Rhode Island is the latest state to join a national wave of aggressive legislative efforts aimed at curbing the corporate practice of medicine (CPOM). Two identical bills — Senate Bill 2459 (S 2459) and House Bill 7721 (H 7721) — were introduced in February 2026. If passed, these bills would fundamentally reshape how Management Services Organizations (MSOs) operate and how medical practices are structured in the state.
Executive Summary: Why These Bills Matter
The “Rhode Island Ban on the Corporate Practice of Medicine Act” does not just reiterate old rules; it creates a rigid framework that targets common MSO-supported practice models.
The bills aim to:
- Strictly limit ownership: Requires that medical practices be owned and controlled by licensed physicians.
- Codify clinical autonomy: Explicitly prohibits MSOs or unlicensed entities from interfering with clinical judgment.
- Invalidate restrictive covenants: Voids non-compete and non-disparagement agreements for healthcare licensees.
- Mandate transparency: Requires annual reporting of ownership, control, and financial data to the Department of Health.
Core Structural Requirements
1. Professional Entity Ownership
Under the proposed law, a medical practice must ensure that licensed physicians hold the majority of voting shares and constitute a majority of the board of directors. Furthermore, all officers (except the secretary and treasurer) must be licensed physicians in Rhode Island.
2. The “Straw Ownership” Ban
The bills target “friendly PC” arrangements, where a physician is an owner in name only while a corporation or Management Service Organization maintains actual control, by requiring “meaningful ownership.” This means licensee owners must be present in the state and substantially engaged in delivering care or managing the practice.
3. Prohibited MSO Control
The legislation lists specific administrative, clinical, and business operations that a medical practice cannot relinquish to an MSO, including:
- Hiring/terminating clinical staff and setting their compensation.
- Setting staffing levels or patient-see times.
- Setting clinical standards or policies.
- Setting prices, rates, or billing/collection policies.
- Negotiating or performing contracts with third-party payors or persons that are not employees of the medical practice.
4. The Ban on Dual Ownership and Interests
To maintain true independence from the management company, a shareholder, director, or officer of a medical practice is strictly prohibited from:
- Holding Dual Roles: You cannot own shares in, serve as a director or officer of, or even be an employee or independent contractor for the MSO with which your medical practice has a contract.
- MSO Remuneration: Owners and managers of a medical practice are prohibited from receiving “substantial compensation or remuneration” from an MSO in exchange for their ownership or management of the practice.
5. The Ban on Restrictive Covenants
Under the proposed rules, the following are generally void and unenforceable:
- Non-Competition Agreements
- Non-Disclosure Agreements (NDAs)
- Non-Disparagement Agreements
6. Restrictions on Control and Stock Transfers
One of the most common ways MSOs maintain influence is through restrictive stock transfer agreements. This act explicitly voids these arrangements to ensure physicians retain authority over their business. A medical practice may no longer relinquish control over:
- The Sale of Assets: The practice must retain full authority over the sale, the restriction of the sale, or the encumbrance of the sale of the practice’s shares or assets.
- Stock Issuance and Dividends: The practice cannot transfer or give up control over the issuing of shares of stock in the practice, its subsidiaries, or affiliates, nor the authority regarding the paying of dividends.
These provisions are designed to ensure that if a physician wants to sell their practice, an MSO cannot use shadow equity or restrictive bylaws to block the move.
Legal Inconsistencies and Lack of Clarity
While the intent of the bills is clear, we have noted several inconsistencies and areas of ambiguity that could create headaches for compliance:
- Conflict on Non-Competes: Section 23-106-3(d) allows for non-compete agreements if a licensee owns at least 25% of the entity. However, Section 23-106-4(b) later states that non-competition agreements between a licensee and an employer/entity are “void and unenforceable” without mentioning the 25% exception.
- Definition of “Physician”: The bills often use “physician” and “licensee” interchangeably, but at times specifically mention “physician assistants or nurse practitioners”. This creates confusion regarding whether the ownership restrictions apply strictly to MDs/DOs or include other mid-level practitioners.
- Ambiguity of “Meaningful Ownership”: The bills require licensee owners to exhibit “meaningful ownership,” defined as being “substantially engaged” in delivering care or managing the practice. However, the legislation fails to provide a clear metric for what constitutes “substantial” engagement.
Transparency and Enforcement
The proposed law introduces a heavy reporting burden. On or before January 1, 2027, healthcare entities must report legal names, business IDs (TIN, NPI, EIN), organizational charts, and even the compensation of board members to the Department of Health.
Penalties for non-compliance are severe:
- Attorney General: Can impose a penalty of $10,000 per day for violations.
- Private Right of Action: Aggrieved individuals can sue for statutory damages up to $100,000 per violation.
Current Status and Next Steps
As of now, both RI S2459 and RI H7721 are currently held in committee in both the senate and the house of representatives.This means the bills are not yet law, and there is still time for amendments or for the bills to stall entirely.
That said, we recommend that MSOs and medical practice investors with interests in Rhode Island begin a preliminary audit of their MSAs and ownership structures. We will continue to monitor these developments and release updates as the legislative session progresses.