Medical practices and the management company: the succession clause Oregon kept, and the control California took away

In Oregon, the clause that lets a management company replace the doctor who owns the practice is now void, with six exceptions. One of them is the practice’s breach of its management agreement with the company. So the clause survives in a narrower form, and the fight moves into how the management agreement defines a breach. A physician reading the new law sees the swap clause banned. A deal lawyer sees where it went.

That is the shape of the 2025 laws aimed at the management company model in medicine. They do not ban outside investment. They attack the specific contracts that turn a management fee into control of the practice. This page covers how the model is built, what Oregon and California changed, and the federal rules that limit the fee in every state.

Outside investors in a medical practice usually own the management company, not the practice, and control comes through contracts.

How the model is built

In a state with a strong corporate practice of medicine doctrine, a business that is not owned by physicians cannot practice medicine or employ physicians to do it. California is the benchmark: its Business and Professions Code gives corporations “no professional rights, privileges, or powers” in medicine (§ 2400). The background on the doctrine is on healthcare licensing.

So the deal splits in two. A management services organization, the MSO, buys the practice’s non-clinical assets: the leases, equipment, non-clinical staff, systems and brand. The professional corporation or professional LLC stays owned by a physician and keeps what licensing law reserves to it: employment of the clinicians, the payer contracts and billing numbers, and the patient records. A long-term management services agreement connects them and pays the MSO a fee. A third document, the succession agreement, usually lets the MSO choose who owns the practice’s shares if the physician-owner leaves, dies or falls out with the MSO.

Take a California dermatology practice that an investor-backed MSO buys for $12,000,000, with illustrative numbers. The practice collects $6,000,000 a year and pays its physicians $2,200,000. If the management fee is the residual, everything left after physician pay, the MSO receives $3,800,000 a year. That residual is how the MSO earns back what it paid. It is also the feature every rule below examines.

Oregon: the succession clause survives, keyed to six triggers

Oregon’s 2025 law, SB 951, bars an MSO that manages an Oregon practice, and the MSO’s shareholders, directors, managers, officers and employees, from owning a majority of the practice, serving as its director or officer, or voting its shares. It also bars them from controlling or restricting the sale or transfer of the practice’s shares or assets (SB 951 § 1(2)(a)). “Professional medical entity” expressly includes LLCs, partnerships and limited partnerships, not only professional corporations.

The law then allows a practice to restrict transfers of its own shares on six triggers only: suspension or revocation of a shareholder’s license; disqualification from holding an interest; exclusion or debarment from a federal health program, or an investigation that could lead to it; indictment for a felony or a crime of fraud or moral turpitude; death, disability or permanent incapacity; and the practice’s breach of its management services contract (SB 951 § 1(2)(b)).

Oregon did not ban the succession agreement; it banned the version the management company can trigger at will.

The structuring consequence: an Oregon succession agreement now runs through the management agreement’s breach clause, so the breach definitions, cure periods and covenants in that agreement are where the control fight will happen.

The dates catch people. The ownership and control ban applies from January 1, 2026 to MSOs and practices organized after the law took effect, and from January 1, 2029 to those that already existed. But the law’s rules voiding most noncompetes, nondisclosure and nondisparagement agreements between clinicians and MSOs, and its requirement that physicians hold a majority of each class of a medical corporation’s shares, apply to any contract entered into or renewed after the law took effect (SB 951 § 9). An existing management agreement renewed in 2026 comes under those rules at renewal, years before the 2029 date most summaries quote. A practice or clinician harmed by a prohibited arrangement can sue the MSO and its insiders for damages, punitive damages and attorney fees.

California: control clauses are void, the economics are not

California’s SB 351, effective January 1, 2026, applies to a private equity group or hedge fund involved with a physician or dental practice in any way, including as an investor or as owner of the practice’s assets. It bars the fund from interfering with professional judgment and from controlling, or being delegated final authority over, the patient records, the hiring and firing of clinicians based on competency, the terms of payer contracts, coding and billing decisions, and the selection of equipment and supplies (Cal. Health & Safety Code § 1191). Staff of the management company may assist and consult on those decisions as long as the licensed physician keeps final responsibility. Clauses barring clinicians from competing after they leave, or from commenting on the practice’s quality of care or revenue strategies, are void in management and asset-purchase contracts with these funds, though a sale-of-business noncompete binding the selling physician survives.

The remedy shapes the result. Offending provisions are void, and the Attorney General may sue for an injunction and fees. The statute does not unwind the deal. In the dermatology example, a management agreement giving the MSO final say over coding, productivity minimums or laser purchases loses those clauses, while the $3,800,000 fee and the asset purchase stand. The physician-owner ends up with the economics already sold and the control returned, which gives the physician the stronger hand in any later dispute.

California voids the control terms of a private equity management deal and leaves the money terms in place.

The federal limit on the fee, in every state

The federal Anti-Kickback Statute makes it a felony to pay or receive anything of value to induce referrals or the arranging of services payable by Medicare or Medicaid (42 U.S.C. § 1320a-7b(b)). An MSO is not the physician’s employer, so its fee has to fit a safe harbor or survive review on its facts. The personal services and management contracts safe harbor requires, among other things, a compensation methodology set in advance, consistent with fair market value, and not determined in a way that takes into account the volume or value of federal program referrals or business between the parties (42 C.F.R. § 1001.952(d)).

A 2020 change replaced the old requirement that the total compensation be set in advance with the current requirement that the methodology be. That removed one objection to percentage fees and left the larger one. The Office of Inspector General’s Advisory Opinion 98-4 called a management company paid a percentage of practice revenue, while also marketing the practice, at least “a potential technical violation,” and flagged the risk of upcoding when the manager both bills and shares the revenue.

A management fee set as a percentage of the practice’s Medicare collections is hard to separate from the volume of federal business, which is the line the safe harbor draws.

The federal physician self-referral law adds a twist that runs against the state reforms. It bars a physician from referring Medicare patients for designated health services, which include clinical laboratory and imaging services, to an entity in which the physician has an ownership interest or a compensation arrangement, unless an exception applies (42 U.S.C. § 1395nn). The state laws push toward physician control. If the referring dermatologists own the MSO and the MSO owns the practice’s pathology lab, the physicians now own a designated health services entity, and the self-referral law needs an exception to cover it. The more physician-owned the structure becomes, the more the federal rule applies.

New York watches the fee and the deal

New York treats payment for space, equipment or staff that is a percentage of, or otherwise dependent on, a physician’s income as fee-splitting and therefore misconduct (N.Y. Educ. Law § 6530(19)). And it requires a physician practice or MSO to give the Department of Health 30 days’ notice before a material transaction that adds $25,000,000 or more in New York revenue (N.Y. Pub. Health Law §§ 4550, 4552).

The bottom line

Investors in a medical practice own a management company and control the practice through a management agreement and a succession agreement.

Oregon bars MSO insiders from owning or running the practice they manage and allows a transfer restriction only on six triggers, one of which is breach of the management agreement.

Oregon’s rules on noncompetes and on physician majority ownership apply to any contract entered into or renewed after the law took effect, not only from 2029.

California voids control clauses in private equity and hedge fund management deals and leaves the economic terms standing.

Federal law limits the fee in every state: a percentage of collections is hard to fit within the management contracts safe harbor.

A physician-owned MSO that owns a lab or imaging service puts the physicians inside the self-referral law.

What this page does not cover

The corporate practice of medicine and the agency licenses a sale can void are on healthcare licensing. The dental version of the model is on dental practices. Change-of-ownership rules for Medicare and Medicaid are on who is allowed to own a licensed business. The business structure of a medical practice apart from licensing is on the healthcare practice playbook.

Last verified October 2026.