SB 951 Revives Restrictive Oregon Law on Corporate Practice of Medicine

BACKGROUND

On February 5, 2024, Representative Ben Bowman (D-OR) introduced House Bill (HB) 4130, which would implement sweeping CPOM restrictions on MSO ownership and management of professional medical entities. HB 4130 passed the Oregon House of Representatives with bipartisan support on February 22, 2024. However, the bill stalled at the state Senate president’s desk and failed to be enacted prior to the end of the legislative session. For a more detailed review of HB 4130, read our On the Subject, “Pending Oregon Law Undermines Traditional Physician Practice Structure.”

Upon the adjournment of the 2024 legislative session, Rep. Bowman convened a “Workgroup on Oregon’s Corporate Practice of Medicine Doctrine” composed of stakeholders engaged with or otherwise interested in HB 4130. Over the course of the remainder of 2024, the working group discussed and proposed amendments to HB 4130’s provisions. In November 2024, the working group published a report on its findings and amendments to HB 4130, stating that the bill as amended would be introduced in the 2025 legislative session.

SB 951 CHANGES TO HB 4130

Changes to the Control Provisions

SB 951 would shift the liability for violations of the CPOM restrictions entirely to the MSO and away from the professional medical entity.

HB 4130 would have prohibited professional medical entities from relinquishing control over their “assets, business operations, clinical practices or decisions or the clinical practices or decisions of a physician.” The limitations sought to ensure that the professional medical entity retains ultimate, or veto, control, even when contracting with an MSO, particularly with regard to clinical decision-making.

SB 951 clarifies that the following MSO activities would not be prohibited:

• Selling, leasing, or assigning the right to possess corporate assets, inclusive of any leased or owned property, to an MSO
• Supporting, advising, and consulting on all matters of the professional medical entity’s business operations, including accounting and budgeting, personnel, real estate and facilities management, and compliance support, for the benefit of the professional medical entity
• Advising and providing direction to the professional medical entity related to its participation in value-based contracts, payer arrangements, or vendor contracting.

HB 4130 contained a carve-out for telemedicine, but SB 951 does not except as applicable to certain dual employment restrictions. Accordingly, practices providing telemedicine services without a physical presence in Oregon would be subject to the CPOM restrictions in SB 951.

Changes to Dual Compensation (Ownership)

HB 4130 contained a limitation on cross-ownership management whereby any shareholder, director, or officer of a professional medical entity would be prohibited from owning shares; being a director, officer, employee, or independent contractor; or participating in the management of a MSO under contract with the professional medical entity.

SB 951 clarifies that MSOs owned by a professional medical entity and MSOs that are professional medical entities would not be subject to this prohibition by virtue of being owned and run by independent providers. Additionally, SB 951 includes an exception that would allow physicians and independent providers below the 10% ownership threshold to serve as directors or officers of the MSO, provided that such individuals are reimbursed at market rates for their services.

Changes to Certain Key Contractual Clause Restrictions (Restrictive Covenants)

HB 4130 proposed limitations to restrictive covenant clauses, including noncompetition, nondisclosure, and nondisparagement clauses, and limitations to stock transfer restriction agreements. HB 4130 would have voided any noncompetition agreements that prohibit Oregon licensed physicians from providing “products, processes or services.” HB 4130 also would have rendered unenforceable all nondisclosure and nondisparagement agreements between Oregon licensed physicians and MSOs.

SB 951 clarifies that noncompetition agreements with providers who have ownership would be allowed, although such agreements with providers with zero or less than 10% ownership stake in the professional medical entity would remain void and unenforceable. Noncompetition agreements for providers not directly engaged in clinical care also would be allowed, although such agreements would be rendered unenforceable should the provider’s employment to provide clinical care terminate.

Under SB 951, nondisclosure and nondisparagement agreements remain void and unenforceable, except as it relates to trade secrets, good-faith reports, and in termination agreements with whistleblower protections.

SB 951, similarly to HB 4130, would prohibit stock transfer restriction agreements broadly but provides a limited list of exceptional circumstances under which a stock transfer restriction agreement would be permitted:

• Suspension or revocation of a shareholder’s or member’s professional license in Oregon or another state

• A shareholder’s or member’s disqualification from holding stock or interest in the professional medical entity

• A shareholder’s or member’s exclusion, debarment, or suspension from a federal healthcare program or an investigation that could result in the shareholder’s or member’s exclusion, debarment, or suspension

• A shareholder’s or member’s indictment for a felony or another crime that involves fraud or moral turpitude

• Dissolution of the professional medical entity

• Termination or breach of a contract for management services between a shareholder and an MSO or the professional medical entity.

ENFORCEMENT

HB 4130 would have empowered the secretary of state to investigate any complaint from the Oregon Health Authority (OHA) or any other person about a violation of these restrictions and to administratively dissolve or revoke the foreign qualification of offending organizations.

SB 951 removes the secretary of state’s involvement; instead, it would regulate violations under the Unlawful Trade Practices Act and authorize OHA to stop pending or future transactions that violate the statute.

KEY DEFINITIONS

• “Management services” means services for or on behalf of a professional medical entity that include payroll, human resources, employment screening, employee relations, or any other administrative or business services that support or enable a professional medical entity’s medical purpose and do not include practicing medicine; enabling joint rendering of professional health services by physicians, physician assistants, and nurse practitioners; or practicing naturopathic medicine.

• “Management services organization” means an entity that under a written agreement and in return for compensation provides management services to a professional medical entity but does not include a hospital or a hospital-affiliated clinic.

• “Medical purpose” means the purpose of practicing medicine; the purpose of allowing physicians, physician assistants, and nurse practitioners to jointly render professional healthcare services; or the purpose of practicing naturopathic medicine.

• “Professional medical entity” includes a professional corporation; a limited liability company or foreign limited liability company with authority to transact business in Oregon that is organized for a medical purpose; a partnership or limited liability partnership, or foreign partnership or foreign limited liability partnership with authority to transact business in Oregon, that is organized for a medical purpose; or a limited partnership or foreign limited partnership with authority to transact business in Oregon that is organized for a medical purpose.

ANALYSIS

SB 951 continues the nationwide trend toward increased regulation of healthcare transactions and represents a small step back from the onerous restrictions and prohibitions presented in its predecessor, HB 4130. SB 951 still contains much of the same restrictions while providing incremental concessions to certain MSO practices.

If passed, SB 951 would significantly impair current and future transaction structures that utilize MSOs in Oregon. Considering its predecessor stalled in the Senate, SB 951 is likely to face similar challenges.

McDermott will continue to monitor the bill’s progression through the state legislature and provide updates.

KEY TAKEAWAYS

If SB 951 is passed:

• Professional medical entities would be prohibited from relinquishing control over their “assets, business operations, clinical practices or decisions or the clinical practices or decisions of a physicians,” greatly restricting the current MSO framework in Oregon.

• Shareholders, directors, and officers of professional medical entities would be prohibited from owning shares of; being a director, officer, employee, or independent contractor of; or participating in the management of an MSO under contract with the professional medical entity, except under limited circumstances.

• Restrictive covenant agreements would be largely rendered void and unenforceable with regard to professional medical entities and MSOs.

• Stock transfer restriction agreements between professional medical entities and MSOs would be significantly limited to certain enumerated circumstances.