Overview of SB 951
Oregon Governor Tina Kotek on Monday, June 9, 2025, signed a first-of-its-kind law that significantly reshapes the state’s regulatory landscape for non-physician investment in medical practices. Senate Bill 951 (“SB 951” or the “Law”) imposes broad restrictions on how non-professional parties, such as private equity firms and other non-physician investors, participate in the ownership, management, and operation of medical practices in Oregon. The Law strengthens and expands Oregon’s existing corporate practice of medicine (“CPOM”) prohibition, directly impacting the way investors, management services organizations (“MSOs”), and professional medical entities structure their relationships. The Law has garnered national attention for its aggressive stance on limiting corporate involvement in healthcare and signals an evolving trend in the state regulation of private equity (and other investor) backed medical practices.
Understanding CPOM Restrictions
A majority of U.S. states (“CPOM States”) recognize some form of CPOM restriction, which generally prohibits unlicensed individuals or non-professional legal entities from owning, operating, or controlling medical practices, or from employing or contracting with physicians to provide medical services to the general public. These CPOM restrictions are intended to prevent non-licensed investors from influencing physicians’ clinical decision-making or from having de facto control over medical practices. The source of CPOM restrictions varies by state, but often are derived from a combination of professional licensure statutes, case law, attorneys general opinions, and regulatory body opinions.
In many CPOM States, a common approach to enable non-physician investment in medical practices, while remaining compliant with applicable CPOM restrictions, is the use of the PC-MSO model. Under this model, a medical practice (i.e., a professional corporation (PC), professional limited liability company (PLLC), or a similar professional entity) is owned exclusively by one or more physicians (unless a particular state’s laws permit minority ownership by non-physicians), and all clinical responsibilities and decision-making authority is reserved exclusively to the physician owners, employees, and contractors. At the same time, an investor forms and operates an MSO (which may be owned, in part, by the same physicians that own the medical practice) that contracts with the medical practice for the provision of all of the non-clinical management, administrative, and business support services necessary to run the medical practice, and the MSO receives a fair market value fee from the medical practice in exchange for such services. This arrangement allows the physicians to focus on providing medical services, while outsourcing non-clinical responsibilities to the MSO.
To promote further alignment between the investor-owned MSO and the medical practice, and to maintain continuity of care and operations of the medical practice, the medical practice physician owners typically enter into a succession agreement (also referred to as a stock transfer restriction agreement, option agreement, or equity transfer agreement) with the MSO and/or the medical practice. Under this agreement the physician owners of the medical practice are restricted from selling or encumbering their equity in the medical practice, or encumbering the assets of the medical practice, without the MSO’s consent. The succession agreement also allows the MSO to require a physician owner of the medical practice to transfer or sell their equity interests in the medical practice to another physician upon the occurrence of certain triggering events, such as the physician’s death, disability, loss of license, or disassociation from the medical practice or the MSO.
Codification of CPOM Restrictions and Narrowing of MSO Control
SB 951 codifies Oregon’s pre-existing CPOM restrictions and takes further aim at private equity-backed PC-MSO arrangements by prohibiting, subject to limited exceptions, MSOs (and their shareholders, directors, members, managers, officers, and employees) from owning or controlling (individually, or in combination with the MSO or any other shareholder, director, member, manager, officer or employee of the MSO) a majority of the shares in a “professional medical entity” (which includes medical, nursing and naturopathic PCs, and LLCs, LPs and partnerships organized for a medical purpose) with which the MSO has a contract for management services, and from serving as directors or officers, being employees of, or working as independent contractors with (or receiving compensation from) the MSO to manage or direct the management of the professional medical entity that has a management agreement with the MSO.
While PC-MSO arrangements are typically structured to delineate the clinical responsibilities and authority of the medical practice from the non-clinical operations and business support services provided by an MSO, SB 951 further restricts the ability of MSOs to exercise “de facto” control over the administrative or business operations of the professional medical entity, including by prohibiting MSOs (and their shareholders, directors, members, managers, officers, and employees) from exercising ultimate decision-making authority over, among other things, setting policies for patient billing and collection, and negotiating, executing, performing, enforcing or terminating contracts with third-party payors or persons that are not employees of the professional medical entity.
SB 951 also significantly impacts the use of succession agreements with physician owners of professional medical entities, permitting only the following triggering events:
- Suspension or revocation of a physician’s medical license in any state;
- A physician’s disqualification from holding ownership in the professional medical entity;
- A physician’s exclusion, debarment, or suspension from a federal healthcare program, or if the physician is under an investigation that could result in such actions;
- A physician’s indictment for a felony or other crimes involving fraud or moral turpitude;
- The professional medical entity’s breach of a management agreement with an MSO; or
- The death, disability or permanent incapacity of a physician.
Consequences of Violating CPOM Restrictions
The Law also expressly provides that a physician or professional medical entity that suffers an ascertainable loss of money or property as a result of a violation of the above prohibitions may bring an action against an MSO with which the medical licensee or professional medical entity has a contract for management services, or a shareholder, director, member, manager, officer or employee of such MSO, in an Oregon circuit court to obtain: (i) actual damages equivalent to the physician’s or professional medical entity’s loss; (ii) an injunction against an act or practice that violates the prohibition; and (iii) other equitable relief the court deems appropriate. A court may also award punitive damages and attorneys’ fees and costs to a plaintiff that prevails in such an action, increasing the potential financial consequences for the defendant.
Additional Restrictions on Non-Competition, Non-Disclosure and Non-Disparagement Agreements
SB 951 also targets the use of nondisclosure, noncompetition and nondisparagement agreements with medical licensees, which could be used by businesses to silence criticism of their operations and management practices. Oregon law already placed restrictions on the use of noncompetition agreements, but with the enactment of SB 951, subject to limited exceptions, noncompetition agreements that restrict the practice of medicine or the practice of nursing are now void and unenforceable between a medical licensee (i.e., a physician, nurse practitioner, physician associate, and practitioner of naturopathic medicine) and an MSO, a hospital (as defined in ORS 442.015) or hospital-affiliated clinic (as defined in ORS 442.612), or any other “person” (as defined in ORS 442.015).
Under the Law, a noncompetition agreement is still valid if the medical licensee is a shareholder or member of the other “person” or otherwise owns or controls an ownership interest and that ownership interest is equal to or exceeds 10% of the entire ownership interest of that person, or the medical licensee owns less than 10% but the medical licensee has not sold or transferred the ownership interest. A noncompetition agreement is also valid, but only for three years after the medical licensee was hired, if it is with a professional medical entity that provides the medical licensee with documentation of the professional medical entity’s protectable interest (i.e., that the costs to the entity – such as for recruiting the employee, sign-on bonus, and education or training in the entity’s procedures – are equal to 20% or more of the annual salary of the medical licensee).
SB 951 also permits a noncompetition agreement if the medical licensee is a shareholder or member of a professional medical entity and has a noncompetition agreement with the professional medical entity, provided the professional medical entity does not have a management agreement with an MSO or if it has a management agreement but the professional medical entity is the MSO or owns a majority of the ownership interests of the MSO. In addition, noncompetition agreements remain valid if the medical licensee does not engage directly in providing medical services, health care services or clinical care.
In addition, the Law specifies that nondisclosure agreements and nondisparagement agreements between a medical licensee and an MSO, or between a medical licensee and a hospital (as defined in ORS 442.015) or hospital-affiliated clinic (as defined in ORS 442.612), if either the hospital or the hospital-affiliated clinic employs a medical licensee, are void and unenforceable, unless the MSO, hospital or hospital-affiliated clinic terminated the medical licensee’s employment or the medical licensee voluntarily left employment with the MSO, hospital or hospital-affiliated clinic, or if the nondisclosure agreement or nondisparagement agreement is part of a negotiated settlement between the medical licensee and an MSO, hospital or hospital-affiliated clinic. Such nondisclosure agreements and nondisparagement agreements cannot, however, be enforced by an MSO, hospital or hospital-affiliated clinic for the medical licensee’s good faith reporting of information to a hospital or hospital-affiliated clinic or a state or federal authority that the medical licensee believes is evidence of a violation of a state or federal law, rule or regulation. Further, the Law prohibits MSOs and professional medical entities from taking an adverse action against a medical licensee as retaliation for, or as a consequence of, the medical licensee’s violation of a nondisclosure agreement or nondisparagement agreement or because the medical licensee in good faith disclosed or reported information to an MSO, hospital, hospital-affiliated clinic, or state or federal authority that the medical licensee believes is evidence of a violation of a federal or state law, rule or regulation.
Market Impact
Oregon’s enactment of SB 951 reflects growing momentum across several states to curtail private-equity and other non-physician investment in medical (and other healthcare) practices.
Notably, over the past two years, legislators in California, Washington, Illinois, Indiana, Massachusetts, New Mexico, and New York have either proposed or passed laws heightening regulatory scrutiny of healthcare transactions or corporate ownership or control of healthcare entities[1]. SB 951 may very well serve as a model for CPOM legislation in other jurisdictions.
While the legislative intent behind the Law is to protect the clinical independence of providers and professional medical entities, its broad scope may have the unintended effect of deterring investment in Oregon’s healthcare market, potentially narrowing the pool of potential buyers for medical (and other healthcare) practices, and subsequently impacting market valuations.
What Comes Next
The CPOM-related restrictions first apply on January 1, 2026 to MSOs and professional medical entities incorporated or organized in Oregon on or after June 9, 2025, and to sales or transfers of ownership in such MSOs or professional medical entities that occur on or after June 9, 2025. The CPOM-related restrictions first apply on January 1, 2029 to MSOs and professional medical entities that existed before June 9, 2025, and to sales or transfers of ownership interests in such MSOs or professional medical entities that occur on or after January 1, 2029. The restrictions on noncompetition, nondisclosure, and nondisparagement agreements apply to contracts that a person enters into or renews on and after June 9, 2025.
Stakeholders with medical operations or investment activity in Oregon should begin preparing now. Key action items for stakeholder consideration may include:
- Evaluating whether existing PC-MSO arrangements are compliant with the enacted Law;
- Reviewing management and employment agreements for provisions that may soon be unenforceable;
- Develop alternative investment and operating models that comply with SB 951’s restrictions; and
- Exploring alternatives to succession agreements and restrictive covenant agreements to ensure continued alignment with physician owners of medical practices.
Pending Legislation
On the heels of SB 951, the Oregon legislature is considering a new bill, HB 3410, which seeks to amend the recently enacted SB 951 by tightening and clarifying certain key provisions. Among others, HB 3410 would expand the professional medical entity ownership and control prohibitions to also apply to independent contractors of an MSO, which were previously omitted from SB 951, and slightly relax certain exceptions to the ban on noncompetition agreements with medical licensees. HB 3410 has passed in Oregon’s House of Representatives and is now before Oregon’s Senate Committee on Rules, with many expecting that it will be passed by the Senate and ultimately signed by the Governor.
We continue to monitor developments across the country regarding the potential codification and ongoing enforcement of CPOM restrictions. In light of heightened legislative focus and regulatory scrutiny, we strongly encourage all stakeholders to reassess their healthcare investment strategies and organizational structures to ensure alignment with the evolving legal landscape.
FOOTNOTES
[1] State Healthcare Transaction Laws, https://discover.sheppardmullin.com/state-healthcare-transaction-laws/.