California Tightens Oversight Of PE Involvement In Physician Platforms

California has enacted two new laws—AB 1415 and SB 351—effective January 1, 2026, that will materially affect private equity ownership and management services structures for physician and dental practices operating in the state.

AB 1415: Expanded OHCA Review and Notice

AB 1415 expands the Office of Health Care Affordability's (OHCA) pre-transaction notification regime to include private equity groups, hedge funds, management services organizations (MSOs), newly formed entities created to transact with healthcare entities, and entities that own, operate, or control providers. In practice, a broad range of deals will now require written notice to OHCA at least 90 days before closing, including transactions that:

1. Dispose of a material amount of assets (e.g., sales, transfers, leases, exchanges, options, encumbrances) of a healthcare entity or MSO; or
2. Transfer control, responsibility, or governance over a material amount of the assets or operations of an MSO.

OHCA is authorized to collect data from these entities and is expected to promulgate regulations to reduce duplicative reporting. Sponsors and portfolio companies should plan for longer lead times, earlier regulatory planning, and careful assessment of whether contemplated steps constitute "material change transactions."

SB 351: Codified CPOM Restrictions and Contract Limitations

SB 351 clarifies and codifies California's corporate practice of medicine (CPOM) doctrine as applied to private equity and hedge funds. The law prohibits investor control or delegated authority over clinical and core operational decisions, including: diagnostic testing, referrals, treatment options, patient volume and scheduling, coding, and billing, approval of medical equipment and supplies, ownership or control of medical records, and setting terms for payor or professional services contracts. SB 351 also bars certain provisions in management and asset arrangements with these investors, including non-compete clauses and clauses restricting providers from commenting on quality, utilization, professional ethics, or revenue strategies.

Practical Implications and Next Steps

PE-backed platforms should expect heightened regulatory scrutiny and should take steps now to align structures and documentation with the new requirements:

1. Evaluate OHCA triggers and timelines: map upcoming transactions to identify notice obligations and adjust signing/closing sequencing accordingly.
2. Review and revise contracts: update MSO agreements, professional services agreements, governance policies, compensation/productivity models, and payor contracting parameters to preserve clinical independence and remove prohibited terms.
3. Reassess governance and control: ensure decision rights and protocols clearly separate clinical decision-making from management services and investor oversight.
4. Portfolio-wide compliance check: conduct a California-focused review for multi-state platforms and consider state-specific carve-outs or alternative structures.

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