An Oregon bill, aiming to regulate Management Services Organizations (MSOs) and private equity transactions in healthcare, is making its way through the state legislature. Oregon House Bill 4130 seeks to impose significant limitations on the traditional private equity model where MSOs enter long-term agreements with medical practices – in particular, the so-called “Friendly Practice Model.”
Whereas many state corporate practice of medicine prohibitions focus on prohibiting actual ownership in, or control over, medical practices by non-licensees, the Oregon bill extends that focus to financial and overall management control. This would impact the MSO/Friendly Practice Model in several key areas:
- It would prevent shareholders, directors, or officers (i.e., physicians) of a medical practice from owning or having an employment or contractor relationship with an MSO that manages the practice. This prohibition would severely impact the ability of physicians to obtain “roll-over” equity in the MSO after a sale event.
- It would limit the enforceability of non-competition agreements.
- It would limit the ability of MSOs to make hiring and termination decisions at the practice level.
- It would limit the ability of MSOs to restrict or force the transfer of ownership by physicians in the practice.
If passed, the bill would disrupt current PPM/Friendly PC models, applying to agreements entered or renewed after January 1, 2025, with certain provisions taking effect immediately upon enactment.
The Oregon bill is the manifestation of a growing unease about the role of private equity in the management of medical practices supported by some studies purporting to establish that such relationships generally increase the cost of care. In view of this trend, it may make sense for PE-owned MSOs and physicians to prophylactically reconsider how MSO-practice relationships are structured so as to avoid the need to restructure the relationship if and when other states mimic Oregon.
