On Oct. 6 and 11, 2025, California Gov. Gavin Newsom signed into law two pieces of legislation that will impact the healthcare transaction landscape. These laws codify corporate practice of medicine (CPOM) guidance and add private equity groups, management services organizations (MSOs) and hedge funds to parties covered by the state’s material transaction notice laws. The California legislature passed both bills in September, and Newsom’s signature enacts them into law.
These changes follow Newsom’s veto of AB 3129 in 2024, which included attorney general transaction consent requirements, citing in his veto message that the Office of Health Care Affordability (OHCA) was better positioned to oversee consolidation issues. Both new laws reflect this directive, resulting in targeted legislation that works within existing legal frameworks, potentially impacting various healthcare transactions in the state.
SB 351: California Codifies CPOM and CPOD Guidance
On Oct. 6, Newsom signed SB 351, which codifies California strict CPOM and corporate practice of dentistry (CPOD) guidance into law, while implementing new restrictions on how PE groups and hedge funds can support healthcare providers. The legislation formalizes language requiring clinical autonomy and reserves control of healthcare delivery for healthcare providers. McGuireWoods reviewed earlier versions of the legislation in March 2025.
Key Provisions and Impacts:
1. Prohibition on Interference: PE groups and hedge funds are prohibited from interfering with the professional judgment of physicians and dentists, including decisions about diagnostics, referrals, patient care and treatment options. They may not interfere with or control:
- Determining what diagnostics tests are needed for certain conditions
- Determining the need for referrals or consultations with another provider
- Being responsible for the ultimate overall care of the patient, including treatment options available to the patient
- Determining how many patients must be seen in a period or how long a clinician needs to work
The Medical Board of California included a version of this list in its “Corporate Practice of Medicine” guidance.
2. Restrictions on Control: The law bars PE groups and hedge funds from exercising control over core operational and clinical functions, including:
- Owning or determining content of patient medical records
- Selecting, hiring or firing of clinical staff
- Setting parameters for contractual relationships with third-party payors
- Setting clinical competency or proficiency standards for clinical staff
- Making decisions regarding billing and coding procedures
- Setting parameters for approving medical supplies and equipment
The Medical Board of California included a version of this list in its “Corporate Practice of Medicine” guidance.
4. Noncompete and Non-Disparagement Clauses: The law prohibits noncompete and non-disparagement provisions that would bar a provider from competing with or commenting on the practice regarding quality, utilization or ethical issues. This prohibition applies to contracts involving the management of a physician or dental practice, as well as in the sale of real estate or other assets owned by a physician or dental practice to a PE group or hedge fund, or any entity they control. The law includes carveouts for otherwise enforceable sale of business noncompete agreements and to protect material nonpublic information about the PE group or hedge fund. Both carveouts are potentially subject to judicial interpretation, so these may be requirements to watch.
5. Attorney General Enforcement: SB 351 authorizes the California attorney general to seek injunctive relief and recover attorneys’ fees for violations, increasing the risk profile for noncompliant investors.
6. Permitted Administrative Support: The law clarifies that unlicensed entities such as MSOs may assist with administrative tasks, provided physicians and dentists retain ultimate responsibility for clinical and operational decisions.
AB 1415: California Expands Material Transaction Notice Requirements
On Oct. 11, Newsom signed AB 1415, which amends California’s material transaction notice law. This amendment creates additional reporting requirements for parties involved in healthcare transactions. AB 1415 adds MSOs, PE groups and hedge funds as “noticing entities” that must notify OHCA 90 days prior to closing certain deals involving California healthcare providers. AB 1415 also directs OHCA to study and collect data from MSOs. McGuireWoods reviewed earlier versions of the legislation in March 2025.
Key Provisions and Impacts:
1. Management Services Organizations as Covered Entities
AB 1415 includes MSOs as “noticing entities” that can trigger reporting requirements. MSOs are defined as entities that provide management and administrative support services for providers in support of the delivery of healthcare services, including provider rate negotiation and revenue cycle management. MSOs must provide written notice to OHCA at least 90 days prior to entering into an agreement or transaction if either of the following occurs with parties already subject to OHCA reporting:
- Sell, transfer, lease, exchange, option, encumber, convey or otherwise dispose of a material amount of its assets to one or more entities
- Transfer control, responsibility or governance of a material amount of the assets or operations of the healthcare entity to one or more entities
2. Reporting Requirements for Private Equity Groups and Hedge Funds
AB 1415 expands the definition of “noticing entities” to include PE groups and hedge funds, meaning these entities are now independently required to report to OHCA. A noticing entity must provide notice of agreements or transactions between the noticing entity and a healthcare entity or MSO, or an entity that owns or controls the healthcare entity or MSO. This change will likely mean that during a PE group’s exit transaction selling to another PE group (or another investor), the transaction will need to be submitted to OHCA 90 days prior to closing.
3. MSO Data Reporting Requirements
AB 1415 imposes data reporting requirements on MSOs to enable OHCA to conduct research on the healthcare market, including competition and consolidation trends. AB 1415 delegates authority to OHCA to determine what information MSOs must report and allows OHCA to adopt regulations to eliminate duplicative reporting if entities are required to submit notice under more than one provision. It remains unclear how much of the data reported to OHCA will be made available to the public. The delegation to OHCA to adopt regulations for reporting is an area to monitor.
Conclusion and Practical Implications for Investors
SB 351 largely codifies existing Medical Board of California policy regarding investor involvement in healthcare practices. Investors that have already adhered to this guidance may not need to make significant changes but should: (a) review their documents to ensure compliance; (b) confirm that compliance is reflected in day-to-day operations; and (c) recognize that this legislative trend signals the likelihood of continued and increased regulation of investor-physician and investor-dental relationships. Investors will also want to monitor if this California effort triggers legislative or regulatory changes in other states and potentially at the federal level.
Under AB 1415, more transactions will require reporting to OHCA, and investors should anticipate providing 90 days’ prior notice for most healthcare deals in California, as fewer carveouts and exemptions may be available. OHCA’s oversight of MSOs, PE groups and hedge funds in California will increase with required reporting of data for further reports and policy recommendations. Investors should carefully review AB 1415 to determine if their transactions are subject to the expanded reporting requirements and prepare for additional regulatory scrutiny.
McGuireWoods continues to monitor for new CPOM and CPOD restrictions along with states implementing new reporting requirements. McGuireWoods continues to track and update these regulations. For further information on SB 351, AB 1415 and similar regulations, Contact any of the authors.