MSOs and Dental Service Organizations (“DSOs”) in California must already navigate the state’s stringent CPOM restrictions. The California legislature is now considering , which proposes restrictions on MSO and DSO entities backed by private equity or hedge funds.

SB 351 restricts private equity firms or hedge funds, or entities “controlled directly, in whole or in part” by such firms or funds (e.g., MSOs or DSOs owned by such entities), from entering into agreements with physician or dental practices that would interfere with the provider’s professional judgement, by determining the appropriateness of diagnostic tests or the need for referrals, being responsible for overall patient care, or determining the number of patients a provider sees or the number of hours a provider works.

SB 351 also prohibits such private equity or hedge fund-backed MSOs or DSOs from controlling (or being delegated) the power to own patient medical records, hire or fire providers based on clinical competency or proficiency, set the terms of payor or provider contracts, make coding and billing decisions, or select medical equipment and supplies.

Finally, SB 351 empowers the California Attorney General to seek injunctive relief or equitable remedies for violations. Notably, the bill does not contain an exemption for pre-existing arrangements, which could significantly escalate enforcement risk for the industry.

seeks to prohibit an MSO, or an MSO’s individual contractor or a shareholder, director, officer, or employee, from owning, serving as a director or officer, or being an employee or independent contractor of, or otherwise managing or controlling, a professional medical entity.

Under SB 951, an MSO generally is deemed to own or control a professional medical entity if, among other things, it has an agreement to restrict the sale or transfer of the professional medical entity’s ownership interests, or if the MSO has de facto control over the clinical decision-making or professional judgment.

Furthermore, SB 951 would allow noncompetition agreements between a licensee and another person only in certain circumstances, e.g., if the licensee owns more than 10% or otherwise controls the other person, or the licensee owns a professional medical entity that does not have an MSO arrangement, and the noncompetition agreement is with the professional medical entity.

In addition, proposes amending O.R.S. § 58.375 to require that licensed physicians holding a majority ownership in, or serving as officers of, a professional medical entity reside in Oregon for at least 275 days each year and are actively involved in the entity’s patient care.

seeks to codify Washington’s CPOM prohibition and would require professional service corporations to have Washington licensed health care providers (1) hold a majority of each class of shares, (2) be a majority of the directors, and (3) hold all officer positions, other than secretary and treasurer.

Under SB 5387, shareholders of a professional service corporation must exhibit “meaningful ownership of a medical practice” by being present in the state and “substantially engag[ed]” in delivering care and managing the practice.

SB 5387 also would prohibit a medical practice’s shareholder, director, or officer from having a legal relationship with an MSO, such as serving as a director, shareholder or employee, or receiving substantial compensation or remuneration from an MSO.

SB 5387 would not apply to certain health care facilities, such as hospitals or federally qualified health centers.

Vermont’s also seeks to codify its CPOM prohibition. With certain exceptions for licensed facilities, H0071 specifies medical practices may only employ physicians and practice medicine if Vermont licensees: (1) hold a majority of the shares, (2) comprise a majority of the directors and (3) hold all officer positions, except secretary and treasurer.

Like Oregon, H0071 requires that each licensed owner of a professional corporation be engaged in “meaningful ownership,” meaning that each licensed owner is present in Vermont and substantially engaged in delivering medical care or managing the medical practice.

In addition, under H0071, only a shareholder, director, or officer of a medical practice that owns a majority interest in the MSO may participate in the management of both the medical practice and an MSO or receive substantial remuneration from an MSO in return for ownership or management of the medical practice. Furthermore, H0071 prohibits stock transfer restriction agreements and restrictive covenants.

South Carolina proposes to codify the state’s case law-based CPOM prohibition.

prohibits any contract provisions that directly or indirectly interfere with a physician’s independent judgment or that would allow a partnership, hospital, health system, or other corporate entity to practice medicine.

The bill also makes unenforceable and void provisions that impose restrictions on a physician’s practice when the contract terminates, including geographic or time-based restrictions or those that interfere with a physician’s right to notify or continue treating their current patients. The bill exempts noncompetes and restrictive covenants related to the purchase or sale of a practice that are for less than five years. SB 46 only applies to contracts or renewals entered into, on, or after the effective date.