1. Restrictions on MSOs. SB 951 prohibits MSOs from directly, or with an individual who is a shareholder, director, member, manager, officer or employee of the MSO:
- owning or controlling (directly or in combination with others affiliated with the MSO) the majority shares in a medical entity;
- serving as a director or officer, being an employee, working as an independent contractor, or functioning in other similar roles of a medical entity with which the MSO has a contract for management services;
- serving as a proxy or exercising the right to vote the shares of a medical entity with which the MSO has a contract for management services;
- controlling or entering into an agreement to control or restrict the sale or transfer of a medical entity’s shares, interests or assets;
- issuing shares of stock or causing a medical entity to issue shares of stock;
- paying dividends from shares or an ownership interest in a medical entity; and
- acquiring or financing the acquisition of the majority of the shares of a medical entity.
SB 951 broadly prohibits MSOs from having de facto control over a medical entity’s administrative, business or clinical operations. These services would include determining a medical entity’s employees’ compensation and work schedule, hiring and termination procedures, setting clinical policies, setting prices for medical services and making diagnostic coding decisions. Further, SB 951 limits when physicians and medical entities may enter into agreements to control or restrict a transfer or sale of equity in the medical entity.
An MSO can continue to support a medical entity’s business operations in ways that do not impact the clinical decision-making or the nature or quality of care that the medical entity delivers. These can include payroll, human resources, employment screening, employee relations, purchasing, leasing or taking assets in a sale with a medical entity, accounting, budgeting, personnel management, real estate management, or assisting with payer negotiations, in addition to other administrative or business services not constituting the practice of medicine or de facto control. SB 951 provides exemptions for organizations such as hospitals, PACE organizations, certain behavioral health entities and out-of-state telemedicine companies. Overall, many of these limitations target some MSO-PC structuring options often utilized to align the MSO with medical entities, where physicians participate on both sides of the business.
2. Practice Governance Restrictions. SB 951 imposes similar restrictions on professional organizations formed to practice medicine (a practice) from entering into any agreement or arrangement that would permit anyone other than a majority of the practice shareholders or directors who are licensed professionals from removing a director of the practice, except in limited circumstances generally involving misconduct by the director. These restrictions are likewise aimed at stock/equity transfer restriction agreements between an MSO and a practice that may provide the MSO with authority to change how the practice is governed.
3. Noncompete and Nondisclosure Restrictions (Covenant Restrictions). SB 951 imposes limitations on the ability for MSOs (and other nonmedical practice parties) to enter into noncompete and nondisclosure agreements with medical professionals. These covenant restrictions restrict the imposition of a noncompetition agreement on a medical professional unless certain criteria are met (i.e., the restriction is imposed by a medical practice that does not have an MSO relationship, is in connection with ownership interest of more than 10% of the equity in an entity or does not last beyond the sale of a medical professional’s equity in the entity). SB 951 invalidates any nondisclosure or nondisparagement agreement between a medical professional and an MSO, hospital or hospital-affiliated clinic, except in limited circumstances (including negotiated settlements).
4. Timing Considerations. SB 951 takes effect in three phases:
- The restrictions and requirements of SB 951, including the covenant restrictions and practice governance restrictions noted above, are effective immediately for any contract entered into or renewed after the enactment date.
- Medical entities and MSOs organized after the enactment date or that engage in sales or transfers of ownership after the enactment date must comply with SB 951’s MSO restrictions starting Jan. 1, 2026.
- Medical entities and MSOs existing prior to the enactment date will have until Jan. 1, 2029, to comply with SB 951’s MSO restrictions. SB 951 could require MSOs to revise their agreements with medical entities, including any agreements related to administrative services and restrictions on transfers of ownership.
5. Immediate Next Steps. For medical entities and owners and operators of MSOs in Oregon, SB 951 has the potential to require material changes to key contractual arrangements. While certain provisions have a delayed effect, each medical entity and MSO should review key contractual agreements in light of the legal changes enacted by SB 951 and revise arrangements as necessary to ensure compliance. It also is important to consider what restructuring steps will need to be phased in, particularly if operations may take additional investment in the future. For platforms operating in multiple states, including telehealth providers, structuring should be closely scrutinized to understand how Oregon law may implicate operations out of Oregon.
