New 2025 California Legislative Attempts to Restrict Healthcare Investment Await Governor’s Approval

Legislature Passes Healthcare Investment Oversight Bill

The State of California enacted CA AB 1415 on September 8, 2025. The bill would expand state oversight over healthcare transactions involving private equity (PE) groups, management service organizations (MSOs), hedge funds, and other entities formed for the purpose of entering into agreements or transactions with a healthcare entity, broadly defined as including payors and related entities, providers, fully integrated delivery systems, and pharmacy benefit managers.

If signed by California Governor Gavin Newsom, beginning on January 1, 2026, CA AB 1415 would require these entities to file prescribed pre-transaction notice with the Office of Health Care Affordability (OHCA) at least 90 days before entering into a material transaction with a healthcare entity or an entity that owns or controls a healthcare entity. The Governor has until October 12, 2025, to sign or veto the bill.

Legislative Intent of CA AB 1415

CA AB 1415 reinstates the legislature's latest attempt to oversee healthcare investments, following Governor Newsom's veto of California Assembly Bill 3129 (CA AB 3129) last year.¹ CA AB 3129 similarly targeted PE investment in healthcare and would have required PE firms and hedge funds to provide written notice to the Attorney General at least 90 days before any change of control or acquisition involving a healthcare facility or provider group. Unlike CA AB 1415, however, CA AB 3129 also sought to require consent from the California Attorney General before the closing of any PE healthcare investment. In explaining his decision to veto CA AB 3129, Governor Newsom stated that because "OHCA was created as the responsible state entity to review proposed healthcare transactions . . . it would be more appropriate for the OHCA [rather than the Attorney General] to oversee these consolidation issues."²

CA AB 1415 returns the review power to OHCA. Although OHCA cannot unilaterally block a transaction under the bill, it can coordinate with other state entities, including the Attorney General, for further review of anticompetitive behaviors or anticompetitive effects. In this way, CA AB 1415 aligns more closely than did CA AB 3129 with the California governor's objective of maintaining OHCA's oversight over proposed healthcare transactions. Under CA AB 1415, OHCA would have discretion to conduct reviews that result in significant delays to closing and (as discussed below) to report information to the public and/or other enforcement agencies.

Codification of CPOM Guidance

The State of California also passed CA SB 351 on September 12, 2025. As amended, CA SB 351 codifies existing Corporate Practice of Medicine (CPOM) and Corporate Practice of Dentistry (CPOD) guidance published by the Medical Board of California,³ limits the enforceability of restrictive covenants, and authorizes the Attorney General to enforce violations of the statute. The legislation would expressly prohibit a PE group or hedge fund's involvement in the clinical and other diagnostic decision-making of a "physician or dental practice," including decisions related to "coding and billing of procedures for patient care services," "approving the selection of medical equipment and medical supplies," and other tasks commonly considered "business" or "managerial" in nature. An "unlicensed person or entity" may still assist or consult with the medical or dental practice as long as the physician or dentist maintains ultimate responsibility for those decisions.

Unlike CA AB 1415, CA SB 351 remains nearly identical to the CPOM-related provisions of last year's vetoed CA AB 3129. However, California already maintains a strong, albeit uncodified, CPOM enforcement regime, relying upon scattered provisions of the California Business and Professions Code that are incorporated into existing guidance. Accordingly, this bill may risk veto if Governor Newsom considers it redundant in light of active CPOM enforcement activity.

In the same vein, CA SB 351, even if signed into law, does not significantly alter the existing landscape regarding CPOM prohibitions. Instead, it would merely introduce a "mechanism for detection, oversight, and enforcement" within the current framework of CPOM restrictions, according to California Senator Chris Cabaldon.⁴ Of note, though, the bill grants express enforcement authority to the Attorney General to bring enforcement actions against PE groups and hedge funds that violate the provisions of the statute, giving the state more direct enforcement authority over the CPOM scheme. PE groups and hedge funds that own or work with healthcare practices should review their management and legal structures to ensure compliance with current CPOM guidance and, if it passes, the statutory requirements set by CA SB 351.

Relevant Restrictions for Healthcare Investors Under CA AB 1415

In contrast to the would-be codified status quo under CA SB 351, CA AB 1415, if signed, would impose a new set of restrictions and notice requirements for healthcare investors. The remainder of this article focuses on the restrictions and implications set to go into effect under this proposed statute.

Filing Requirements

Although PE groups, MSOs, and hedge funds have already been indirectly subject to OHCA oversight through their involvement in healthcare transactions, CA AB 1415 would impose independent filing requirements on these entities. Under existing law, healthcare entities (defined as payors and related entities, providers, fully integrated delivery systems, and pharmacy benefit managers) must provide OHCA written notice when they are involved in material change transactions that meet certain asset or revenue thresholds or are in a primary care shortage area.⁵ These healthcare entities must provide written notice to the OHCA no less than 90 days before the transaction closes, allowing the OHCA to determine if the transaction is likely to have a significant impact on market competition, costs for purchasers and consumers, or on California's ability to meet cost targets. OHCA notifies the submitting healthcare entity within 45 days if it determines that a Cost and Market Impact Review (CMIR) is not needed. If the agency determines that it will conduct a CMIR, OHCA notifies the submitter within 60 days following the submission of a complete notice. OHCA is then required to complete the CMIR within 90 days of its final decision to conduct a CMIR. Finally, transactions subject to OHCA's review are not permitted to close until 60 days after OHCA issues its final report.

Under this existing framework, although OHCA may not block a transaction, OHCA may disclose these findings publicly, potentially revealing sensitive information. OHCA may also refer any of its findings to the California Attorney General for further review of any anticompetitive behavior or anticompetitive effects.

If signed into law, CA AB 1415 would apply the existing framework to the newly defined category of "noticing entities," including (1) PE groups, (2) hedge funds, (3) newly formed business entities created for the purpose of entering into agreements or transactions with a healthcare entity, (4) MSOs, and/or (5) entities that own or control a provider.

Qualifying transactions that trigger this pre-transaction notice requirement include transactions that (i) sell, transfer, lease, exchange, option, encumber, convey or otherwise dispose of a material amount of the healthcare entities' assets; or (ii) transfer control, responsibility, or governance of a material amount of the assets or operations of the healthcare entity.⁶

What Healthcare Investors Should Expect Under Proposed CA AB 1415

1. Notification Requirements and Delays

Noticing entities must file detailed written notices to the OHCA at least 90 days prior to completing material transactions. Although the bill is silent regarding the specific form of required written notice for noticing entities, the existing notice requirements for healthcare entities include documentation regarding ownership structures, financials, and corporate governance-and CA AB 1415 instructs OHCA to adopt regulations eliminating duplicative reporting requirements. Until OHCA promulgates further regulations, therefore, noticing entities should be prepared for written notice requirements that are as comprehensive as those imposed on healthcare entities. PE firms, hedge funds, and MSOs will need to dedicate additional time and resources to meet these demands, and be prepared for significant delays following a potential CMIR review and increased public scrutiny in deal execution.

2. Public Disclosure Risks

By expanding OHCA's oversight to MSOs and private equity firms, the bill subjects these organizations to evaluative and potentially ongoing reviews regarding their impact on healthcare costs, quality, equity, and workforce stability. Moreover, the bill does not explain the extent to which these disclosures may remain confidential. Generally, OHCA posts healthcare entity notices on its website once deemed complete, and supporting documentation such as financials and corporate governance documents are made available upon a Freedom of Information Act request or upon the initiation of a CMIR. While healthcare entities may request that certain portions of their disclosures remain confidential, the text of CA AB 1415 lacks clarity regarding whether PE entity filings will be subject to similar confidentiality protections. Because transparency and informing the public of these transactions are OHCA's primary goals, noticing entities should be prepared to face an uphill battle in maintaining the confidentiality of these disclosures.

Strategic Implications

Although PE groups, MSOs, and hedge funds are already indirectly subject to OHCA oversight, CA AB 1415 would significantly expand OHCA's authority, causing delays in deal timelines and increasing public exposure. Moreover, CA AB 1415 is a part of a broader trend in increasing state oversight for healthcare transactions. Oregon, for example, signed into law Oregon Senate Bill 951 and House Bill 3410, effective January 1, 2026, significantly restricting MSOs' operational influence on professional medical entities. With states like Oregon and California leading the way, the legislative landscape on healthcare investments is likely to continue evolving. With a 50-state patchwork of healthcare transaction laws, PE healthcare investors must develop multi-jurisdictional compliance frameworks and continue to monitor new legislative changes and subsequent rulemaking by the agencies implementing such changes.