
Last week, Oregon enacted into law SB951, which strengthens Oregon’s corporate practice of medicine doctrine by implementing greater restrictions on arrangements between medical practices and management services organizations (MSOs). The new law amends ORS 58.375 and 58.376 to provide that MSOs may not interfere with a practice’s medical judgment, employ practicing physicians, or use nondisclosure agreements, non-competition agreements or nondisclosure agreements to restrain criticism. These restrictions will significantly impact investments by private equity sponsors in physician practices located in Oregon.
Most private equity investments in medical practices are structured under a “friendly PC” arrangement where the medical practice, which is typically organized as a professional corporation (PC) owned by a licensed professional, enters a management services agreement (MSA) with the MSO, which is owned by a private equity sponsor or other lay investors. Under the MSA, the MSO provides nonclinical management services to the PC in exchange for a management fee. The new law prohibits an MSO or its employees, shareholder, or officers from owning a majority of shares in the PC and restricts the MSO’s involvement in the PC including:
- Entering into an agreement that restricts the sale or transfer of shares in the PC except under specific circumstances;
- Removing or replacing physician equity holders, subject to certain limited exceptions; or
- Being able to exercise “de facto control” over the PC’s clinical decision-making such as being the ultimate decision-maker.
The law also specifically prohibits MSOs from performing certain tasks on behalf of the PC including setting clinical staffing levels, negotiating or executing agreements with third-party payors, setting the rates for clinical services, or advertising the PC under another name. The MSO can assist the PC with these services but may not exercise “de facto control” over those services.
If a MSO contract violates the new restrictions, a medical practice or medical licensee that has suffered “an ascertainable loss” may bring a lawsuit against the MSO for damages, injunctive relief or other equitable relief. The statute also provides that punitive damages may be awarded along with attorneys’ fees.
The new law also voids non-compete, nondisclosure and non-disparagement agreements between MSOs and PCs, subject to certain narrow exceptions.
MSOs and PCs incorporated or organized in Oregon after the law comes into effect are required to comply by January 1, 2026. MSOs and PCs already in existence must comply by January 1, 2029.