Key Takeaways
- Most Restrictive State Law: Oregon’s SB 951 creates the nation’s most comprehensive barriers to private equity healthcare investment, fundamentally disrupting the traditional “friendly” PC-MSO model through arms-length requirements and operational restrictions.
- Action Required: Dual-engagement restrictions take effect January 1, 2026, for new market participants. Private equity investors should conduct compliance audits of existing Oregon arrangements, for which they have a three-year grace period (until January 2029) to restructure existing non-compliant ownership and management structures.
- Robust Enforcement with Real Consequences: Unlike typical healthcare regulations, OR SB 951 empowers the Oregon Attorney General to pursue civil penalties and allows private plaintiffs to seek damages, including punitive damages and attorney’s fees, treating violations as unlawful trade practices.
- National Template for Healthcare Reform: Governor Kotek positioned the legislation as a “model for other states,” signaling potential regulatory convergence that could reshape private equity healthcare investment strategies nationwide.
The State of Oregon recently enacted the nation's most comprehensive restrictions on private equity healthcare investment with the passage of Senate Bill 951 (OR SB 951),1 signed into law by Governor Tina Kotek on June 9, 2025. Governor Kotek positioned the legislation as a potential "model for other states,"2 fundamentally reshaping how medical practices can engage with management services organizations (MSOs) and creating unprecedented barriers to corporate ownership of medical practices nationwide.3
Historical Context and Legislative Intent
Oregon’s corporate practice of medicine (CPOM) doctrine traces its origins to 1947, reflecting longstanding concerns about non-physician control of medical decision-making. The sponsors of OR SB 951 identified a critical gap: corporate investors were increasingly circumventing these established protections through sophisticated MSO structures. The new law directly addresses these workarounds by imposing statutory limitations on MSO operations, creating what amounts to the most comprehensive state-level restriction on private equity healthcare investment in the United States.
Core Restrictions under OR SB 951
Prohibition of MSO-Medical Practice Alignment Mechanisms
Private equity firms have traditionally relied on the “friendly” PC-MSO model to navigate CPOM restrictions. This structure involves MSOs (typically private equity-backed) contracting with physician-owned professional corporations (PCs), with PC owners often holding equity stakes in the MSO. These arrangements typically include restrictions on PC owners’ ability to transfer their interests without MSO approval. The PCs are left solely in charge of clinical decision-making for their respective practices, while the MSO provides non-clinical management services for a fee.
- Eliminating Dual-Engagement Strategies
OR SB 951 directly targets these relationships by prohibiting overlapping ownership and control between MSOs and contracted medical practices. The law establishes clear prohibitions:
- Management Restrictions: MSOs and their agents cannot manage, direct, or participate in managing professional medical entities under contract.
- Personnel Prohibitions: MSO agents, including independent contractors and shareholders, cannot serve as directors, officers, employees, or contractors of contracted medical entities.
- Voting Restrictions: MSO representatives cannot exercise proxy rights or voting powers over professional medical entity shares.
This arms-length requirement fundamentally disrupts the private equity model, forcing investors to reconsider existing ownership and management structures in Oregon-based medical practices.
- Limiting Continuity Planning and Ownership Controls
The legislation further restricts MSO use of equity transfer-restriction agreements. MSOs cannot unilaterally prohibit or dictate PC sales, except under narrowly defined circumstances.4 This provision undermines private equity firms’ ability to ensure long-term alignment and control over their healthcare investments.
Private equity investors must now audit their existing documentation, including credit agreements and management contracts, to identify potentially non-compliant control mechanisms and equity restrictions.
Operational Oversight Restrictions
OR SB 951 establishes comprehensive limitations on MSO operational involvement:
- Ownership Caps: MSOs cannot own or control majority stakes in contracted medical practices.
- Clinical Decision-Making: MSOs cannot exercise de facto control over administrative, business, or clinical operations affecting patient care quality.
- Staffing Controls: Prohibited activities include controlling hiring/termination decisions, setting work schedules, determining compensation, and establishing clinical staffing levels.
- Financial Operations: MSOs cannot control diagnostic coding, payor contract negotiations, or billing policies.
These restrictions reflect Oregon’s position that meaningful physician autonomy requires control over traditionally “non-clinical” functions that nonetheless impact patient care decisions. Private equity investors should review existing service arrangements with medical practices in Oregon to ensure that their documentation and their practices (both formal and informal) clearly delineate responsibilities in line with Oregon’s new standards.
Restrictive Covenant Limitations
The legislation prohibits most restrictive covenants (and voids those that are noncompliant) between MSOs and physicians, including:
- Non-compete agreements.
- Non-disparagement clauses.
- Non-disclosure agreements.5
Retaliation against physicians who violate void restrictive covenants is also prohibited.
Permitted MSO Activities and Exemptions
Despite these extensive restrictions, OR SB 951 does not ban MSOs entirely. Permissible activities include:
- Business operations support and consultation.
- Payroll and human resources services.
- Employment screening and employee relations.
- Asset purchases or leases on arm’s-length terms.
The law exempts several healthcare entities from heightened CPOM restrictions:
- Hospitals and behavioral health facilities.
- Program of All-Inclusive Care for the Elderly (PACE) organizations and tribal health programs.
- Crisis-intervention services and care facilities.
- Independent practice organizations.
Critics argue these exemptions create market distortions and fairness concerns by selectively determining market participation eligibility.
Implementation Timeline and Compliance Requirements
The dual-engagement restrictions take effect January 1, 2026, for new market participants. Existing entities have until January 2029 to achieve compliance, including those undergoing post-June 2025 reorganizations. This three-year transition period provides some relief but requires immediate strategic planning.
Enforcement Mechanisms
OR SB 951 distinguishes itself through robust enforcement provisions extending beyond traditional medical board oversight:
- Unlawful Trade Practice: Violations constitute unlawful trade practices under Oregon law.
- State Enforcement: The Oregon Attorney General may pursue civil penalties and injunctive relief.
- Private Rights of Action: Individual plaintiffs can seek damages.
- Available Remedies: Include injunctive relief, actual and punitive damages, equitable relief, and attorney’s fees.
Future Developments and Industry Impact
The legislation’s trajectory remains dynamic. Potential constitutional challenges may emerge, questioning the law’s scope and enforceability. Simultaneously, Oregon House Bill 3410 (OR HB 3410) proposes amendments to OR SB 951, potentially including enhanced penalties and enforcement mechanisms.
The national implications are significant. As Governor Kotek suggested, OR SB 951 may serve as a template for other states grappling with private equity’s healthcare expansion. Industry stakeholders should monitor similar legislative efforts and prepare for potential regulatory convergence across multiple jurisdictions.
Strategic Implications for Private Equity
OR SB 951 fundamentally alters the private equity healthcare investment landscape in Oregon and potentially beyond. Investors must:
- Conduct Immediate Compliance Audits: Review existing Oregon arrangements for potential violations
- Restructure Investment Models: Develop new approaches that comply with arms-length requirements
- Reassess Risk Profiles: Factor increased regulatory and litigation risks into investment decisions
- Monitor National Trends: Prepare for similar legislation in other jurisdictions
The law represents a clear legislative statement prioritizing physician autonomy and patient care quality over investment returns, setting Oregon apart as the most restrictive state for private equity healthcare investment while potentially influencing national healthcare policy direction.
Dechert’s Healthcare Team is ready to assist investors with navigating this critical legislation’s impact, track the trajectory of OR HB 3410 and further clarifications of the law, and monitor developments in other states may follow Oregon’s lead.
The authors wish to thank summer associate George Yang for his contributions to this OnPoint.
Footnotes
- See OR SB 951.
- “Kotek Signs Bill Restricting Corporate Control at Oregon Medical Clinics” (The Oregonian, June 10, 2025), available at https://www.oregonlive.com/health/2025/06/kotek-signs-bill-restricting-corporate-control-at-oregon-medical-clinics.html.
- For Dechert’s earlier flash alert on this topic, click here.
- Circumstances under which MSOs may still be permitted to, for example, direct the sale of shares of a practice include the loss of the PC’s practicing physician’s medical license or fraud.
- Restrictive covenants are permitted under limited circumstances. For example, non-compete agreements are valid if they are imposed by medical practices that do not have MSO relationships, if they are imposed in connection with ownership interest of more than 10% of the equity, or if they do not last beyond the sale of a medical professional’s equity.
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