On April 2, 2018, Colorado Governor John Hickenlooper signed Senate Bill 18-082 into law. Senate Bill 18-082 amends Colorado’s non-compete statute, C.R.S. § 8-2-113, and curtails the ability of a former employer to enforce a non-compete agreement against a departing physician by seeking damages when the physician is treating patients who have “rare disorders.” The stated purpose of this law is to protect patients with rare disorders who would otherwise not have ready access to a physician with the necessary expertise to treat the disorder.
Non-compete agreements often are included in employment agreements between individual physicians and their employers. As a general rule, under Colorado law, any agreement between physicians that restricts the right of a physician to practice medicine upon termination of that agreement is void. However, a non-compete agreement that allows for the departing physician to continue the practice of medicine, but requires the departing physician to pay actual damages related to or resulting from competition with the former employee, may be enforceable. The damages claimed by the former employer must be in an amount reasonably related to the injury suffered, such as lost revenue from patients who follow the departing physician.
Senate Bill 18-082 takes a bite out of the damages that can be recovered from a departing physician, or that physician’s new employer, when that physician treats patients with a “rare disorder.” For the definition of “rare disorder,” the statute looks to the criteria developed by the National Organization for Rare Disorders, Inc. (“NORD”) at www.rarediseases.org. According to NORD, nearly 7,000 diseases are considered rare in the United States. NORD maintains a rare disease database that includes diseases that do not seem to be that rare at all, such as Alzheimer’s disease, cerebral palsy, multiple sclerosis, Grave’s disease, macular degeneration, and pertussis (whooping cough).
Now, in Colorado, if a physician provided consultation or treatment to a patient with one of these rare diseases before the employment agreement terminated, the departing physician (and the new employer if applicable) cannot be liable for damages resulting from the physician’s continued consultation or treatment of that patient after termination of the employment agreement. This is true even if the departing physician continues to practice medicine in direct competition with the former employer. Physicians and physician practices with a significant number of patients with rare disorders (such as neurologists, pulmonologists, and endocrinologists to name a few) should take particular note of this amendment. Employers should review their employment agreement for non-competition provisions that estimate damages based on future revenue lost to a departing physician.
As part of our research for this blog post, we contacted NORD to learn more about what criteria it uses to determine when a disorder is “rare.” According to Tim Boyd, Director of State Policy at NORD, no one representing the Colorado legislature actually contacted NORD prior to passing this law. Additionally, NORD has not actually developed any criteria for defining a rare disorder. NORD simply maintains a rare disease database as a resource for patients and families, with information about diseases that are or were at time considered a “rare disease or condition” under the federal Orphan Drug Act of 1983. According to that federal law, a “rare disease or condition” is one that affects less than 200,000 people in the United States. 21 U.S.C. 360bb. NORD advised that many of the diseases currently listed in its rare disease database would no longer qualify under that federal definition but are still included in its database as a resource. This includes many of the diseases we identified above. It is Boyd and NORD’s position that its database should not have been used as a basis for implementing this law.
Because no one contacted NORD, the Colorado legislature may not have realized the limitations of the NORD database before identifying NORD as the definitive source for what constitutes a rare disorder. Unless the legislature amends this law to limit it to truly rare diseases or conditions, physicians and employers in Colorado will have to wrestle with this overly broad and unnecessary restriction on physician non-compete agreements.