Oregon Enacts Legislation Placing Parameters on PE Involvement in Professional Medical Entities

Oregon has put itself on the map as the first state to follow through with its efforts to curtail private equity (“PE”) control over professional medical entities (“PMEs”). Quarles has been reporting on increased efforts by states to take such measures over the last two (2) years, but Oregon’s Senate Bill 951 (“SB 951” or the “Legislation”)¹ is the first to be signed into law. Importantly, SB 951, signed by Governor Tina Kotek on June 9, 2025, reinforces the state’s corporate practice of medicine (“CPOM”) restrictions and limits the use of well-established models to structure PE transactions in the health care space. PE firms looking to get involved in Oregon health care and those with current Oregon arrangements need to be aware of the new constraints on arrangements with PMEs to avoid liability under the Legislation.

SB 951 applies to physician practices and medical licensees, including physicians, nurse practitioners, physician associates, and naturopathic doctors. The Legislation does not apply to dental practices, physical or occupational therapy practices, veterinary practices, or certain behavioral health providers. SB 951 prohibits management services organizations (“MSOs”) from engaging in certain activities as they relate to PMEs, such as owning or controlling a majority of shares in a PME with which the MSO has a contract for management services. Notably, the Legislation further precludes an MSO from (a) controlling or restricting or permitting a person other than a medical licensee to control or restrict the sale or transfer of a PME’s shares, interests, or assets; and (b) exercising de facto control over administrative, business, or clinical operations of a PME in a manner that affects the PME’s clinical decision-making or the nature or quality of medical care that the PME delivers.

The restraints included in SB 951 will necessitate that PE companies looking to invest in health care reconsider employing the “friendly-PC” model to structure the deal or, at least, reconfigure the manner in which the model is implemented. No longer will transactions be allowed to include transfer restriction agreements or option agreements that effectively allow an MSO to ensure that the PME remains committed to the MSO. Management services agreements between MSOs and PMEs will also need to be carefully drafted to avoid permitting the MSO to engage in prohibited activities.

To that end, the Legislation codifies the delineation between management and clinical or medical services. For example, management services that an MSO is permitted to provide include services provided for or on behalf of a PME, such as payroll, human resources, employment screening, and employee relations. Additionally, MSOs may still provide support, advice and consultation on matters related to a PME’s business operations including accounting, budgeting, personnel management, real estate, compliance with laws, value-based contracts, payor arrangements, or contracts with suppliers and vendors. However, the MSO may not exercise ultimate decision-making authority over clinical or medical services, including but not limited to:

1. Hiring or firing, setting schedules or compensation for, or otherwise specifying terms of employment of medical licensees;
2. Setting clinical staffing levels, or specifying the period of time a medical licensee may see a patient;
3. Making diagnostic coding decisions;
4. Setting clinical standards or policies;
5. Setting policies for patient, client or customer billing and collection;
6. Advertising a PME's services under the name of an entity that is not a PME;
7. Setting the prices, rates or amount the PME charges for medical services; or
8. Negotiating, executing, performing, enforcing, or terminating contracts with payors or persons that are not employees of the PME.

Any provision in a contract between an MSO and a PME that is in violation of one of the prohibitions is void and unenforceable. A medical licensee or PME that suffers an ascertainable loss from such a violation may bring an action against an MSO to recover appropriate damages. These conditions do not apply to providers of medical services with little to no ownership in the PME, owners of shares in the PME incidental to the individual’s compensation, a PME that functions as an MSO or an MSO that contracts with a PME solely under certain state and federal government programs for management services.

SB 951 applies to individual stakeholders in an MSO, as well, including shareholders, directors, members, managers, officers, and employees. Such individuals are prohibited from serving as a director or officer of, being an employee of, working as an independent contractor with, or receiving compensation from the MSO to manage or direct the management of a PME with which the MSO has a contract for management services. Further, SB 951 voids noncompetition agreements between medical licensees and certain entities, including MSOs, and sets strict parameters around the enforceability of nondisclosure and non-disparagement agreements involving medical licensees. Violations of specified provisions of the Legislation will be punishable under the Unlawful Trade Practices Act.

Key Takeaways:

1. Compliance Dates: New arrangements formed after June 9, 2025, must comply with SB 951 by January 1, 2026. Existing arrangements must comply by January 1, 2029.
2. Management Services Arrangements:
   • Review current and proposed management services agreements to ensure there is a proper delineation between management services and medical services as outlined in the Legislation.
   • Be aware that noncompetition agreements, nondisclosure agreements, and non-disparagement clauses are generally unenforceable, with limited exceptions.
3. Equity Transfer Restrictions: With the new prohibitions on equity transfer restrictions, it is more important than ever to closely evaluate the medical professionals that will be owners of friendly-PMEs and maintain transparent working relationships with such individuals.
4. Other States: Continue to monitor legislative efforts in other states, as the new Legislation marks a change in the industry that may cause a ripple effect. Additionally, consider utilizing the defined parameters on management vs. medical services as helpful guidance when drafting management services agreements in other states.

Also, contributing to this article Alyssa Laufenberg, Summer Associate.

END NOTES

¹ S.B. 951, 83d Leg. Assemb., Reg. Sess. (Or. 2025).