Capstone believes California’s recent passage of a corporate practice of medicine (CPOM) law and legislation expanding healthcare transaction notice laws signal that state-level appetite for more onerous restrictions around private equity (PE) ownership of healthcare companies has waned. Still, there is a pattern of state-level legislation, beyond transaction notice and approval laws, regulating corporate ownership of healthcare facilities.
- Earlier this month, California Governor Gavin Newsom (D) signed two bills into law, SB 351 and AB 1415, impacting corporate ownership of healthcare entities and healthcare transaction requirements, respectively. Both bills are considerably diluted versions of AB 3129, a more onerous bill introducing transaction approval requirements, which Newsom vetoed in 2024.
- We believe the laws’ impact on PE ownership of healthcare entities in the state is minimal. Although SB 351 extends into corporate ownership of healthcare entities, which may be seen as more onerous, the bill is noncontroversial as it codifies existing Medical Board of California guidance, reaffirming that clinical decisions must remain in the hands of licensed health professionals. AB 1415 expands the Office of Healthcare Affordability’s (OHCA) authority to review transactions to include management services organizations (MSOs), private equity groups, and hedge funds. We don’t believe this will create additional hurdles for investments in the state.
- We expect interest in CPOM legislation to pick up across states next legislative session, but California’s shift to a more moderate approach in regulating PE ownership of healthcare is a trend that is also likely to continue. We expect to see additional state interest, but legislation will likely continue in the form of codifying standard CPOM restrictions and transaction notice laws as opposed to strict ownership restrictions or approval laws.
California’s Corporate Practice of Medicine Legislation
On October 6, 2025, Governor Newsom signed SB 351 into law. The bill grants the attorney general new enforcement authority to seek injunctive relief against CPOM violations, reaffirming that clinical decisions remain in the hands of licensed health professionals. The bill prohibits investor interference in clinical judgment or control over activities such as clinical staffing, determining content in patient records, and payor contracting. However, it includes a provision allowing for unlicensed entities to assist or consult with operational activities, as long as final clinical decision-making remains in the hands of licensed health professionals.
Of note, SB 351 uses the same CPOM language from AB 3129 that Governor Newsom vetoed last year. The significant change in the bill was the removal of AB 3129’s transaction approval requirements, which Newsom cited as his reasoning for the veto, given that the California Office of Healthcare Affordability already has authority to review healthcare transactions.
Capstone believes California’s new law outlining the corporate practice of medicine will present minimal risks to PE investors in the state, given that the law codifies restrictions already in place through the Medical Board of California guidance, which is generally aligned with industry standards around non-clinical entities being barred from directing clinical care or exercising clinical authority. Unlike the controversial AB 3129, SB 351 does not impose pre-transaction approval requirements, further limiting its impact..
Capstone believes California’s new law outlining the corporate practice of medicine will present minimal risks to PE investors in the state.
Given increased state interest in regulating PE ownership of healthcare entities, especially in the light of limited federal interest, we expect other states to follow California’s lead by introducing legislation around CPOM laws next legislative session.
Increased Office of Healthcare Affordability (OHCA) Oversight of Private Equity and Hedge Funds
On October 11, 2025, Governor Newsom signed AB 1415—also a watered-down version of AB 3129—into law. While AB 1415 has some parallels to AB 3129, this bill notably does not include approval rights for OHCA or the attorney general, the reason why Newsom vetoed AB 3129.
AB 1415 expands OHCA authority and requires healthcare investments by private equity groups and hedge funds to be subject to the OHCA transaction review process, requiring notice, but not approval of healthcare transactions. While OHCA currently has transaction review authority for healthcare entities, AB 1415 expands the definition of these entities to include management services organizations (MSOs), private equity groups, and hedge funds.
Exhibit 1: Overview of Relevant Bills in California and Oregon
| State | Bill | Description | Status and Effective Date |
|---|---|---|---|
| California | SB 351 | SB 351 codifies existing Medical Board guidance by prohibiting investor interference over clinical judgment or control over core functions like patient records, clinical staffing, and payor contracting. | Signed by Governor Newsom Effective January 1, 2026 |
| California | AB 1415 | AB 1415 builds on OHCA’s framework by expanding notice requirements to apply to private equity groups, hedge funds, and MSOs. | Signed by Governor Newsom Effective January 1, 2026 |
| Oregon | SB 951 | MSOs are prohibited from owning or controlling majority equity in a medical entity as well as from controlling equity or assets of a medical entity. The bill clarifies what constitutes de facto control over administrative, business, or clinical operations that impact clinical decision-making of quality of care. | Signed by Governor Kotek Effective January 1, 2026, for MSOs and PMEs formed on or after June 9 Effective January 1, 2029, for existing MSOs and PMEs |
Source: California and Oregon legislative website
Restrictions on Medical Entity Ownership in Oregon
California’s passage of a new CPOM law follows Oregon’s passage of SB 951, which Oregon Governor Tina Kotek (D) signed into law on June 9, 2025. SB 951 targets MSO “de facto” control over professional medical entities (PMEs) by closing an existing “friendly physician loophole.” SB 951 is supported by HB 3410, which revises SB 951 to allow medical licensees who provide services for a PME to be a shareholder, director, or manager of an MSO, given they do not own more than 10 percent of the shares and are compensated at the market rate.
Oregon’s law takes a more aggressive approach in strengthening corporate practice of medicine (CPOM) restrictions than other states. Building on existing Oregon transaction approval laws, these bills place specific restrictions on MSO involvement in PME organization and ownership—including blanket restrictions on the percentage of shares of a PME that contracted MSOs may own.
MSOs and PMEs formed, sold, or transferred on or after June 9, 2025, are subject to the new regulations beginning January 1, 2026. Existing MSOs and PMEs (formed or sold before June 9, 2025) are subject to the new regulations beginning January 1, 2029.
Oregon’s strict approach to regulating corporate involvement in healthcare has resulted in significant backlash from stakeholders, who argue that introducing ownership requirements will inhibit investments and healthcare access in the state. Capstone believes additional states are unlikely to adopt Oregon’s approach introducing such strict restrictions. States are more likely to follow California’s lead.
Capstone believes additional states are unlikely to adopt Oregon’s approach introducing such strict restrictions. States are more likely to follow California’s lead.
Other States to Watch
Healthcare transaction and ownership laws continue to be introduced and expanded in blue states particularly, with other notable changes occurring this year in Massachusetts and New Mexico. Massachusetts H. 5159 was signed into law by Governor Maura Healey (D) on January 8, 2025, expanding the state’s existing transaction review process. The bill expands health care entity oversight to include significant equity investors, health care real estate investment trusts, and management services organizations (see “Quick Take: Massachusetts Bill Would Raise Scrutiny of PE Healthcare Investments, Poses Risk of Higher Costs for Deals; Gov. Likely to Sign,” January 2, 2025).
On April 7, 2025, New Mexico Governor Michelle Lujan Grisham (D) signed HB 586 into law, permanently allowing the state to have oversight of proposed mergers and acquisitions of hospitals and some other provider organizations, effective July 1, 2025. This bill makes permanent the 120-day notice requirement that was originally outlined as a temporary notice requirement in SB 15 in March 2024.
What’s Next
Capstone will continue tracking federal and state-level PE ownership laws that target healthcare transactions. We expect state interest in CPOM legislation to continue into future legislative sessions, particularly as some local governments are feeling vulnerable to the diminishing quality of healthcare and non-medical entity control over their care networks.
You can find updated information about all private equity scrutiny legislation on our tracker here.
Read more Capstone coverage on Healthcare Private Equity Ownership:
The New Front in the Private Equity Healthcare Battle: State AGs
Healthcare Pressure Points, Opportunities, and Questions for the Balance of 2024
Private Equity’s Healthcare Problem
