The Oregon Legislative Assembly introduced House Bill 4130 earlier this year and became the latest in a growing number of states seeking to limit private equity investment in health care.  The bill died on the Senate floor in March 2024, but many expect it will be reintroduced and passed in the next legislative session in 2025. Although H.B. 4130's text and preamble do not expressly mention private equity, the bill targets models and arrangements closely associated with private equity, including management service organizations (MSOs) and stock transfer restriction agreements.  Yet as drafted, H.B. 4130 would have prohibited many physician practice arrangements that have nothing to do with private equity.

H.B. 4130's primary prohibition precluded a professional corporation (PC) shareholder, director, or officer from either: (a) owning shares in an MSO with which the PC contracts, or (b) participating in physician employment decisions while also owning shares in an MSO with which the PC contracts.  Because the bill's extremely broad MSO definition implicated entities that provide any administrative or business services “that do not constitute the practice of medicine,” this prohibition would have implicated many non-private equity physician practice arrangements.

Physician-owned medical practices often form affiliated MSO or "MSO-like" entities that furnish administrative support or provide the space or equipment needed to operate the practice. Radiology practices, for example, often invest in imaging centers via separate entities that hold the assets (e.g., space, equipment) or provide the administrative support (e.g., billing and collection, staffing) required to render professional services.  As drafted, H.B. 4130 would have prohibited these types of MSO arrangements, many of which likely already exist in Oregon, even if the relevant MSO entities are physician owned and not private equity-backed.

H.B. 4130 provided narrow exceptions to the primary prohibition, including circumstances where a PC owns a majority of the MSO.  But because many physician groups structure affiliated MSOs not as subsidiaries but as "sibling" entities (i.e., owned by the same or a similar group of individual physician owners as the PC), these arrangements would not qualify for this exception.  Similarly, if two or more physician practices form an MSO as a joint venture, as they often do, this exception would not be available to protect a practice that is a minority investor in that joint venture.  These are just two examples of physician-owned enterprises where an exception to the H.B. 4130 prohibition would be unavailable.  There are likely others.

If a similar bill is introduced in the 2025 legislative session as anticipated, Oregon's legislature should consider changes to ensure the bill does not inappropriately prohibit a wider range of arrangements than intended.  This could be achieved by either: (i) narrowing the "MSO" definition to exclude entities that are solely owned by physicians or other licensed persons or (ii) expanding the majority interest exception to require that physicians or other licensed persons own a majority MSO interest, directly or indirectly, rather than restricting ownership to the PC itself.

The failure to make these changes risks inappropriately prohibiting a broad range of physician-owned arrangements and accelerating a decline of independent medical practices observed nationwide.  Reed Smith will continue to monitor this legislation in Oregon and similar efforts in other states.