New Oregon CPOM law takes aim at “Friendly PC” arrangements

Covered organizations

In many states, including Oregon, business corporations cannot provide medical services due to a doctrine known as the prohibition against the corporate practice of medicine, or “CPOM.” However, in Oregon, as in other states with a CPOM prohibition, certain entities owned solely by physicians may practice medicine through their employed and contracted medical providers. SB 951 refers to these as PMEs, which include professional corporations, (PCs), and domestic and foreign-qualified professional limited liability companies, professional limited liability partnerships, and partnerships that are “organized for a medical purpose” (i.e., for the practice of medicine or naturopathic medicine). Id. §§ 1(1)(f), 2(1), 3(1)(b).

SB 951 defines an MSO broadly as any contracted entity that provides payroll, human resources, employment screening, employee relations, or “[a]ny other administrative or business services that support[s] or enable[s] a [PME]’s medical purpose.” Id. § 1(1)(b).

Prohibited forms of control

Since general business entities cannot provide health care services directly, see O.R.S. §§ 677.080(4), .100, 58.375, many such businesses instead invest in MSOs and maintain close relationships with physician practices. In Oregon, as in many states, “Captive” or “Friendly” physician practices are common, whereby the MSO business entity effectively controls much of the physician practice’s operations through (a) a broad management agreement that allows the MSO to operate most or all business (i.e., non-medical) aspects of the practice, such as owning (and renting to the practice) all space and equipment used by the practice, employing all non-medical support staff, performing all billing and collections, etc., typically for a sizable management fee that effectively transfers most or all of the medical practice’s profits to the MSO; coupled with (b) a contractual right of the MSO to replace the medical practice’s physician owner with another physician of their choosing (should the then-current owner stop acting in sync with the MSO’s interests or upon other specified events). MSOs demand these contracts because they make substantial investments in PMEs, and MSOs want to avoid PMEs walking away from such arrangements and taking patients and medical providers with them. But determining when such relationships “cross the line” into the corporate practice of medicine involves careful judgment and often, even prior to the new law, many such arrangements fell into a “grey area.” SB 951 now expressly prohibits certain arrangements between an MSO and a PME. Specifically, a MSO, or a shareholder, director, member, manager, officer or employee of an MSO, may not:

• Own, control, acquire, or finance a majority of shares in a PME individually or in combination with others associated with the MSO. See id. §§ 1(2)(a)(A), (G).
• Serve as a director or officer of, be an employee of, work as an independent contractor with, or receive compensation from an MSO to manage or direct a PME under contract with the MSO. See id. § 1(2)(a)(B).
• Exercise a proxy or otherwise vote the shares of a PME. See id. § 1(2)(a)(C).
• Control or restrict a PME’s ability to transfer its shares, interests, or assets or issue shares of stock in a PME. See id. §§ 1(2)(a)(D)-(E).
• Pay dividends from ownership or shares in a PME. See id. § 1(2)(a)(F).
• Otherwise assume “de facto control” over administrative, business, or clinical operations of a PME in a way that restricts the PME’s “clinical decision-making,” or the nature or quality of medical care that the PME delivers.
  • SB 951 provides that examples of “de facto control” include, without limitation, exercising ultimate decision making authorityover:
    • Hiring and firing, setting work schedules or compensation for, or otherwise specifying terms of employment of medical licensees;
    • Setting clinical staffing levels, or specifying the amount of time a medical licensee may see a patient;
    • Making diagnostic coding decisions;
    • Setting clinical standards or policies;
    • Setting policies for patient, client, or customer billing and collection;
    • Setting the prices, rates, or amounts the PME charges for a medical licensee’s services; or
    • Negotiating, executing, performing, enforcing, or terminating contracts with third-party payors, or persons who are not employees of the PME.

Note, however, that SB 951 provides that an MSO can “provide services to assist in carrying out” the above-listed activities, so long as the MSO’s role does not rise to the level of “de facto control.” This suggests that the MSO can be involved with these services as long as it is not exercising ultimate decision making authority – and the PME retains that ultimate authority.¹ It will be important to monitor Oregon for implementation of regulations or issuance of guidance regarding what will constitute “de facto control,” as the term is not exhaustively defined in the law.

SB 951 explicitly permits an MSO to provide support, advice, and consultation to a PME relating to business operations, such as accounting, budgeting, personnel management, real estate, and facilities management, as well as compliance with applicable laws, rules, or regulations. MSOs may also advise and provide direction regarding PME’s participation in value-based contracts payor arrangements, or contracts with suppliers and vendors, collect quality metrics, and set criteria for reimbursement in payer contracts.

SB 951 additionally exempts (a) “incidental” ownership of an MSO by a PME shareholder, if such ownership is unrelated to the individual’s compensation by the MSO, and (b) owners of 10 percent or less of a PME, provided such PME owners are not directors or employees of the MSO. See id § 1(3)(a), (b). While no definition of “incidental” is provided, it is possible that this exemption could protect PME owners that also own shares in publicly-traded MSOs.²

Impact

These new restrictions will go into effect on January 1, 2026, for MSOs and PMEs incorporated after June 9, 2025, and on January 1, 2029, for existing MSOs and PMEs. See § 9(2), (3). After the relevant effective dates, contractual provisions that violate SB 951 will be void and unenforceable, and medical licensees or PMEs that suffer a loss of money or property as a result of a violation of SB 951 may seek actual damages, injunctive and other equitable relief, and notably, the statute authorizes the award of punitive damages as well as attorney’s fees and costs. The primary result of the new law likely will be to significantly limit the “Friendly” physician model described above and dramatically roll back nonmedical business oversight of the practice of medicine in response to a growing nationwide concern over increasing consolidation and corporate involvement in physician medical practices.

Notably, SB 951 does not distinguish between nonprofit and for-profit MSOs, which could create unintended barriers for medical facilities operated by health systems or educational institutions that also rely on a ”Friendly” physician practice framework. For example, some tax-exempt MSOs seek tax exemption for affiliated PMEs on the basis of the PME’s close ties to the MSO. SB 951 could make it more difficult to establish a sufficiently close relationship.

MSOs and PMEs in Oregon should review their management services agreements, shareholder agreements, and other key documents to ensure compliance in advance of the statutory deadline. Oregon providers should also review the services that their MSOs are providing in practice to ensure compliance with SB 951’s limitations.

Finally, PMEs and MSOs in other states should carefully study the Oregon statute and its enforcement. Many states have previously enacted reporting requirements and laws enabling market investigation for certain health care transactions in an effort to cut back on physician practice corporatization. See, e.g., Hogan Lovells, NY physician practice, MSO, and other health care transactions affected by new reporting rules (June 22, 2023); Hogan Lovells, Indiana implements new ownership reporting requirements, authorizes health entity market concentration investigation (May 6, 2025). However, this Oregon law goes further, and other states may look to it as a new mechanism to further restrict private equity firms’ influence on health care.³ Hogan Lovells will continue to monitor developments in Oregon and across the country and provide updates to clients. If you have any questions about this law or other similar state laws, please contact any of the authors of this alert or the Hogan Lovells attorney with whom you work.

Authored by Jeffrey Schneider, James Huang, Jessica Hanna, Joe Liss, and Caroline Farrington.