Oregon’s Proposed HB 4130, which passed the Oregon House of Representatives on February 22, 2024, was at the desk of the Senate president when the 82nd Legislative Assembly adjourned sine die on March 7, 2024, thereby ending this legislation for this year. HB 4130 would have severely limited non-professional businesses from owning or controlling health-related entities through commonly used management models and, therefore, would greatly reduce physicians from seeking non-professional investors.

For those opposing the measure, the victory may only be temporary. The Oregon legislation is one in a wave of recent state and federal initiatives that create burdens or barriers for investors in health care transactions. These legislative initiatives are motivated by state and federal concerns relating to the potential adverse impact on competition, access to care, reduction in work force, and quality of care resulting from consolidation in the health care delivery system.

The failed Oregon measure, poised to be one of the strictest in the nation in this area, was designed to address the perceived conflict between the “economic imperatives of for-profit corporations and other business entities and the need for patient centered medical care.”

The lawyers at Epstein Becker Green are tracking state legislation in this area closely and are ready to advise and assist.

Strict Prohibitions

Oregon’s proposed HB 4130 would have amended ORS 58.375, which sets forth requirements for professional corporations organized to practice medicine, to prohibit a shareholder, director, or officer of a domestic or foreign professional corporation organized for the purpose of practicing medicine or naturopathic medicine—or organized for the purpose of allowing physicians, physician assistants, and nurse practitioners to jointly render professional health care services—from owning or controlling shares in, serving as a director or officer of, being an employee or contractor of, or otherwise participating in managing both the professional corporation and a management services organization with which the professional corporation has a contract [bold emphasis added].

Proposed HB 4130, in the revised 58.375, would have also prevented a shareholder, director, or officer of a professional corporation from participating in the hiring, terminating, evaluating the performance of, setting work schedules or compensation for, or otherwise specifying terms of employment of a physician (later adding physicians’ assistants or nurse practitioners, in revised ORS 58.376, subsection (7)(a)) that the professional corporation employs or may employ while at the same time owning or controlling shares in, serving as a director of, being an employee of or an independent contractor with or otherwise participating in managing a management services organization with which the professional corporation has a contract.

The measure contained some exceptions—for instance, if a shareholder does not own or control more than five percent of the shares of or interest in the professional corporation, does not serve as a director of the professional corporation, does not participate in managing the professional services corporation, and one of three further conditions are met (i.e., if said shareholder does not serve as a director of, or participate in managing, the management services organization).

Further, a professional corporation would have been prohibited, in a revised subdivision (3)(a) of ORS 58.375, that (with certain exceptions for misfeasance, etc.) a professional corporation may not provide in the professional corporation’s articles of incorporation or bylaws, or by means of a contract or other agreement or arrangement, for removing a director from the corporation’s board of directors, or an officer from an office of the professional corporation, except by a majority vote of shareholders and directors.

A new subdivision (4)(a) of ORS 58.375, meanwhile, would have prevented professional corporations from relinquishing control over (or otherwise transfer de facto control over) the professional corporation’s assets, business operations, clinical practices or decisions, or the clinical practices or decisions of a physician (later adding a physician’s assistant or nurse practitioner in (7)(a) of ORS 58.3776) that the professional corporation employs or has a contract with. Methods of relinquishing or transferring control might include (but would not be limited to):

• Selling, restricting the sale of, encumbering or transferring substantially all of the professional corporation’s shares or assets;
• Issuing shares of stock in the professional corporation, in a subsidiary of the professional corporation or an entity affiliated with the professional corporation, or paying dividends;
• Controlling hiring or termination of, setting of work schedules or compensation for, or otherwise specifying terms of employment of employees who are licensed to practice medicine in this state or who are licensed in this state as physician assistants or nurse practitioners;
• Controlling staffing levels for any location that serves patients;
• Controlling diagnostic coding decisions, establishing clinical standards directly or by suggestion or protocol or making policies for patient, client, or customer billing and collection; and more.

The proposed HB 4130 would have also amended ORS 58.376, which sets forth requirements for professional corporations organized to render professional health care services, to include a new rule that “all officers of a professional corporation, except the secretary and treasurer, if any, must be licensees”—meaning holding a license as a physician, physician’s assistant, or nurse practitioner from the Oregon Medical Board or State Board of Nursing.

Additional provisions would have applied to proxy votes; naturopathic medicine; benefit companies; limited liability companies; holding entities; and disciplinary action/retaliation for violating noncompete/nondisclosure agreements or nondisparagement agreements.

Takeaways

Increasingly, health care transactions are coming under increased scrutiny at the state and federal levels based upon perceptions that certain types of investors have a detrimental effect on the cost of, quality of, and access to healthcare services as well as perceived adverse impacts on clinicians. The failure of Oregon HB 4130 in 2024 likely only represents a pause for this legislation in Oregon. Providers and sponsors should begin preparing now for a renewal of this or similar legislation in 2025.