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Effective January 1, 2026, California implemented two significant healthcare laws—Senate Bill 351 (SB 351) and Assembly Bill 1415 (AB 1415)—that materially affect healthcare practices, management services organizations (MSOs), private equity groups, hedge funds, and other investor structure ownership, management, and transactions in the state of California. Together, these laws codify California’s long‑standing corporate practice of medicine (CPOM) doctrine and significantly expand state oversight and enforcement authority of healthcare transactions through the Office of Health Care Affordability (OHCA) and the California Attorney General.
SB 351: Codifying and Enforcing Corporate Practice Restrictions
Purpose and Scope
SB 351 codifies existing guidance and case law regarding California’s CPOM and corporate practice of dentistry (CPOD) doctrines, expressly targeting private equity groups, hedge funds, investors and the entities they control (MSO) from interfering with physician and dentist clinical judgement.
Key Prohibitions
Under SB 351, covered investors and entities may not interfere with, control, or direct a physician’s or dentist’s professional clinical judgment. The statute specifically prohibits influence over:
- Clinical decision‑making, including diagnoses, referrals, and treatment decisions
- Patient volume, scheduling, or hours worked
- Hiring, firing, or supervision of clinical personnel based on clinical competence
- Ownership or control of medical records
- Billing, coding, reimbursement strategies, or payer contracting
- Selection of medical equipment, supplies, or pharmaceuticals
These restrictions apply regardless of whether influence is exercised directly or indirectly through management, an MSO or other contractual arrangements.
Contractual Clauses Rendered Unenforceable
SB 351 also invalidates certain contract provisions commonly found in MSO or investor‑backed arrangements, including:
- Non‑compete clauses restricting physicians or dentists after leaving a practice
- Non‑disparagement or gag clauses preventing providers from commenting on quality of care, ethics, or financial practices
The California Attorney General is expressly authorized to seek injunctive relief and other equitable remedies for violations.
Please note: SB 351 does not specifically bar percentage fees in an MSO arrangement but changes the risk calculus on whether such fees constitute interference and control and are Fair Market Value.
AB 1415: Expanding OHCA Oversight of Healthcare Transactions
Background on OHCA
The Office of Health Care Affordability (OHCA) was created to monitor healthcare market consolidation, cost growth, and access. Prior to AB 1415, OHCA’s transaction‑notice requirements primarily applied to licensed healthcare providers and payors meeting certain revenue or asset thresholds.
AB 1415 significantly expands California oversight of healthcare transactions by bringing new categories of entities and transactions within OHCA’s jurisdiction. AB 1415 is transaction based and works in tandem with SB 351 by focusing on transaction review, notice and transparency.
New “Noticing Entities”
Effective January 1, 2026, AB 1415 requires the following entities (“Noticing Entities”) to submit advance notice to OHCA for certain transactions:
- Private equity groups
- Hedge funds
- Management services organizations (MSOs)
- Newly formed entities created to transact with healthcare entities
- Entities that own, operate, or control healthcare providers
Transactions Subject to Notice
Noticing entities must provide at least 90 days’ advance written notice to OHCA before completing transactions that involve:
- A sale, transfer, lease, exchange, or other disposition of a material amount of assets of a healthcare entity or MSO
- A change of control, governance, or operational responsibility over a healthcare entity or MSO
Upon receiving notice, OHCA may waive review or initiate a Cost and Market Impact Review (CMIR), which can substantially delay transaction closing. Although OHCA does not have direct veto power, it may refer transactions to the California Attorney General for further review.
Please note: AB 1415 places the legal obligation of notification to OHCA on the Noticing Entity. OHCA’s role is to review and evaluate the transaction for material impact. The decision is not appealable.
How SB 351 and AB 1415 Work Together
Taken together, SB 351 and AB 1415 reflect a coordinated policy approach:
- SB 351 focuses on how healthcare practices may be managed and who may influence clinical decision‑making.
- AB 1415 focuses on when and how healthcare‑related transactions are disclosed, reviewed, and potentially scrutinized by the state of California.
The combined effect is increased transparency, heightened compliance risk for MSO and investor‑backed models and longer deal timelines for covered transactions.
Practical Implications
Healthcare providers, MSOs, and investors should consider:
- Although SB 351 is not retroactive, PC/MSO contractual arrangements signed before January 1, 2026, that violate SB 351 become void and unenforceable as of January 1, 2026.
- The California Attorney General may seek injunctions and/or fees for violations of SB 351.
- MSOs should consider reviewing and revising MSO agreements, management services agreements, and governance documents for SB 351 compliance.
- Existing or planned transactions should be assessed for triggering AB 1415 notice obligations
- Advising counsel should factor OHCA review timelines into transaction planning
Conclusion
SB 351 and AB 1415 mark a significant shift in California’s healthcare regulatory landscape. While SB 351 reinforces the state’s commitment to preserving clinical independence, AB 1415 substantially expands transaction oversight and reporting obligations. Together, these laws require healthcare stakeholders to reassess ownership structures, contractual relationships, and transaction strategies in California.
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