Oregon's Senate Bill 951 (SB 951) was signed into law by Governor Kotek on June 9. While several states have recently proposed additional restrictions to the prohibition on the corporate practice of medicine, this law imposes significant new hurdles and prohibits mechanisms typically utilized by management services organizations (MSOs) to provide administrative services to medical practices. Below is an overview of the law's key provisions.
Dual Affiliation Prohibitions
Typical arrangements between MSOs and professional medical entities use a series of agreements and other relationships aimed at achieving alignment between such entities while preserving the clinical decision-making of the professional medical entity and its licensed providers. Typically, a physician with a relationship with the MSO – either as a medical director, clinical liaison or a holder of certain direct or indirect equity of the MSO – will also be an owner in the professional medical entity. Such relationships help the parties maintain alignment on administrative matters with which the professional medical entity has contracted with the MSO to provide.
SB 951 severely restricts the way an MSO or any of its shareholders, directors, members, managers, officers, and employees (MSO Representatives) can be affiliated with a professional medical entity. While SB 951 enumerates several such prohibited relationships, the law notably prohibits an MSO and MSO Representatives from engaging in the following affiliations:
- Owning or controlling a majority of the shares in a professional medical entity with which the MSO has a contract for management services.
- Serving as a director, officer, employee, or independent contractor of, or otherwise receiving compensation from the MSO to manage or direct, a professional medical entity with which the MSO has a contract for management services.
- Controlling or entering into agreements to control or restrict the sale or transfer of a professional medical entity's shares or ownership interests.
- Issuing or causing a professional medical entity to issue shares or ownership interest in the professional medical entity or any of its subsidiaries or affiliates.
- Exercising de facto control over administrative, business or clinical operations of a professional medical entity. The law includes a list of activities that constitute "de facto control," but it is not an exhaustive list and leaves room for interpretation by regulators.
Note that any of the following activities can constitute de facto control:
- Hiring or terminating, setting work schedules or compensation for, or otherwise specifying terms of employment of medical licensees.
- Setting clinical staffing levels or specifying the period of time a medical licensee may see a patient, for any location that serves patients.
- Making diagnostic coding decisions.
- Setting clinical standards or policies.
- Setting policies for patient, client or customer billing and collection.
- Advertising a professional medical entity's services under the name of an entity that is not a professional medical entity.
- Setting the prices, rates or amounts the professional medical entity charges for a medical licensee's services.
- Negotiating, executing, performing, enforcing or terminating contracts with third-party payors or persons that are not employees of the professional medical entity.
Any agreement that violates these prohibitions will be void and unenforceable, and medical licensees and professional medical entities will have a private right of action against an MSO with which it has a contract for management services or the MSO Representatives.
The law includes limited exceptions to the prohibited dual affiliation relationships described above. Such exceptions are narrow in scope, include various hurdles and are likely to require material restructuring of existing arrangements employing the typical "friendly-PC" model. For instance, for one such exception to apply, a physician providing medical services for the professional medical entity must own less than 10% of the equity professional medical entity; may not be a director, member, manager, officer or employee of an MSO; and must be compensated the market rate for medical services, among other requirements.
Shareholder's Agreements
A professional corporation organized for the purpose of practicing rendering professional medical or health care services may relinquish or transfer control over the professional corporation's administrative, business or clinical operations only if the professional corporation executes a shareholder agreement exclusively between or among and for the benefit of most shareholders who are licensees, and the shareholder agreement complies with the provisions of O.R.S. § 60.265.
Further, a professional corporation organized for the purpose of rendering professional medical or health care services may not provide in its bylaws, in a contract, or other arrangement for the removal of a director or officer that is a licensee except by a majority vote of the shareholders of each class of shares entitled to vote who are licensees, or, as appropriate, by a majority vote of the directors who are licensees.
Directors and officers who are licensees may be removed by means other than a majority vote if they violated a fiduciary duty or duty of care or loyalty to the professional corporation; had their Oregon professional license suspended or revoked; engaged in fraud, misfeasance or malfeasance; resigned, separated or was terminated from employment with the professional corporation; or failed to meet standards established for the position by the professional corporation.
Restrictive Covenants
Similar to an increasing trend in other states, SB 951, prohibits noncompete agreements that restrict the practice of medicine or nursing by a medical licensee and make such agreements void and unenforceable, except in the following cases:
- The licensee owns 10% or more of the interests in the entity desiring the restriction, or the physician owns 10% or less of the interests in such entity and the noncompete is not entered into in connection with the sale of such interests.
- The noncompete agreement is with a professional medical entity that provides the licensee with documentation of its protectable interests and is valid only within three years after the licensee's date of hire.
- The licensee is a shareholder or member of a professional medical entity that does not have a contract for management services with an MSO (or has a contract for management services with an MSO that is itself a professional medical entity).
- The licensee does not engage directly in providing medical services, health care services or clinical care.
Nondisclosure and nondisparagement agreements are also generally unenforceable except in limited circumstances, such as negotiated settlement between the medical licensee and MSO or hospital/hospital-affiliated clinic.
Effective Dates
The dual affiliation prohibitions will apply to MSOs and medical practices on January 1, 2026, except with respect to entities and arrangements entities existing prior to June 9, 2025. For such entities, the law will first apply on January 1, 2029.
New requirements for the other portions of the law became effective immediately once Governor Kotek signed the law.
Additional Proposed Legislation
As if SB 951 wasn't enough, it may not be the end of the story. Proposed legislation introduced in the House would further revise the provisions of SB 951 as currently enacted. House Bill 3410 (HB 3410) has passed the House and is now headed to the Senate. Many expect HB 3410 to pass and also be signed into law by Governor Kotek. If enacted as currently proposed, HB 3410 would amend certain provisions of SB 951 to offer some flexibilities, including permitting stock-transfer restriction agreements with MSOs in limited circumstances, broadening the circumstances in which noncompete agreements may be valid and enforceable, and delaying the implementation of the dual affiliation restrictions described above for certain professional medical entities under common ownership.
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