SB 351 is Now Law in California. It Regulates PE/Hedge Fund Healthcare Investments

October 14, 2025

Elizabeth Mann, Managing Partner

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 Corporate Practice of Medicine/Dentistry rules to PE/hedge fund healthcare transactions. The statute exempts lenders, i.e., “banks and credit unions, commercial real estate lenders, bond underwriters, and trustees.”

The statute reaches transactions where a PE/hedge fund is “involved in any manner” with a medical/dental practice, including as an “investor or owner” of the practice or its assets. The term “investor” is not defined, nor does the statute specify an ownership threshold as a triggering event. Where these conditions are satisfied, the PE/hedge fund must follow California’s prohibition against the corporate practice of medicine/dentistry.

The law also prohibits an entity that is “controlled directly, in whole or in part” by a PE/hedge fund, i.e., an MSO, from entering into an agreement or arrangement that would facilitate such interference or control (“Qualifying MSO”). This statute forbids Qualifying MSOs from contracting with a medical practice if this gives the MSO the power to interfere with the clinicians’ professional judgment. Contractual terms that violate the statute are void, unenforceable, and against public policy. The California AG’s office has enforcement power, which arguably gives the AG enforcement authority over PE/hedge funds and their Qualifying MSOs. In light of this statute, a review of the firm’s contracts with MSOs, and the terms of the MSO contracts with physicians or dentists, to ensure that clinical control remains solely with licensed providers, would be well-advised.

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.” This statute becomes effective on January 1, 2026.

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.