Indiana Bans Physician Noncompetes with Hospitals
May 9, 2025
By: Lucero Tennis Kieffer, Chad J. Sullivan, and L. Montgomery Porter
On May 6, 2025, Governor Braun signed into law Senate Enrolled Act 475 (“SEA 475”), which significantly transforms the landscape of physician employment contracts with hospitals/hospital affiliated entities within the State of Indiana. As explained in more detail below, this new law prohibits “noncompete agreements” entered into on or after July 1, 2025 between a physician and a hospital, parent company of a hospital, affiliated manager of a hospital or hospital system.
Who Is Affected by the Ban?
Beginning July 1, 2025, a physician and the following health care entities may not enter into a noncompete agreement:
(1) a hospital;
(2) a parent company of a hospital;
(3) an affiliated manager of a hospital; or
(4) a hospital system.
Covered Health Care Entities
While prior versions of the legislation would have also applied to private employers, including physician owned practice groups, this language was ultimately removed from the bill. As enacted, SEA 475 applies only to noncompete agreements involving a hospital, a parent company of a hospital, an affiliated manager of a hospital or a hospital system. The term “hospital system” is defined as: (1) a parent corporation of at least one (1) hospital and any entity affiliated with the parent corporation through ownership, governance, or membership; or (2) a hospital and any entity affiliated with the hospital through ownership, governance, or membership.
Covered Physicians
Unlike Indiana Senate Enrolled Act 7 (SEA 7), which only applied to primary care physicians, SEA 475 applies broadly to all physicians. The term “physician” is defined under Ind. Code § 25-22.5-1-1.1(g) and broadly includes individuals licensed to practice medicine or osteopathic medicine in Indiana. Notably, SEA 475 clarifies that the “practice of medicine” does not include activities that (i) are solely and exclusively executive or managerial and (ii) do not involve direct patient care.
What Constitutes a “Noncompete Agreement”?
A “noncompete agreement” is broadly defined as:
“a contract, or any part of a contract, to which a physician is a party that has the purpose or effect of restricting or penalizing a physician's ability to engage in the practice of medicine in any geographic area, for any period of time, after the physician's employment relationship with a hospital, a parent company of a hospital, an affiliated manager of a hospital, or a hospital system has ended.”
This definition is notably limited to noncompete agreements arising out of a physician’s employment relationship with a covered health care entity.
Prohibited Contractual Provisions
SEA 475 identifies several types of clauses that constitute prohibited noncompete agreements:
- Provisions that prohibit the physician from engaging in the practice of medicine with a new employer.
- Provisions that impose financial penalties or repayment obligations, or requires reimbursement of bonuses, training expenses, or similar payments that:
-
- apply to a physician that has been employed for at least three (3) years; and
- are based solely or primarily on the physician's decision to continue engaging in the practice of medicine with a new employer.
-
- Provisions that require the physician to obtain employer consent or submit to equitable relief to engage in the practice of medicine with a new employer, regardless of geographic area or specialty.
- Provisions that impose indirect restrictions that have the effect of limiting or deterring the physician's practice of medicine with a new employer.
Permissible Contractual Provisions
Not all post-employment restrictions are barred by SEA 475. The law allows:
- A nondisclosure agreement that protects confidential business information or trade secrets.
- A nonsolicitation agreement that prohibits solicitation of current employees for a period not exceeding one (1) year after the physician's employment ends. However, the nonsolicitation agreement may not restrict: (A) patient interactions; (B) patient referrals; (C) clinical collaboration; or (D) the physician's professional relationships.
- An agreement made in connection with the bona fide sale of a business entity when the physician owns more than fifty percent (50%) of the business entity at the time of sale.
In short, the above carveouts clarify that certain contractual restrictions—especially those tied to business dealings, ownership interests, or confidentiality—are allowed.
Implications for Indiana’s Healthcare Industry
SEA 475 represents a major shift in how hospitals and physicians structure employment relationships in Indiana.
- For Physicians: The law provides greater career flexibility, allowing physicians to change employers or establish independent practices without geographic or temporal restrictions.
- For Hospitals: Institutions will need to explore alternative strategies for physician retention and patient continuity, such as offering competitive compensation packages and fostering positive work environments.