:07:04,470 but are you starting to hear from the private equity community, 120 00:07:04,470 --> 00:07:09,110 the health system community about this? Or is it still too early to, I mean, 121 00:07:09,110 --> 00:07:10,670 I guess if people are structuring deals right now, 122 00:07:10,670 --> 00:07:14,030 they're gonna have to at least consider these things. But is it too early to, 123 00:07:14,320 --> 00:07:16,230 in terms of the FTC proposal and everything else, 124 00:07:16,580 --> 00:07:20,350 they have a lot of discussions around it. Are people, what, what is the sense, 125 00:07:20,350 --> 00:07:22,830 are people starting to, cause it seems like this is a, 126 00:07:22,830 --> 00:07:25,550 from a lawyer's perspective, this is a huge issue, right? 127 00:07:25,550 --> 00:07:25,830 Right. 128 00:07:25,830 --> 00:07:29,870 From a health system perspective, I've not yet heard that much outcry about it, 129 00:07:30,210 --> 00:07:32,190 you know, and from the private equity community, 130 00:07:32,470 --> 00:07:36,070 probably more discussion about what does this mean for deals where we are used 131 00:07:36,070 --> 00:07:38,710 to having non-competes. What do, what do you hear out there? 132 00:07:39,280 --> 00:07:41,650 Yeah, I think from a legal perspective, 133 00:07:41,820 --> 00:07:44,930 we need to make sure our clients are aware, right? I mean, 134 00:07:44,930 --> 00:07:49,810 I think that's the number one is if we are entering into a deal right now 135 00:07:49,920 --> 00:07:53,570 that has non-competes, right? We need to make sure that they're aware that hey, 136 00:07:53,570 --> 00:07:58,170 you know, worst case scenario, this could not be, um, 137 00:07:58,170 --> 00:08:00,090 this could be void under this new role, right? 138 00:08:00,090 --> 00:08:02,450 So we want to put that on your radar. Um, 139 00:08:02,450 --> 00:08:06,490 and I think just generally educating people and making sure people are aware, 140 00:08:06,780 --> 00:08:10,210 um, is key for us right now. Because like you just mentioned, 141 00:08:10,210 --> 00:08:12,930 it's a proposed rule. It's a big question mark. 142 00:08:13,200 --> 00:08:17,170 I mean there is going to be huge pushback on this. There already is. 143 00:08:17,280 --> 00:08:21,890 I was reading something, the chambers of commerce came out and said, you know, 144 00:08:21,890 --> 00:08:25,370 this is clearly void, you know, we're gonna sue over this. 145 00:08:25,370 --> 00:08:29,890 It's gonna be a huge fight, right? Um, so we'll see where it lands. 146 00:08:29,890 --> 00:08:34,730 But I do think it's something that, um, executive savvy business owners, 147 00:08:34,940 --> 00:08:38,330 PE funds, they should be aware of and be thinking about, okay, 148 00:08:38,330 --> 00:08:41,570 if this is gonna happen in, you know, two years, 149 00:08:41,790 --> 00:08:44,410 how are we thinking about ways that we're gonna, um, 150 00:08:44,410 --> 00:08:46,890 protect our business and protect our value? And like you said, 151 00:08:46,890 --> 00:08:49,650 it depends on which side you set. If you're a physician, you may say, Hey, 152 00:08:49,650 --> 00:08:52,890 this is great. Um, I don't mind this at all. So I mean, 153 00:08:52,890 --> 00:08:57,200 for the workers it could be soon as a good thing, but for, um, you know, 154 00:08:57,470 --> 00:09:00,560 founders and owners, et cetera, then not so much. 155 00:09:01,590 --> 00:09:06,480 Well, and it also has the ability for founders and owners, if they can't, 156 00:09:06,480 --> 00:09:09,280 as part of a transaction, provide an noncompete. I mean, 157 00:09:09,280 --> 00:09:12,040 the original sentiment might, well, this is good if you're a founder, 158 00:09:12,040 --> 00:09:13,840 owner can sell your business, they're gonna have an non compete, 159 00:09:14,140 --> 00:09:18,440 but it also may devalue your business because if somebody can't have comfort 160 00:09:18,670 --> 00:09:22,040 that they are going to get a non-compete, they not be, 161 00:09:22,040 --> 00:09:24,800 may not be willing to sell it for, to buy it for as much. 162 00:09:24,840 --> 00:09:28,200 Cause they're more concerned about you having a business, having a practice, 163 00:09:28,360 --> 00:09:30,600 whatever it might be. And then's starting a new one. 164 00:09:30,600 --> 00:09:34,860 Cause you're not bounded by non-compete. So the good news, 165 00:09:34,860 --> 00:09:38,260 maybe bad news in terms evaluation, is that, is that possible too? 166 00:09:38,610 --> 00:09:40,500 Yeah, no, that's definitely possible. 167 00:09:40,500 --> 00:09:43,380 And I think for all the reasons you're pointing out, I mean, 168 00:09:43,380 --> 00:09:46,700 it's really turned a lot of the analysis on its head, um, 169 00:09:46,700 --> 00:09:50,260 because there's such a critical part of these transactions, um, 170 00:09:50,480 --> 00:09:53,380 and what you're paying for, like you said, you need to be able to, 171 00:09:53,380 --> 00:09:58,140 you're paying a lot of times for that certainty. So yeah, absolutely. 172 00:10:00,050 --> 00:10:02,060 Andrea, thank you so much for this. 173 00:10:02,060 --> 00:10:04,620 Just really interesting to see where this is at. And again, 174 00:10:04,620 --> 00:10:06,300 this is an FTC proposed rule. 175 00:10:06,670 --> 00:10:10,820 It took a lot of the business community by shock or or concern, uh, 176 00:10:10,820 --> 00:10:12,460 the chamber of commerce, 177 00:10:12,460 --> 00:10:16,580 the sort of the sort of the different small business code, CES and so forth. 178 00:10:16,580 --> 00:10:18,860 We're very concerned about this or are very concerned about this. 179 00:10:18,860 --> 00:10:20,300 We'll see how it all plays out, 180 00:10:20,360 --> 00:10:23,660 but at some point it may have a real land landscape on physician, 181 00:10:23,860 --> 00:10:25,300 hospital contractor, physician practice, 182 00:10:25,300 --> 00:10:29,100 private equity contracting and so forth in, in a whole range of different areas. 183 00:10:29,100 --> 00:10:29,660 Andrea, 184 00:10:29,660 --> 00:10:32,460 thank you so much for joining us today under Director's Healthcare Podcast. 185 00:10:32,500 --> 00:10:33,460 Thank you very much. 186 00:10:33,690 --> 00:10:34,380 Yeah, thank you.