New California laws regulate private equity in healthcare

California has enacted two laws to curb investor influence in health care. Governor Gavin Newsom signed SB 351 and AB 1415 in October, reinforcing clinical independence and expanding oversight of private equity and hedge fund transactions.

California’s reforms align with a growing state-level movement to address private equity’s role in healthcare. In 2025, several states — including Oregon, Massachusetts, Indiana, New Mexico, and Washington — advanced legislation expanding oversight for healthcare investors.

Reinforcing Clinical Independence

SB 351, signed in early October, strengthens California’s existing corporate practice of medicine prohibitions by clarifying how they apply to investor ownership.

The law bars private equity and hedge fund owners — and the management services organizations (MSOs) and dental service organizations (DSOs) that they own — from acts that may interfere with the professional judgment of a physician or dentist, including determinations regarding diagnostic processes, patient referrals, and patient volumes.

Additionally, the law explicitly prohibits private equity firms and hedge funds from exercising control over:

• coding and billing;
• the hiring and firing of clinical staff based on competency;
• determining the content of patient medical records;
• setting the terms under which practices contract with insurers or other providers; or 
• approving the selection of medical equipment and supplies.

Contract provisions giving such corporate owners these powers are void, as are certain noncompete and nondisparagement clauses that could restrict clinicians from speaking about quality or revenue pressures.

MSOs may continue to provide administrative and business support (the new law does not prohibit “an unlicensed person or entity from assisting, or consulting with, a physician or dental practice”) but licensed providers must retain final authority over clinical matters.

Expanding Deal Transparency

AB 1415, also signed in October, expands the Office of Health Care Affordability’s (OHCA) oversight of investor-backed transactions. The law requires private equity groups, hedge funds, MSOs, parent companies, and new acquisition vehicles to provide notice before closing “material change” transactions that transfer control or assets of a health care entity. OHCA may then conduct a Cost and Market Impact Review to assess potential effects on competition, access, and affordability.

Unlike last year’s vetoed AB 3129, AB 1415 does not grant the Attorney General consent authority over mergers. Instead, it creates earlier visibility into investor-backed consolidation, ensuring that regulators can identify high-risk transactions before they reshape local health systems.

Last year’s AB 3129 drew intense lobbying and broad industry pushback. Business groups mostly opposed the bill, and the American Investment Council — private equity’s primary trade group — publicly opposed it, stating: “We worked with our coalition partners to improve this legislation but remain concerned that the current bill sends the wrong message to the business community about investing in California.”

Conclusion

This year’s approach reflects a more targeted strategy. AB 1415 expands oversight by requiring notice of investor-backed transactions, while SB 351 directly limits how investor-owners can influence medical and dental practices. Together, the two laws strengthen California’s capacity to monitor private equity activity and preserve clinical independence without creating a new approval layer for mergers.

Both laws take effect January 1, 2026, and for private equity sponsors, compliance will mean ensuring that clinical operations remain independent and that transaction timelines account for new notice and review requirements.

California’s new framework reinforces protections for the autonomy of licensed providers and ensures that regulatory authorities can see who is reshaping healthcare markets before the effects are felt.