California lawmakers are dedicated to increasing surveillance and restrictions on private equity (PE) and hedge fund involvement in the healthcare industry. However, no ju-search has yet to be made as to whether these new measures will be implemented. The previous session followed California Legislative Bill 3129 (“AB 3129”).1 AB 3129 has added PE Group and hedge fund requirements to obtain notice and approval to the CA Attorney General (“AG”) prior to carrying out a transaction involving a specific healthcare entity. Additionally, it codified the AB 3129 Medical Enterprise Practice (“CPOM”) and the Medical Board of CA Guidance on the Prohibition of Interference of Licensed Entities to Professional Judgments by Physicians, Dentists and Psychiatrists. However, Governor Newsom rejected AB 3129, citing redundancy with the CA Office Office Office Office (“OHCA”) healthcare transaction review process, stating that it would be more appropriate for OHCA to oversee these transactions.
Despite the governor's veto, efforts have been updated to implement surveillance measures that are very similar to those proposed in AB 3129. However, the transaction notification process and the CPOM ban are split into two separate bills led by various legislative homes. CA Assembly member Mia Bonta introduced Congressional Bill 1415 (“AB 1415”) on February 21, 2025, in accordance with Governor Newsom's feedback. AB1415 updates current California health quality and affordability laws, adds “management services organization” to the definition of “medical entities” and includes definitions such as “Private Equity Group” and “Hedge Fund.” In the proposed language, existing requirements for providing OHCA with written notice of specific medical contracts and transactions at least 90 days prior to implementation will expand to include eligible arrangements and transactions, including management services organizations, PE groups, and hedge funds.
Additionally, on February 12, 2025, CA Senator Christopher Cabaldon introduced Senate Bill 351 (“SB 351”). SB 351, which is substantially the same as the provisions of AB 3129, minus references to psychiatric practices, prohibits management services organizations that are often supported by PE groups and hedge funds.
Coding and billing; Appropriate diagnostic tests. The need for introduction and consultation. Employment and fire of medical staff and alliance medical staff based on clinical ability or proficiency. The number of patients seen by a practitioner. Medical Device and Supply Selection.
SB 351 also includes previously proposed languages for certain non-enforceable contracts. Specifically, the bill specifically enters into a contract if the agreement between a physician or dental practice and a PE group or hedge fund includes a provision prohibiting providers with practices competing in the event of termination or resignation, or (b) includes provisions prohibiting provisions responsible for commenting on the disparity, opinions, or specific issues regarding the specific issues and quality of the task. Under the proposed language, AG is entitled to injunctive relief and the costs and costs of the attorney.
Jim Wood, a former council member who introduced AB 3129, is a strong advocate for overseeing PE and hedge fund involvement in the CA healthcare industry and has been responsible for supporting such a move in the past. Assembly member Wood decided not to run for reelection, and his term ended in 2024. So, while there may have been some hope for a break in action, it is clear that the rest of the lawmakers continue to prioritize the topic. Therefore, any current arrangement that could fall under the restrictions imposed on PE Group and hedge funds looking to expand into the CA healthcare industry, as well as SB 351 friendly PC arrangements, should continue to monitor these developments in California. Nevertheless, it is a good time to ensure that the current management services agreement is in compliance with the guidance of the California Medical Board, as a way to preempt the potential passage of SB 351.
What's next? AB 1415 was introduced to the Congressional Committee on Health on March 13th, while SB 351 had its first hearing scheduled for April 21st. So, there are still ways to go with these bills, but if AB 3129 is an indicator, the bill could move relatively quickly throughout the legislative process, and it will be up to Governor Newsom to determine whether the updated bill will address his previous concerns. We will continue to monitor for substantial updates. If you have any questions relating to these bills or other laws of this type, contact Quarles' attorneys:
End note
1 Link to previous articles on AB 3129.
2 See Ca AB 1415. Please see here.
3See the CA SB 351 available here.
