Oregon Ketamine Clinics: New Potential Restrictions on Corporate Practice of Medicine

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Should private equity be involved in health care? If so, in what types of settings? And to what extent? These are baseline considerations around a broad concept referred to as “corporate practice of medicine” (“CPOM”) that state legislatures, agencies, medical licensing boards, courts and attorneys general and grappled with for over a century. The Oregon legislature is taking a hard look at CPOM today, under proposed House Bill 4130.

Why does this matter to readers of the Psychedelics Law Blog? If this new law passes, it could drastically change the landscape for ketamine clinics and their management services organizations (“MSOs”) across the state.

CPOM and Oregon

According to the American Medical Association, the CPOM doctrine prohibits corporations from practicing medicine, or employing a physician to provide professional medical services. CPOM rules are based on the policy that allowing corporations to practice medicine would result in the commercialization of health care. A corporation’s duties and obligations are to its shareholders, not individuals seeking health care, and those duties could conflict with the interests of patients and providers.

Over 30 states prohibit CPOM with broad exceptions, such as for professional corporations (“PCs”), and for employment of physicians by certain health care entities. HB 4130 would make Oregon one of the most restrictive CPOM states. Still, HB 4130’s strictest ownership and control provisions would not apply to hospitals, health systems and nursing homes, which have been largely exempt from Oregon CPOM rules since 1974.

Health care administration has changed considerably in the past 50 years, including with the advent of MSOs. Those organizations are addressed throughout HB 4130, in conjunction with restrictions on ownership and control of health care providers by non-physicians. HB 4130 also focuses on removing competition strictures from physicians and doctors– including in hospitals, health systems and nursing homes.

Before diving into this bill, it’s important to understand that currently, Oregon law requires that locally licensed physicians hold a majority ownership stake in a PC organized to practice medicine (these PCs are generally clinics, or private practices providing medical care). Oregon law also requires that locally licensed physicians compromise a majority of the directors of any such business. HB 4121 would apply these same standards to LLCs and LLPs that are organized for a medical purpose, or as holding entities.

CPOM under HB 4130

Here are some of the bill’s other provisions, condensed in parts but pulled directly from a Staff Measure Summary:

Requires all officers of a PC, except the secretary and treasurer, to be licensees of the Oregon Medical Board or Oregon State Board of Nursing. Defines “MSO”. Prohibits a shareholder, director, or officer of a corporation organized for the purpose of practicing medicine (“PC”) from taking specified actions in relation to an MSO that the PC has a contract with, including:

Owning or controlling shares in both the professional corporation and MSO

Setting the terms of employment of a physician the PC employs

Removing a director or officer except by majority vote of shareholders with specified exceptions for fiduciary duty violations, Oregon Medical Board disciplinary actions, and fraud

Relinquishing control over assets, business operation, or clinical practices or decisions

Giving a proxy to vote the shares of the PC

Exempts shareholders who have control over less than five percent of shares or whose share ownership is incidental. Exempts specified professional corporations, including:

Corporations solely and exclusively engaged in telemedicine

PACE organizations

Mental health or substance use disorder crisis line providers

Urban Indian health programs

Recipients of a Tribal Behavioral Health or Native Connections program grant

Specified behavioral health care providers

Hospitals

Permits the Oregon Health Authority (“OHA”) to submit to the Secretary of State (“SOS”) a complaint regarding violation of corporate practice of medicine laws. Specifies SOS disciplinary authority for violations of corporate practice of medicine laws. Allows a PC up to seven years to remove grounds for SOS discipline. Permits OHA to apply to circuit court for order to stay a merger or acquisition that OHA determines will violate corporate practice of medicine standards. Requires company organized for a medical purpose and holding entity to comply with CPOM requirements for professional corporations. Makes noncompetition, nondisclosure, and nondisparagement agreements void and unenforceable with specified exceptions.

What’s next? And what about ketamine and psilocybin providers?

Obviously, there is a lot going on here, and the bill could still evolve. To date, HB 4130 is moving very quickly– as it must in this short legislative session. As of February 26, the bill has passed through the House and sits in the Senate Committee on Health Care. If HB 4130 clears the Senate on or before March 10, it would become law unless vetoed by Governor Kotek within 30 days. Businesses would then have a seven-year runway to come into compliance.

So, why am I writing about this today? As a law firm with a longstanding ketamine practice group, we have worked through CPOM issues for physicians, clinic operators, managers, investors and others in various states. See e.g.:

Ketamine clinics are subject to many complex federal and state-level rules. CPOM guardrails are primary among them, and inform the fundamental viability of many proposed ketamine clinic structures. This keeps coming up for us, especially with broad interest from alternative health care providers, MSOs and private equity in the ketamine space.

We also work with quite a few Oregon psilocybin businesses. Like medical practices, these OHA licensees are also subject to “majority ownership” requirements. But the psilocybin ownership strictures center on Oregon “residents” and not physicians, and they expire in 2025. Moreover, the psilocybin program is a decidedly non-medical model, despite common misconceptions. In all, psilocybin licensees should not be affected if HB 4130 passes.

We will continue to track HB 4130 closely, and update this blog post with information as to whether the bill passes or fails. For now, let’s hope Oregon is able to strike the right balance with putting patient interests first, protecting independent clinics, and accommodating the need for investment and innovation that comes with a non-single-payer health care system.