The most recent and stringent legislative effort to restrict private equity investment in medical practices became law on June 9, 2025, when Oregon Gov. Tina Kotek signed Senate Bill 951 (SB 951). This new Oregon law contains many limitations on the ability of private equity to invest in medical practices in Oregon by regulating a common structure used for investment. The overarching focus of SB 951 is to significantly limit how management services organizations (MSOs), the typical vehicle for private equity investment in medical practices, interact with professional clinical organizations (PCs).
The most common structure for private equity invemstment into medical practices is known as the "supported practice" or "friendly PC" model. Private-equity-backed MSOs typically provide non-medical management services in exchange for fees. The relationship between the entities also typically includes an agreement providing the MSO with certain rights regarding the ownership of the PC. This model is necessitated by the corporate practice of medicine (CPOM) laws in the majority of states. CPOM laws generally restrict the ability of non-physicians to own or control medical practices, aiming to prevent business interests from influencing medical decisions. Many supported practice arrangements in Oregon will now be problematic and might require modification.
Main Points for Private Equity Investors
- MSOs cannot exercise operational control over PCs.
- MSOs and their affiliates are prohibited from owning or controlling equity in, serving as an officer or director of, or managing (directly or indirectly) a PC with which the MSO has a management services contract.
- Restrictive covenant agreements (non-compete, nondisclosure, and non-disparagement agreements) are mostly prohibited if renewed or entered into on or after June 9, 2025.
- New MSOs (formed in Oregon on or after June 9, 2025) must comply by Jan. 1, 2026.
- Existing MSOs (prior to June 9, 2025) must comply with the new law by Jan. 1, 2029.
- While SB 951 applies broadly to licensed medical professionals, including physicians, physician assistants, and nurse practitioners, it does not apply to dental, physical and occupational therapy, veterinary, and certain behavioral health practices.
Overlapping Ownership and Control
SB 951 prohibits MSOs and their shareholders, directors, members, officers, and employees from (i) owning a controlling equity position in a PC or (ii) owning or controlling a PC, collectively with a physician if the physician is a shareholder, director, member, manager, officer, or employee of the MSO. There is an exception: if a physician owns 10% or less of the PC, that physician can be an independent contractor to the MSO as long as the services are provided at fair market value, and the physician does not have any other tie to the MSO, including as a shareholder, employee, officer, or director. SB 951 does include a provision permitting a physician to be a shareholder of an MSO if that ownership is "incidental" and not tied to the physician's compensation as a shareholder, director, officer, employee, or independent contractor to the MSO. The term "incidental" is not currently defined in the law and thus could be subject to further debate and interpretation.
The new law does not change the ability of an investor to acquire or control non-clinical assets of a PC if they are acquired in an arms-length transaction. Note that for existing entities, add-ons and modifications of ownership structures are not subject to SB 951 until Jan. 1, 2029.
Restrictions on MSO Services
SB 951 does not alter the existing CPOM principle that clinical decisions must be made by a licensed provider. It does prohibit MSOs from decision-making with respect to a number of functions, including hiring and firing of physicians, setting schedules, establishing compensation, billing and collection policies, and negotiating payor contracts. To be clear, MSOs can assist with all of these functions as long as the MSO is not controlling clinical functions or weighing in on medical decision-making. The law specifically permits an MSO to provide support to a PC in such areas as accounting, budgeting, personnel management, value-based contracting, payor reimbursement negotiations and contracting, and compliance functions.
Stock Transfer Restrictions
Traditionally, physician practice investments include agreements that give the MSO investor the ability to control continuity of ownership and operation of a PC by restricting and controlling ownership of the PC by a "friendly physician". These stock transfer restrictions or succession agreements are prohibited by SB 951 except in the following circumstances:
- Suspension or revocation of a shareholder's or member's professional license.
- A shareholder's or member's disqualification from holding stock or an interest in the PC.
- A shareholder's or member's exclusion, debarment, or suspension from a federal health care program (or an investigation that could result in exclusion, debarment, or suspension).
- A shareholder's or member's indictment for a felony or another crime involving fraud or moral turpitude.
- A dissolution of the PC.
- The termination or breach of a contract for management services between the MSO and the PC.
Conclusion
The enactment of SB 951 requires that physician practice investors reassess their current MSO structures and agreements before the applicable deadlines. SB 951 will also force investors to develop new strategies and templates for future investments in Oregon, as many of the protections currently relied upon (such as equity transfer restrictions) will no longer be broadly allowed. This reassessment should include an analysis by sophisticated counsel to ensure that the resulting structures and agreements comply with the new law.
SB 951 is only the latest initiative taken by a state legislature to regulate health care transactions. It will probably not be the last. Taft continues to monitor developments in this area and develop new structures and strategies to respond to the evolving regulatory landscape. Please do not hesitate to contact us with any questions.
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.
