New California Statutes Significantly Expand Regulatory Oversight of PE and Hedge Fund Medical and Dental Practice Transactions

September 29, 2025

Elizabeth Mann, Managing Partner

California’s Office of Health Care Affordability (OHCA) has jurisdiction to review proposed material change transactions involving healthcare entities for cost and market impact. Current law does not capture private equity or hedge fund activity, nor does the statute regulate management service organizations. California’s legislature passed AB 1415, which expands OHCA’s authority to cover these organizations, requiring them to submit certain proposed transactions to OHCA for regulatory review prior to closing the transaction.

California also passed SB 351. This statute imposes California’s CPOM rules on PE/hedge funds (including entities that the funds control “directly, in whole or in part”) that are “involved in any manner” with a medical or dental practice, including as an “investor” in practice assets. The statute also makes void certain noncompete and non-disparagement terms in (i) a medical/dental MSO contract and/or (ii) a contract for the sale of dental or medical practice assets to a PE/hedge fund or an entity that the investor controls, “directly or indirectly.” The AG has the power to enforce this statute.

Below is a summary of existing law, and key proposed changes. Governor Newsom has until October 12, 2025, to sign these bills. If signed, they become effective on January 1, 2026.

I.  AB 1415 – Current Law and Proposed Significant Expansion

A. Existing Law – Triggers for OHCA Transaction Review

Today, there are three facets to OHCA’s jurisdiction to review a proposed transaction. First, a “health care entity” must be party to, or the subject of, a transaction. Second, the transaction must involve a “material change.” A material change transaction is one that substantially impacts the control, management, or finances of a covered health care entity. A covered transaction must also meet certain financial requirements. The financial requirement is met when:

One transaction party is a health care entity that has annual California revenue of at least $25 million, or owns or controls California assets of at least $25 million ($25/25 thresholds) 1 or

A health care entity with $10 million in revenue or that owns or controls California assets of $10 million, and is a party to or a subject of a transaction with:

• A healthcare entity that meets either of the $25/25 thresholds, or

• An entity that owns or controls a healthcare entity that meets the $25/25 thresholds.

B. Proposed Expansion of OHCA’s Review Jurisdiction – PE/Hedge Fund Transactions and MSO Activity

AB 1415 amends the statute to specifically define PE firms, hedge funds, and MSOs as a “noticing entity.” Noticing entities are required to make OHCA filings for transactions that do any of the following concerning a health care entity or an MSO (amended §127507(c) 2 (A)):

(i) Sell, transfer, lease, exchange, option, encumber, convey, or otherwise dispose of a material amount of the health care entity’s or management services organization’s assets to one or more entities.2

(ii) Transfer control, responsibility, or governance of a material amount of the assets or operations of the health care entity or management services organization to one or more entities.

An MSO must also “[p]rovide the office with written notice of any agreement or transaction that is described in clauses (i) and (ii) of subparagraph (A) between the management services organization and any other entity” (§127507(c) 2 (B); emphasis added).

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1 Health & Safety Code §127500 et. seq.; Code of Regulations (CCR), Tit. 22, § 97431 et. seq. “Revenue” for this purpose is defined as the “total average annual California-derived revenue received for all health care services by the company and all affiliates over the three most recent fiscal years.” “Revenue” is specifically defined by provider type. For a covered transaction, parties must file (where available) “certified financial statements for the prior three years” which the regulation defines as “audited financial reports.” CCR Tit. 22, §§ 97438, 97435(d).

2 The current regulations define a “material transaction” as one with an FMV of $25M, or that involves a $10M or 20% increase in a healthcare entity’s revenues, or where 25% of the entity’s assets are encumbered, or 25% of voting control changes. CCR Tit. 22 §97435.

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Finally, the amended statute includes new MSO data reporting obligations. OHCA will “establish requirements for management services organizations to submit data and other information as necessary to carry out the functions of the office.” Section 127501.5. The Office will draft regulations implementing these provisions. This can take a year. The described Office procedures and goals below reflect current law without regard to what changes, if any, the Office may adopt to cover PE/hedge fund transactions, and MSO filings.

C. Existing Law – Timing and Potential Outcomes from a Material Change Transaction Review

1. Review Timing

The Office has a powerful regulatory tool, mandated regulatory submissions concerning covered transactions. By contrast, other than delay and potential public attention, its enforcement mechanisms are more modest. It cannot modify or enjoin a proposed transaction.

The statute requires parties involved in a covered transaction to submit detailed information about the proposed transaction to the Office 90 days before the transaction is scheduled to close. The Submitter(s)/Notifying Parties must supply information about the parties, the transaction, and its potential market impacts. Submitted materials are posted on the Office’s website, confidentiality can be requested, but the Office is not obliged to grant this request. Key documents are automatically deemed confidential (contracts, compensation, rates, valuation documents and resumes) (if properly requested).

After the filing of a complete notice, the Office will review a proposed transaction, to determine whether it will issue a Waiver, or require a CMIR (Cost, Market Impact Review). Generally, the Office must notify the Submitter within 45 days if it elects to issue a Waiver and within 60 days if it elects to conduct a CMIR. If a Waiver is issued, the transaction may close without delay.

Within 10 business days after receiving a CMIR notice the Submitter(s) may request a review the by Office’s Director. The Director has 5 business days (with a 5-business day extension) to either affirm the CMIR requirement or grant the Waiver. This determination is final.

The Office has 90 days to complete a CMIR, with the power to grant itself a 30-day extension. Should the Office decide that the submitted documentation is insufficient, or if other agencies are reviewing the transaction, the Office may toll these periods.

Once review is complete, the Office will issue factual findings in a preliminary report. The transaction parties and the public may submit comments within 10 business days. Within 15 days of the closing of this comment period, subject to good cause extension rights, the Office will issue its Final Report. After issuance of the Final Report, the parties must wait 60 days to close the transaction. H&S § 127507.2; CCR Tit. 22 § 97442.

The Office does not have the power to block or condition the parties’ transactions. The Office can refer its report to the AG’s office. Fairly noted however, if any transaction party is subject to the jurisdiction of California’s healthcare, insurance and/or finance regulators, they will likely

take note of Office’s findings in its Final Report. 3 Neither the statute nor accompanying regulations specify a filing fee. However, OHCA may recover “all actual, reasonable, and direct costs incurred in reviewing, evaluating, and making” their determination. H&S §127507.4.

2. Review Focus and Objectives

The Office undertakes a CMIR review where it finds, from its review of the preliminary submissions, that the transaction may reduce competition, create a monopoly, depress wage growth, reduce services, or curtail “culturally competent care.” The Office also considers whether the transaction will negatively impact the parties’ ability to meet the health care cost increase targets that the Office must designate, oversee and enforce. It also considers whether a transaction involving an out-of-state entity would negatively impact affordability, quality, limit access to health care services in California, or whether this transaction would undermine the financial stability of a California entity.

II.  SB 351 – New Law

SB 351 adds a new section to the California Health & Safety Code entitled “Private Equity or Hedge Fund Ownership of Health Care Practices.” This statute pointedly applies California’s CPOM rules to PE/hedge fund healthcare transactions. The statute recites:

This section is intended to ensure that clinical decision-making and treatment decisions are exclusively in the hands of licensed health care providers and to safeguard against nonlicensed individuals or entities, such as private equity groups and hedge funds, exerting influence or control over care delivery.

The statute also imposes CPOM requirements on medical/dental MSOs, without regard to PE/hedge fund involvement. It gives the Attorney General the power to enforce its provisions, allowing the AG to seek injunctive relief, equitable relief and attorneys fees and costs.

Mann Legal has a great deal of experience in these matters and would be pleased to advise. Find us at www.mannlegalteam.com. Mann Legal provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers.

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3 Additionally, the statute tasked the Office with setting and enforcing annual statewide healthcare cost increase targets. The Office has set a cost increase ceiling of 3.5% for 2025 and 2026, declining to 3% by 2029 (During 2015-2020 California costs increased by more than 5%). The Office is also tasked with broad healthcare data collection obligations that health care firms must comply with.