California AB 1415 and SB 351: What Healthcare Founders Must Know in 2026

California has always been one of the most aggressively enforced CPOM states in the country. The Medical Board's enforcement history is extensive, and the Attorney General has not been shy about pursuing healthcare companies that blur the line between administrative management and clinical control. But until 2025, much of California's CPOM doctrine lived in case law and regulatory guidance — not statute.

That changed when Governor Gavin Newsom signed Assembly Bill 1415 and Senate Bill 351 in October 2025. Both laws took effect January 1, 2026. Together, they codify and expand California's restrictions on corporate involvement in healthcare, specifically targeting the mechanisms private equity groups and hedge funds have used to gain functional control over medical and dental practices through MSO structures. If your company operates in California and has any non-physician investors, these laws apply to you.

Understanding SB 351: The Physician Judgment Protection Act

SB 351 — the more operationally significant of the two bills for most startups — prohibits private equity groups and hedge funds from interfering with a physician's or dentist's professional judgment in making healthcare decisions. This is not a new principle; California's CPOM doctrine has always prohibited corporate control over clinical decisions. What SB 351 does is put that prohibition into explicit statutory language, which means it is far harder to argue around.

What SB 351 Specifically Bans

Under SB 351, private equity groups and hedge funds that manage or own medical or dental practices are prohibited from:

• Directing the number of patients a physician or dentist will see
• Determining the number of hours a physician or dentist will work
• Influencing treatment decisions, including referrals, diagnostic orders, or prescribing
• Including noncompete clauses that prevent physicians from competing with the practice after separation
• Including nondisparagement clauses that prevent physicians from speaking publicly about quality of care, ethical concerns, or the practice's revenue strategies

The noncompete and nondisparagement restrictions are notable because they have historically been standard provisions in MSO-driven physician employment agreements. Under SB 351, those clauses in PE-backed California practices are now void on their face. If your MSA or physician employment agreement contains these provisions and your investors are PE or hedge fund entities, they need to be removed.

SB 351 converts California's existing CPOM prohibitions from implied regulatory principles into explicit statutory violations. That matters because the legal standard for enforcement is now lower, and the paper trail is simpler for regulators to follow.

What SB 351 Does Not Ban

The law does not prohibit PE or hedge fund investment in healthcare altogether. It does not eliminate the MSO-PC model. What it prohibits is the misuse of that model — specifically, the operational levers that give non-physician investors functional control over how clinical care is delivered. A properly structured MSO that limits itself to non-clinical administrative services is not prohibited by SB 351. The law targets the overreach, not the structure itself.

Understanding AB 1415: The Transaction Reporting Expansion

Before AB 1415, California's healthcare transaction reporting requirements — managed through the Office of Health Care Affordability (OHCA) — applied primarily to mergers and acquisitions involving licensed healthcare entities: hospitals, medical groups, and clinics. The law required pre-closing notice when these entities were involved in qualifying transactions.

AB 1415 expands the definition of "noticing entities" to include private equity groups, hedge funds, MSOs, and entities formed for the purpose of entering into agreements with healthcare entities. The practical effect is that a much larger set of transactions now requires OHCA notification before they can close.

Transactions Now Captured by AB 1415

Under the expanded law, pre-close filings are now required for:

• MSO-to-MSO acquisitions and mergers
• Private equity acquisitions of controlling interests in MSOs
• Hedge fund investments that result in controlling stakes in healthcare-adjacent entities
• Newly formed entities entering into management agreements with licensed healthcare entities

Previously, these transactions might have closed without any OHCA reporting requirement because no licensed healthcare entity was the direct target of the deal. AB 1415 closes that gap. If the entity you are acquiring, merging with, or investing in has a material relationship with California healthcare providers, you are now likely subject to the reporting obligation.

The 90-Day Pre-Close Window

After submitting a pre-close notice, parties must wait a minimum of 90 days before the transaction can close — unless OHCA concludes its review earlier. If your transaction is selected for a cost and market impact review (CMIR), the timeline can extend significantly beyond 90 days. For time-sensitive deals, this creates real planning pressure.

If you are planning a California transaction that might fall under AB 1415, budget for the 90-day minimum and build in buffer for CMIR selection. Trying to close a deal quickly after discovering the reporting obligation late is not a viable strategy.

How These Laws Interact with the Existing California CPOM Framework

California Business and Professions Code Section 2052 has long prohibited unlicensed persons from practicing medicine. The Medical Practice Act has long prohibited the corporate employment of physicians by non-professional entities. The Moscone-Knox Professional Corporation Act specifies that only licensed physicians can own stock in a medical professional corporation. None of that changed.

What AB 1415 and SB 351 do is add statutory teeth to enforcement actions that previously relied on those older provisions. Now, instead of arguing that an MSO's operational control violates implied CPOM principles, a regulator can point to explicit SB 351 language. Instead of arguing that an MSO acquisition required OHCA notice under the spirit of prior law, an OHCA examiner can cite AB 1415 directly.

For founders, this means that the legal risk of a non-compliant California MSO-PC structure has increased meaningfully, not because the underlying rules changed, but because they are now easier to enforce.

Practical Steps for California Healthcare Founders

Audit Your MSA for SB 351 Conflicts

Review every provision in your California Management Services Agreement that touches physician scheduling, patient volume, productivity targets, or referral patterns. Under SB 351, if your investors are PE or hedge fund entities, provisions that give the MSO any influence over how many patients physicians see or how many hours they work are now legally problematic. Work with healthcare counsel to revise those provisions.

Remove Prohibited Noncompete and Nondisparagement Clauses

If your California physician employment agreements contain noncompete or nondisparagement clauses and your MSO has PE or hedge fund backing, those clauses should be removed. They are void under SB 351 and may expose the company to regulatory scrutiny if they remain in signed documents.

Map Your Transactions Against AB 1415 Triggers

If you are planning a California transaction — an MSO acquisition, a new investor coming in, a platform restructuring — run that transaction against the AB 1415 noticing requirements before you sign a term sheet. Discovering the reporting obligation mid-deal is painful. Discovering it post-close is worse.

Revisit Your California PC Governance Documents

California's strict CPOM environment now has statutory backup. Make sure your California PC's operating agreement genuinely vests clinical decision-making authority in the physician owner. If the operating agreement gives the MSO or its investors any operational voting rights over clinical matters, revise it. The structure on paper needs to match the structure in practice.

The Bigger Picture

California AB 1415 and SB 351 are part of a coordinated regulatory movement that now includes similar restrictions in Oregon (SB 951), Massachusetts, and Connecticut. The underlying message is consistent: states are no longer satisfied with nominal physician ownership structures. They are examining functional control, which means auditing the actual flow of operational authority inside MSO-PC arrangements.

A properly built MSO-PC structure — one where the MSO genuinely limits itself to non-clinical services and the physician PC owner genuinely exercises clinical governance — remains fully legal and appropriate. California has not banned the model. It has raised the standard for what compliant execution looks like. For founders who built their structures quickly in the early stages of their company, now is an important time to revisit whether those structures meet the 2026 standard.