Including Those Involving Management Services Organizations
February 2025 saw two new bills introduced in the California state legislature that could seriously affect how MSOs are allowed to operate. Senate Bill 351 (SB 351) and Assembly Bill 1415 (AB 1415) seek to strengthen the state’s control of companies investing in healthcare businesses. This includes private equity, hedge funds, and MSOs. SB 351 focuses particular attention on restricting corporate control over independent medical judgement, in keeping with state Corporate Practice of Medicine (CPOM) laws. AB 1415, on the other hand, increases the authority of the California Office of Health Care Affordability (OHCA) in activities such as pre-transaction notice and clearance requirements.
Specifically, SB 351 would enact the following restrictions:
- Prohibiting investors from determining diagnostic tests, treatment options, patient volume, or referral requirements
- Restricting non-licensed entities from owning or managing patient medical records or influencing billing and coding practices
- Expanding enforcement authority, allowing the California Attorney General to seek injunctions for violators
- Banning non-compete and non-disparagement clauses in management contracts and sales agreements involving medical and dental practices.
AB 1415 would do the following:
- Requiring private equity firms, hedge funds, and newly formed holding entities involved in healthcare deals to submit filings to OHCA detailing their involvement in the transaction
- Expanding the definition of “provider” to health systems so they are subject to OHCA review; the new definition includes “any private or public health care provider,” as opposed to the current list of specific licensees / service providers
- Specifically bringing MSOs under OHCA authority, which has never been done previously; this will dramatically impact how MSOs may operate.
AB 1415 would not empower OHCA to block transactions per se, but the review process could delay completion of vital transactions and impose additional compliance burdens for healthcare deals in the state. Even if this bill does not pass, or is vetoed by the governor, it signals greater efforts by state agencies to exert more control and restriction over healthcare investment and other transactions.