Washington Legislature Proposes Sweeping CPOM Restrictions, Reporting Statute Amendments

From the West Coast Healthcare Desk

The Washington state legislature on January 12, 2026, introduced Second Substitute Senate Bill 5387 (2SSB 5387), which seeks to significantly expand and codify Washington's corporate practice of medicine (CPOM) doctrine. 2SSB 5387 targets the management services organization (MSO)/professional service corporation (PC) model commonly utilized by private equity (PE) investors by introducing new statutory requirements for the ownership and governance of PCs.

On February 5, 2026, a revised version of the bill was introduced to limit the application of these ownership and governance requirements to PC medical practices owned by physicians, osteopathic physicians, physician assistants, naturopaths or advanced registered nurse practitioners. If passed, 2SSB 5387 would take effect on January 1, 2027, providing a limited compliance window for affected entities to reassess ownership structures, governance arrangements, management services agreements and operational controls.

On January 16, 2026, the state legislature also introduced Substitute House Bill 2548 (SHB 2548), which seeks to expand the types of transactions that trigger Washington's 60-day pre-notification requirement to the state attorney general (AG) prior to proceeding with the transaction, among other changes that would increase regulatory scrutiny over healthcare transactions. On February 4, 2026, the bill was sent to the House Appropriations Committee for review. There, a substitute bill was introduced.

The foregoing legislative action reflects Washington's continued focus on PE investment in healthcare and follows the recent enactment of similar laws in Oregon and California that place greater restrictions on CPOM. The legislature originally introduced both measures during the 2025 Regular Session, both of which failed to advance. The bills are likely to face significant resistance from PE groups and other affected healthcare entities. The 2026 Regular Session ends March 12, 2026, giving the legislature limited time to fully consider and pass.

Ownership and Governance Requirements and Restrictions for PCs

If enacted into law, Section 1 of 2SSB 5387 would require Washington PCs to be owned by "Medical Licensees" who 1) hold all voting shares, 2) occupy all board of director positions, 3) serve in all officer positions except secretary and treasurer, and 4) demonstrate "meaningful ownership" through substantial engagement in clinical care or management of the practice. "Medical Licensees" are defined as Washington-licensed:

• physicians (medical doctors and doctors of osteopathic medicine)
• osteopathic physicians
• physician assistants
• naturopathic doctors
• advanced registered nurse practitioners

2SSB 5387 would also prohibit a Medical Licensee from:

• owning or controlling shares or equity in a contracted MSO
• serving as a director, officer, employee or contractor of a contracted MSO or otherwise participating in the management of a contracted MSO
• receiving "substantial compensation or remuneration" from a contracted MSO in exchange for ownership or management of the practice
• transferring or relinquishing control over the sale, restriction of the sale or encumbrance of the sale of the healthcare practice's shares or assets, except to another Medical Licensee
• transferring or relinquishing control over the issuing of shares of stock in the healthcare practice, a subsidiary of the healthcare practice or an entity affiliated with the healthcare practice, or the paying of dividends, except to another Medical Licensee, or
• entering into any financial arrangement that violates Washington's Anti-Rebate Statute

While Medical Licensees may consult or collaborate with MSOs or advisors, the ultimate decision-making authority affecting care quality must remain with the Medical Licensee.

These ownership and governance restrictions would not apply to the following entities:

• hospitals licensed in Washington or any other state
• private establishments (as defined under Washington law)
• nursing homes
• ambulatory surgical facilities
• birthing centers
• in-home service agencies
• federally qualified health centers
• telemedicine-exclusive medical groups
• health maintenance organizations
• healthcare service contractors organized as an integrated care delivery system that delivers healthcare services on a prepaid basis

CPOM Restrictions

2SSB 5387 also seeks to codify Washington's CPOM doctrine, which has historically been regulated through case law and agency interpretation rather than through an express statutory framework. If enacted, 2SSB 5387 would make it unlawful for any unlicensed individuals or entities that are not Medical Licensees to own a medical practice, employ medical providers or otherwise engage in the practice of medicine.

2SSB 5387 would also amend the licensing regulations for medical providers practicing in various healthcare settings – including hospitals, private psychiatric and behavioral health facilities, ambulatory surgical facilities, nursing homes, birthing centers, in-home care agencies and telemedicine-exclusive medical groups – to expressly prohibit any individual or entity, other than employed, contracted or affiliated physicians, or advanced registered nurse practitioners or their designated licensed healthcare providers, from interfering with, controlling or directing the professional judgment or clinical decision-making of licensed healthcare providers. Prohibited conduct includes controlling through policy, excessive pressure or corrective action:

• productivity quotas (e.g., patients per hour, visit length)
• discharge timing or utilization targets
• clinical status of the patient (e.g., whether to admit the patient to inpatient status, keep the patient in observation status or refer the patient for discharge)
• diagnosis, diagnosis termination or codes entered into the record
• limiting the range of clinical orders available to the healthcare provider, including referrals by the provider to providers outside the facility

2SSB 5387 would not prohibit policies or requirements for healthcare providers that are necessary for compliance with laws, coding guidelines or third-party payer requirements, or credentialing, quality improvement, peer review, regulatory actions or conditions set by the Centers for Medicare and Medicaid Services.

Expanded Enforcement and Penalties

If enacted, a Medical Licensee would be required to attest upon application for a license or license renewal, and in a form and manner determined by the Washington Medical Commission, that the Medical Licensee is aware of the CPOM prohibitions. Any violation of the CPOM prohibitions by a Medical Licensee would constitute unprofessional conduct under applicable licensing regulations.

Also, if enacted, the unlicensed practice of medicine in violation of the CPOM prohibitions would constitute a gross misdemeanor for a first violation and a Class C felony for subsequent violations. Civil fines of up to $1,000 per day would be levied, and state licensure boards would have the authority to issue cease‑and‑desist orders. For telemedicine-exclusive medical groups, violations of the CPOM restrictions would constitute an unfair or deceptive act under Washington's Consumer Protection Act.

SHB 2548 Notification Requirements

In addition to the proposed CPOM legislation, SHB 2548 would strengthen Washington's regulatory oversight over healthcare transactions by expanding the scope of notice requirements for certain transactions. Current state regulations require at least 60 days' advance written notice to the Washington AG of any qualifying "material change," including mergers, acquisitions or contracting affiliation between two or more hospitals, health systems or provider organizations. SHB 2548 would expand the types of transactions qualifying as a material change to include:

• transactions involving any entity or person that results in a change of ownership or control of a hospital, hospital system or provider organization including, but not limited to, a merger, acquisition or contracting affiliation
• significant acquisitions, sales or transfers of hospital, hospital system or provider organization assets including, but not limited to, real property sale and leaseback transactions
• a conversion of a hospital, hospital system or provider organization from a nonprofit corporation or foreign nonprofit corporation to 1) a domestic or foreign for-profit corporation or 2) a domestic or foreign unincorporated entity

SHB 2548 would also add a new requirement that the written notice to the AG identify any person or entity with an ownership, investment or controlling interest of at least 25 percent of any party. "Controlling interest" incudes direct or indirect ownership of at least 25 percent of capital, profits or interest; ownership or power to vote on at least 25 percent of a class of voting securities or interests; power to elect at least 25 percent of executive officers, manager, directors, trustees or personal exercising managerial interests; or power to exercise a controlling interest over at least 25 percent of management or policies.

Finally, SHB 2548 would permit the AG to request additional information and extend the notice period for an additional 30 days from the submission of requested information. To close out, the parties would be required to notify the AG within 30 days from the date that the transaction resulting in a material change has been completed, whether consummated, enjoined or abandoned. The AG must make public on its website a quarterly notice of pending and completed transactions.

Conclusion

2SSB 5387 and SHB 2548 reflect Washington's coordinated effort to curb perceived consolidation, commercialization, and non-clinician influence and control in healthcare delivery. 2SSB 5387 represents one of the most comprehensive statutory treatments of CPOM nationwide. If enacted, it would create a CPOM stronghold on the West Coast, from Washington to California, and require platforms to consider making changes to their corporate structure and governance to address this risk. Similarly, if SHB 2548 is passed, healthcare transactions in Washington will face increased regulatory scrutiny from state officials and potentially face delays in the closing of healthcare deals.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.