California lawmakers recently enacted two significant pieces of legislation, Assembly Bill 1415 (AB 1415) and Senate Bill 351 (SB 351), that will enhance the state's oversight of private equity and hedge fund participation in the healthcare sector. These laws reflect California's focus on addressing concerns about the influence of these types of financial entities on the healthcare industry. Both laws become effective January 1, 2026.
AB 1415: Expansion of OHCA to include private equity, hedge fund, and MSO reporting
AB 1415's Key Takeaways
- Expands the scope of transaction review conducted by the Office of Health Care Affordability (OHCA).
- Healthcare industry stakeholders and advisors will need to comply with AB 1415's notification requirements and account for the law's review process when pursuing deals involving ownership/control changes, mergers, acquisitions, MSO‐arrangements etc.
- Allows OHCA to collect data from private equity groups, hedge funds, MSOs, and entities that own/control providers, and analyze their role in cost, quality, access, and markets.
- Signals California's increased scrutiny on consolidation in healthcare.
- Indicates California interest in understanding the impact of private‐equity/hedge‐fund investment in healthcare.
AB 1415 Summary
AB 1415, which California Governor Gavin Newsom signed into law on October 11, 2025, expands the Office of Health Care Affordability (OHCA) jurisdiction by expanding the list of entities subject to notice requirements to include private equity groups,1 hedge funds,2 new business entities created for the purpose of entering into agreements or transactions with a healthcare entity, management services organizations (MSOs),3 and entities that own, operate, or control a provider that provides healthcare services, regardless of whether the provider is currently operating.
Certain healthcare entities are already required to provide OHCA with written notice of certain types of transactions (called "material change transactions" under the law). AB 1415 now deems MSOs, private equity groups, hedge funds, business entities newly created to enter into transactions with healthcare entities, and entities that own, operate, or control a provider of healthcare services as a "noticing entity" required to file written notices with OHCA at least 90 days before entering into certain agreements or transactions with a healthcare entity, MSO, or an entity that owns or controls the healthcare entity or MSO. OHCA requires noticing entities to provide notice prior to any agreement or transaction that: (1) sells, transfers, leases, exchanges, options, encumbers, conveys, or otherwise disposes of a material amount of the healthcare entity's or MSO's assets to one or more entities; or (2) transfers control, responsibility, or governance of a material amount of the assets or operations of the healthcare entity or MSO to one or more entities.
In addition, an MSO must also provide written notice to OHCA of any agreement or transaction between the MSO and any other entity that either (1) sells, transfers, leases, exchanges, options, encumbers, conveys, or otherwise disposes of a material amount of the MSO's assets to one or more entities; or (2) transfers control, responsibility, or governance of a material amount of the assets or operations of the MSO to one or more entities. Therefore, MSOs' filings are not limited to transactions with healthcare entities.
AB 1415 requires OHCA to develop regulations to "eliminate duplicative reporting" if a noticing entity or healthcare entity are required to submit notice under existing OHCA law. Monitoring OHCA's progress in finalizing the regulations required for full implementation of AB 1415 will be crucial.
SB 351: Codification of Corporate Practice of Medicine
SB 351's Key Takeaways
- Clarifies and codifies aspects of California's corporate practice of medicine doctrine.
- Clarifies and codifies specific prohibitions under the
doctrine:
- interference with clinical/professional judgment;
- determining which diagnostic tests are appropriate, referrals, treatment options, patient volume/time, and how many hours the provider works;
- owning or determining the contents of patient medical records;
- selecting/hiring/firing physicians, dentists, allied health or medical assistants based (in whole or part) on clinical competency/proficiency;
- setting parameters under which a physician/dentist enters into contracts with third-party payors;
- setting parameters under which a physician/dentist enters into contracts with other physicians/dentists;
- making decisions regarding coding, billing of patient care services; and
- approving medical equipment/supplies for the practice.
- Signals California's heightened regulatory scrutiny of the influence of private equity and hedge funds in the provision of medical and dental care.
- Bars contractual clauses in some physician/dentist arrangements with private equity and hedge fund investors (i.e., non-competition and non-disparagement clauses)
SB 351 Summary
SB 351, which Governor Newsom signed into law on October 6, 2025, reinforces California's existing prohibition on the corporate practice of medicine (CPOM) and introduces detailed restrictions on hedge funds and private equity firms,4 particularly regarding noncompete and disparagement clauses in agreements. SB 351's provisions specifically apply to physician and dental practices.
The law prohibits hedge funds and private equity firms involved "in any manner" with a physician or dental practice operating in California—whether as investors in the practice or investors or owners in its assets—from interfering with the professional judgment of healthcare providers. This includes, but is not limited to, decisions related to diagnostic tests, referrals, treatment plans, and patient volume, and is consistent with existing Medical Board of California guidance about the prohibition on CPOM.
Additionally, the law bars hedge funds and private equity firms from exercising control or having delegated authority over key operational aspects of medical and dental practices. Specifically, they may not own or dictate the content of medical records, make decisions regarding the hiring or firing of healthcare providers based on clinical competency or proficiency, set terms for third-party payor or professional services contracts, make billing and coding decisions, or approve medical equipment and supplies. These prohibitions also align with established principles underlying California's prohibition on CPOM.
However, SB 351 also prohibits management contracts or agreements for the sale of real estate or assets involving hedge funds or private equity firms (or entities directly or indirectly controlled in whole or in part by a hedge fund or private equity firm) from including clauses that bar any provider in the practice from: (1) Competing with the practice in the event of termination or resignation from the practice; or (2) Disparaging, opining, or commenting on that practice in any manner as to any issues involving quality of care, utilization of care, ethical or professional challenges in the practice of medicine or dentistry, or revenue-increasing strategies employed by the private equity group or hedge fund.
Hedge funds, private equity firms, and healthcare providers with business operations in California should act now to ensure compliance with SB 351, including modifying management agreements and other contracts to align with the law's requirements, establishing internal compliance frameworks to avoid unauthorized influence over clinical and operational decisions, and consulting legal counsel to maintain compliance with, and mitigate risks associated with, these new restrictions.
Footnotes
1. For purposes of AB 1415, "private equity group" means an investor or group of investors who primarily engage in the raising or returning of capital and who invest, develop, dispose of, or purchase any equity interest in assets, either as a parent company or through another entity the investor or investors completely or partially own or control. Persons or entities that do not participate in the management of the private equity group or group's assets do not fall under this definition.
2. AB 1415 defines a "hedge fund" as "a pool of funds managed by investors for the purpose of earning a return on those funds, regardless of the strategies used to manage the funds. Hedge funds include, but are not limited to, a pool of funds managed or controlled by private limited partnerships or other types of private corporate or partnership formations." However, natural persons or other entities that do not participate in the management of the hedge fund, its assets, or any change in control of the hedge fund or its assets are explicitly excluded from this definition. Additionally, entities such as banks, credit unions, commercial real estate lenders, bond underwriters, and trustees that solely provide or manage debt financing secured in whole or in part by the assets of a healthcare facility are excluded from the definition of "hedge fund."
3. A "management services organization" is defined as an entity that provides management and administrative support services for a provider in support of the delivery of healthcare services, excluding the direct provision of health services. Management and administrative support services include provider rate negotiation, revenue cycle management, or both. An MSO does not include entities that own one or more health facilities, as defined in AB 1415.
4. SB 351 defines "hedge funds" as pools of funds managed for investment returns, including a pool of funds managed or controlled by private limited partnerships, and "private equity groups" as investors primarily involved in raising or returning capital and who invests, develops, or disposes of specified assets. However, SB 351 explicitly excludes from these definitions natural persons or other entities that contribute or promise to contribute to a hedge fund or private equity group but otherwise do not participate in the management of or change in control of the hedge fund or private equity group or its assets, hospitals, hospital systems, their affiliates, and entities managed or controlled by them, as well as clinics, outpatient settings, health facilities, and ambulatory surgical centers affiliated with public agencies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
