Healthcare Finance and Business Strategy
How proposed restrictions on corporate practice of medicine could affect hospitals
A proposed federal ban on certain physician practice ownership arrangements would exempt hospitals but impose new limits on physician non-compete clauses, management services organizations and clinical decision-making.
Published
4 hours ago
Hospitals would face new restrictions on some of their business practices, according to language in recently proposed legislation.
However, the core provision of the Stop Corporate Takeovers of Physicians Act of 2026 would exempt hospitals. A ban on ownership or majority control of a medical practice would apply to insurance companies, private equity funds and certain other types of for-profit corporations. Ownership and control generally would be restricted to state-licensed physicians and eligible clinicians who are actively engaged in delivering patient care in the state.
Carve-outs would be available for hospitals, including critical access hospitals and rural emergency hospitals, along with public healthcare providers and hospital-affiliated clinics. Those entities could continue to acquire clinics and employ physicians directly.
The bill was introduced by Democrats in both chambers of Congress, indicating it could be a healthcare policy priority if the party emerges from the upcoming midterm elections with majorities. Among the sponsors are Sens. Jeff Merkley and Ron Wyden and Rep. Val Hoyle, all of whom represent Oregon, which enacted similar legislation in 2025.
Physician non-compete restrictions would curtail hospital employment agreements
Among aspects of the bill that would affect hospitals is a ban on all non-compete clauses for employed physicians. Existing non-competes would be retroactively voided, effective one year after enactment of the bill.
No provider could enter into or enforce any type of restrictive covenant with a clinician. Along with non-competes, such covenants include nondisclosure agreements and non-disparagement clauses.
Hospitals that continue to enforce non-compete clauses would face substantial regulatory fines and exposure to private lawsuits carrying the potential for treble damages. Exclusion from Medicare and Medicaid would be a possible outcome.
One scenario in which non-competes would remain permissible is for physicians who own a 25% or greater stake in the acquired entity. Virtually by definition, that scenario does not apply to hospital-employed physicians.
Management services organizations would face new operating limits
Regulatory hurdles would increase for management service organizations (MSOs) as owned by hospitals, private equity funds and other entities. The provisions would apply to any entity providing centralized billing, coding, HR, payroll, contracting or IT support to separately organized physician practices.
When owning a medical group, entities would be blocked from deploying MSOs to exercise decision-making authority in areas such as hiring, staffing and scheduling of clinicians, along with revenue disbursement, billing and coding practices, and payer contracting. MSOs also would face penalties if administrative teams are found to have interfered with any area involving a clinician’s professional judgment (e.g., patient observation status).
The bill also prevents health systems from dictating management fees and service agreements with subsidiary practices. Instead, management contracts would need to be negotiated at “arm’s length,” with the practice selecting its own legal counsel and financial advisors.
All service fees charged by the hospital MSO to the medical practice would be required to reflect fair market value, as set by the Federal Trade Commission.
Physician ownership restrictions could affect hospital consolidation
Various details remain to be added to the bill. As written, for example, “It is unclear whether a health system’s physician enterprise subsidiary is exempt from the corporate practice prohibition,” according to an analysis by the law firm of Baker Donelson.
At a time when independent physician practices are struggling to find a sustainable business model, the bill’s block on ownership by private equity and similar buyers could end up accelerating hospital-physician consolidation.
The bill “may leave medical practices and their physicians with few practical alternatives to hospital acquisition or physician employment, possibly accelerating consolidation in a segment of the healthcare industry that is already highly concentrated in many markets,” states an analysis by the law firm of Sheppard.
What hospital leaders should monitor
The prospects for the bill in the immediate term are negligible, but the potential implications are substantial enough that providers should keep it on their radars in 2027.
“While government policy advisors feel this particular bill is not likely to advance in 2026, the proposed restrictions merit close scrutiny, as they could reemerge in broader healthcare legislation and continued efforts at the state level to regulate corporate practice of medicine and dental issues,” according to an analysis by the law firm of Dykema.
Assuming nothing happens with the bill during the remainder of the 119th Congress, which will wrap up its business Jan. 3, the bill would require reintroduction in the 120th to receive consideration.
