In October 2025, Governor Gavin Newsom signed two sweeping laws that significantly reshape how healthcare transactions are reported and how private equity groups and hedge funds may engage with physician and dental practices. Assembly Bill 1415 (AB 1415) establishes new reporting obligations for healthcare transactions involving material changes in ownership or control, while Senate Bill 351 (SB 351) codifies California’s Corporate Practice of Medicine (CPOM) doctrine by restricting how private equity groups and hedge funds may influence or control clinical practices. Both laws take effect on January 1, 2026.

AB 1415: Expanding Oversight in Healthcare Transactions

AB 1415 updates Health and Safety Code §127501 (HSC §127501) and §127507 (HSC §127507) to create a formal pre-transaction notice process for certain healthcare transactions involving a “material” transfer of assets or operational control. As amended, HSC §127507  requires healthcare entities, management services organizations (MSOs), and other parties to provide written notice to the Department of Health Care Access and Information (HCAI) at least 90 days before entering into a covered agreement or transaction.

The statute imposes two distinct notice obligations:

• Healthcare entities must report transactions in which they transfer a material amount of their own assets or operational control to another party.
• Noticing entities, such as private equity groups, hedge funds, MSOs, or other affiliated entities, must report transactions involving the transfer of a material amount of assets or control over a healthcare entity or MSO.

HSC §127507 specifically requires MSOs to provide notice of any such transaction between the MSO and another entity. This reflects a clear recognition of MSOs’ growing role in managing and structuring provider practices.

Notably, the law does not define what constitutes a “material amount” of assets or operational control. Instead, HCAI is tasked under HSC §127501 with issuing regulations that will clarify key thresholds, such as annual revenue, market share, or geographic impact. HCAI is also expected to streamline reporting to avoid duplication when multiple parties to the same transaction would otherwise be required to submit notice.

While the updates to HSC §127501 do not authorize HCAI to approve or block transactions, they do require the agency to play a more active role in monitoring healthcare consolidation. Under certain conditions, such as when a proposed transaction may affect market competition, access to services, or costs, HCAI is required to make the transaction notice and related materials publicly available. The agency is also expected to issue regulations governing additional disclosures and review thresholds, which may include processes for requesting supplemental information from the parties involved.

In practical terms, HSC §127501 and HSC §127507 set the foundation for a statewide reporting infrastructure around healthcare transactions. Organizations should begin preparing for longer transaction timelines and evaluate whether upcoming deals could trigger reporting obligations, especially those closing in mid-2026 or later.

SB 351: Codifying the Corporate Practice of Medicine Doctrine and Restricting Investor Control

SB 351 updates Health and Safety Code §1190 (HSC §1190) and §1191 (HSC §1191) to codify and expand California’s Corporate Practice of Medicine doctrine by restricting the ability of private equity groups and hedge funds to influence or control clinical decision-making within physician and dental practices. This applies to any private equity group or hedge fund “involved in any manner” with a physician or dental practice doing business in California. This includes not only direct ownership but also involvement through asset purchases, MSO structures, or indirect corporate affiliations. The law’s broad phrasing reflects the Legislature’s intent to regulate the full spectrum of financial and operational arrangements that may affect clinical autonomy. Importantly, SB 351 does not grandfather existing MSO arrangements or contracts; all current and future agreements must comply with the new statutory requirements as of the law’s effective date.

Under HSC §1191, investors are prohibited from interfering with professional clinical judgment, including decisions about diagnostic testing, referrals, treatment options, patient scheduling, and overall responsibility for patient care.

The law also bars private equity groups and hedge funds from exercising control over key aspects of practice operations. These include:

• Ownership or control of patient medical records.
• Hiring or firing clinical staff based on clinical competency or proficiency.
• Setting parameters for payer or provider contracts.
• Making decisions about billing, coding, or the selection of clinical equipment and supplies.

Perhaps most consequentially, changes to HSC §1191 render certain contract terms in management or asset sale agreements with a private equity group, hedge fund or their controlled entities unenforceable. These include:

• Provisions that enable the types of clinical or operational control described above.
• Noncompete clauses that bar a physician or dentist from competing with the practice following termination or resignation.
• Non-disparagement clauses that restrict providers from commenting on quality of care, utilization practices, ethical concerns, or business pressures.

Sale-of-business noncompete provisions remain valid under California law. Confidentiality agreements are still enforceable, but only to the extent they do not limit disclosures about clinical quality or professional ethics. The statute applies regardless of the practice’s legal structure and extends to entities directly or indirectly controlled by private equity groups or hedge funds.

The amendments of HSC §1190 and HSC §1191 reaffirm the independence of licensed providers and sets new compliance expectations that will affect how practices are structured, managed, and supported by outside investors. Healthcare professionals, particularly those affiliated with MSOs or private equity groups, may want to review current agreements to assess whether revisions are needed under the new law.

What This Means for Legal, Compliance, and Investment Teams

AB 1415 and SB 351 introduce new compliance, legal, and strategic considerations for healthcare investors, deal teams, and advisors involved in practice acquisitions or management.

Under AB 1415, organizations will need to build a 90-day lead time into transaction timelines and prepare to engage with a new state review process, even though formal approvals are not required. Internal procedures should be updated to identify potentially reportable transactions early in the deal cycle. Counsel and deal teams should also consider building regulatory review contingencies into timelines for 2026 transactions and beyond

Under SB 351, legal teams should begin auditing existing MSO agreements, asset purchase structures, and operational contracts to ensure compliance. Particular attention should be paid to governance rights, clinical decision-making authority, and any restrictive covenants imposed on providers. In some cases, contractual models may need to be restructured to align with the new statutory boundaries.

In both cases, further guidance is expected. HCAI and the Attorney General’s Office are anticipated to issue regulations and implementation materials in 2026. Organizations should monitor these developments closely and consider submitting comments during the rulemaking process if the opportunity arises.

Together, AB 1415 and SB 351 represent a major shift in California’s regulation of healthcare transactions and investor influence. AB 1415 establishes a formal notice process for material deals, while SB 351 draws clear legal boundaries around clinical control. With both laws taking effect in 2026, healthcare organizations and investors should begin reviewing their deal structures and compliance frameworks now to avoid potential regulatory issues down the line.

If you have any questions regarding the implementation of AB 1415 or SB 351, please contact Jonathan Dolgin.