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Physician-Patient Privilege Restricts Enforcement of Non-Compete and Non-Solicitation Clauses in Physician Employment and Practice Agreements

A recent decision by the Michigan Court of Appeals imposes a substantial obstacle to enforcing contracts that prohibit physicians from soliciting or servicing patients after leaving employment or separating from a practice. Steiner v Bonanni (decided April 7, 2011).

In an effort to prove damages resulting from breach of an employment agreement's non-solicitation clause, the employer sought a list of patients treated since the former employee's resignation.   The Court of Appeals held that the names of patients were protected by Michigan's physician-patient privilege.  As a result, it is likely that the employer will be not be able to prove the loss of income or goodwill associated with any patients who transferred their care to the former employee.

The privacy of patient information is protected by both HIPAA and state law.  In certain circumstances, HIPAA would allow disclosure of protected health information that could not be disclosed under state law.  As a general rule, state law will prevail over HIPAA in that circumstance, i.e., when the state law provides "more stringent" requirements for patient privacy than HIPAA.

The patient list sought in Steiner could be disclosed under HIPAA, which allows disclosure without patient consent in judicial proceedings if certain procedures are followed.  However, with narrow exceptions, Michigan's physician-patient privilege statute prohibits disclosure of patient information without the patient's consent or waiver.  The Court of Appeals held that Michigan law governed and that the employer could not obtain the patient list through discovery.

The Court of Appeals recognized that the holding will effectively prevent enforcement of non-compete and non-solicitation clauses.  As a result, it would be prudent to review any existing agreements and reevaluate the best approach for protecting against solicitation of patients by former employees or partners.

Categories: Employment, HIPAA, Hospitals, Physicians


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