Post & Schell E-Flash

E-Flash Update

Pennsylvania Superior Court Recognizes Patient Referral Base as Interest Protectable by Non-Compete Agreement

Pennsylvania's intermediate appellate court expressly held that a health system's interest in its patient referral base can be protected by a valid non-compete agreement. This is an expansion of existing Pennsylvania non-compete law, which recognized "patient relationships," as distinguished from a "patient referral base," as an interest protectable by a non-compete agreement.

In Wellspan Health v. Bayliss, the court restricted a former Wellspan Health-employed physician's ability to open a competing practice in violation of his non-compete agreement with Wellspan, finding that the increased competition from the physician's practice would erode Wellspan's referral base and harm its business.

Wellspan entered into a non-compete agreement with Dr. Bayliss, a perinatologist Wellspan recruited to York Hospital. Under the terms of his agreement, Dr. Bayliss agreed not to practice perinatology in or around York County for two years after termination of his employment. Several years later, Dr. Bayliss resigned from Wellspan to establish a competing practice in nearby Lancaster County. Wellspan filed suit to prevent Dr. Bayliss from violating the non-compete agreement. It maintained that Dr. Bayliss' practice would divert Wellspan's perinatology referrals and thereby negatively impact its business operations in that area.

As a result of the Court's decision, Pennsylvania has expanded the interests a healthcare provider can protect by a non-compete agreement. Now, in addition to a healthcare provider's interest in its existing relationships with patients, Pennsylvania also recognizes a patient referral base as a legally protectable business interest. Health care providers interested in using a non-compete agreement to protect against erosion of a patient referral base should:

Identify all interests the non-compete agreement is intended to protect, including, if applicable, its patient referral base;

Maintain records of referrals received, and from whom and where the referrals originate;

Maintain confidentiality of patient referral records by preventing disclosure to unauthorized personnel; and

Ensure that non-compete agreements meet the general requirements for enforceability, including reasonable limitations as to time and territory covered.

If you have any questions or comments about this E-Flash, please contact our Trade Secret & Non-Compete Law Group Partners Andrew Allison or Jim Johnston.