Oregon Alters Rules For Healthcare-Private Equity Relationships For Second Time In Two Months

As we described in a previous bulletin, SB 951 strengthens the Oregon corporate practice of medicine (CPOM) doctrine by imposing significant restrictions on management service organizations (MSOs) in an effort to further curtail private equity investment in medical practices.

Oregon has quickly followed up with an amendment to SB 951. HB 3410 was signed by Governor Kotek on July 24, 2025, enacting changes to some of the prohibitions contained in SB 951, likely in response to concerns voiced by impacted parties. While the main restrictions that prevent an MSO from exercising control over medical practices and professional clinical organizations (PCs), such as the prohibitions on control of medical decisions, remain, other restrictions have been altered.

Restrictive Covenants

Certain restrictions on the use of restrictive covenant agreements with licensed medical staff (e.g., non-compete, nondisclosure, and non-disparagement agreements) have now been loosened. If properly structured, non-compete agreements may now be enforced against licensed professionals, such as when:

• The medical licensee owns at least 1.5% of the ownership interests of the other party to the agreement.
• The PC has documented costs equivalent to 20% or more of a medical licensee's annual salary, such as costs associated with marketing, recruiting, sign-on or relocation bonus, education, training, license fees, support staff, or other such items. The idea being that the MSO can protect its "recruitment investment" in a medical licensee, such that the licensee is not completely free to break the arrangement and compete in the same area as the PC when a threshold investment has been made on their behalf. Note that such non-compete agreements are still limited to 3-5 years, depending on the scope of services provided by the licensee.
• The medical licensee does not directly provide clinical services or care.

HB 3410 retains an exception for entities engaged in providing telemedicine that do not have a physical location providing clinical services in Oregon.

Equity Transfer Restrictions

While still largely in place, restrictions on transferring the PC's equity have also been relaxed through a narrow exception. Now, in addition to license revocation, disqualification, debarment, and death or incapacity, equity transfer restriction agreements may also permit an MSO to require a transfer of equity if a PC member or shareholder breaches a provision of the contract for management services.

The drafting of the Management Services Contract will be more important than ever, and special attention should be paid to the definition and consequences of a breach of contract.

Compensation and Ownership

Contractors Now Included

HB 3410 expands SB 951's prohibitions on dual compensation and ownership to include contractors of an MSO. This means that independent contractors who were previously omitted from SB 951's restrictions are now subject to the same prohibitions on receiving dual compensation and having ownership interests in both professional medical entities and MSOs.

Minority Ownership

HB 3410 amends an exception in SB 951 for licensed professionals who have less than 10% ownership in the PC, so long as such individuals are reimbursed at market rates for provision of their medical services and the services that they provide to the MSO. The bill removes the previous requirement that such individuals could not be shareholders, directors, members, managers, officers, or employees of the MSO.

Revised Exception for Physician Directors/Officers

The general prohibition states that an MSO's shareholders, directors, members, managers, employees, and contractors cannot own or control a majority of shares, individually or in combination with the MSO, in a PC with which it contracts. PC members were able to serve as officers or directors of an MSO as long as they did not receive compensation for the role, and the agreement was already in place. HB 3410 significantly modifies the exception that permits physician shareholders to serve as directors or officers of an MSO. For a PC member to serve in a management role in a contracting MSO, the member must now also satisfy the following criteria:

• The medical licensee owns less than 25% of the PC.
• The PC owns less than 49% of the voting interests in the MSO.
• Actions of the MSO that materially impact the interests of the minority MSO owners require a greater-than-majority vote to be passed.
• The contract between the PC and MSO was in existence prior to Jan. 1, 2024.
• The MSO and the PC have always been in compliance with all of these requirements.

The PC member may now also receive compensation, as long as it is at fair market value, for their services. These limitations are designed to keep distinct the operations of the PC and the MSO by placing restrictions on employees who could exercise control over both entities in violation of the corporate practice of medicine limitations. This exception does not impact newly formed contracts; it only allows grandfathering in for certain PC-MSO relationships already in existence.

Deadlines

Arrangements formed prior to January 2024 may now qualify for limited safe harbor treatment, but most contracting arrangements will remain subject to the original restrictions of SB 951 in addition to the changes made by HB 3410. In addition, HB 3410 alters the deadlines for compliance with various provisions:

• Non-competition, non-disparagement, and non-disclosure requirements for agreements entered into or renewed after June 9, 2025, by a medical licensee must comply immediately.
• The restrictions on membership interest transfer for newly created MSOs and professional medical entities will be effective Jan. 1, 2026.
• The restrictions on sales and ownership transfers by professional medical entities and MSOs already in existence will be effective Jan. 1, 2029.

Legislative Horizon

Lest you think you escaped the impact of this legislation by not having a nexus to Oregon, several other states are also considering similar legislation:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.