Health Law Diagnosed – What California’s New Laws Mean for Health Care Investors

In this episode of Health Law Diagnosed, Of Counsel Bridgette Keller welcomes Mintz Members Daniel Cody and Deborah Daccord to unpack the latest legislative developments reshaping health care transactions in California, including the implications of California’s A.B. 1415 and S.B. 351. The conversation also dives into the rise of “mini HSR” laws and how other states are responding to investor-led acquisitions. Listen to find out what health care entities need to do now to stay compliant.

Whether you’re an investor, provider, or policy watcher, this episode offers timely insights you won’t want to miss.

Have questions or want to connect with the team? Reach out to us at [email protected].

Health Law Diagnosed – What California’s New Laws Mean for Health Care Investors Transcript

Bridgette Keller: Hi there, welcome back to Health Law Diagnosed, a Mintz podcast dedicated to health law, health policy, and social issues in the health care industry. I’m Bridgette Keller, your podcast host. Today, I’m excited to welcome back guests Dan Cody and Deb Daccord for a discussion regarding two new California laws focused on private equity and hedge fund health care transactions. Dan, Deb, welcome back.

Deborah Daccord: Thank you, Bridgette.

Daniel Cody: Thanks Bridgette.

BK: I’d love to do a quick reintroduction of you both for our listeners and readers before we hop into finding out what’s going on in California. Deb, do you want to go first?

DD: My name is Deborah Daccord. I’m a Member here at Mintz based in the firm’s Miami and Boston offices. I have worked for 30 years exclusively in the health industry doing transactions, mergers, acquisitions, and fundings across the country.

BK: So nice to have you again. And Dan, how about you?

DC: My name is Dan Cody. I’m a Member in the San Francisco office and I provide strategic regulatory transactional and government investigation counsel to all types of entities in the health care space. I’m looking forward to chatting with you and Deb regarding health care transaction laws.

National Trends in Health Care Transaction Legislation

BK: Why don’t we hop right into it? Deb, can you tell us a little bit about what’s going on here and the trends we’re seeing across the country?

DD: Since we last spoke in April, we continue to see a surge in state-level legislation requiring pre-merger review of health care transactions, particularly those involving private equity firms, hedge funds, real estate investment trusts (or REITs), and private lenders. As we discussed six months ago, as these investment-backed entities have increasingly acquired, funded, leased to, and managed hospitals, physician practices, and other health care providers, states are responding with new laws at an increasing pace aimed at increasing transparency, protecting competition, and, importantly, safeguarding access to care. These laws are sometimes referred to as mini-HSR statutes because they mirror the federal Hart-Scott-Rodino Act but apply to smaller transactions that would otherwise escape federal scrutiny. What is primarily driving this trend are concerns over rising health care costs, reduced access, and especially quality of care following these investor-led acquisitions. And as we noted previously, states are addressing these concerns in different ways. These laws range from simple disclosure requirements — which seek, for example, price transparency or a notice of change in ownership — to the type of laws that were enacted recently in California that seek to strengthen the corporate practice of medicine prohibition and also specifically require pre-transaction notice by private equity groups, hedge funds, and REITs.

California’s Legislative Landscape

BK: Dan, speaking of impact, can you tell us a little bit about what’s happening in California?

DC: To Deb’s point, it’s an interesting time. I think something like half of the mini HSR laws that Deb mentioned have come online in the past three years. So lots of activity in California, and as is often the case, California leads the way. It’s the tip of the spear on lots of these things. Here in California, for purposes of talking about the two new laws, which are A.B. 1415 and S.B. 351, it’s important to look back a little bit. Last year there was a bill, A.B. 3129, that Governor Newsom vetoed. That bill was designed to provide the California attorney general pre-transaction review of certain private equity group and hedge fund health care transactions. A second part of that bill, A.B. 3129, was to codify some California corporate practice of medicine provisions and some restrictive covenant provisions. The goal behind A.B. 3129 was to address issues— or purported issues — regarding accessibility to care, price increases in the California health care market space, and alleged lower-quality services when it comes to private equity group and hedge fund investment in the health care space.

As you might imagine, there was significant lobbying for and against the bill. In terms of advocates, labor unions, patient advocacy groups, and certain medical associations were real advocates for the bill. On the opposition side, institutional providers were heavily lobbying against the bill. Here in California, we have some fairly stringent seismic safety requirements that hospitals have to adhere to. There was concern that the lack of third-party investment into hospitals — be it private equity group or hedge fund investment — could adversely impact the ability of those institutions to comply with these stringent seismic securities and safety requirements. But Governor Newsom in September of last year vetoed the bill. Governor Newsom’s veto centered on the way the bill was structured, and specifically the fact that the bill afforded the California attorney general the ability to review, on a pre-transaction basis, the types of health care transactions we’re talking about, involving private equity groups and hedge funds. The governor expressly stated that there is a separate, free-standing entity that has been charged through prior legislation with evaluating health care transactions in the California health care marketplace. That entity is the California Office of Healthcare Affordability. So one of the primary drivers for the governor’s veto was around the existence of OCHA, as we call it here in California. When it comes to OCHA, OCHA has been reviewing transactions since January 2024. To date, they have reviewed approximately 32 transactions. The way OCHA reviews these laws is 90 days prior to closing a transaction, you have to file with OCHA, providing detailed notice regarding the type of transaction, potential impacts in the marketplace, et cetera. From there, OCHA has the ability either to institute a further, more intensive review called a cost and market impact review (CMIR), or to waive that CMIR additional follow-up review. Again, to date there have been about 32 submissions — OCHA has waived the CMIR requirement for 26 notices, and there are five or six still pending. Only one of the transactions that the agency has been notified of has been flagged for this additional level of review. So from a big-picture perspective, it seems — notwithstanding an obligation to report these transactions — the vast majority of them are not getting reviewed at this higher level. Deb, I think that’s fairly consistent with what you’ve seen in other states, including Massachusetts and others?

DD: It is. It’s a trend that seems consistent with the number of applications versus the number of full CMIRs conducted by the Massachusetts Health Policy Commission. I think they’ve received, since they started 12 years ago, over 180 applications, and they’ve conducted six or seven full CMIRs. So that trend is consistent with what we’ve seen elsewhere.

BK: Dan, I’m wondering what was different this time with the two bills that have been passed? Why veto a similar legislation last year, but this year it was able to be passed?

DC: Great question, Bridgette. A couple of things happened. First and foremost, the bill that was vetoed in this most recent California legislative cycle was effectively broken up into two separate bills. As I mentioned, the first is S.B. 351, which addresses corporate practice issues in California. The second is A.B. 1415, which is related to the pre-transaction mini HSR rules we’re talking about.

Taking A.B. 1415, the mini-HSR bill that was passed a couple of weeks ago: The big difference between that bill and the prior bill that was vetoed is that instead of the California attorney general having enforcement authority, A.B. 1415 effectively requires the existing agency, OCHA, to conduct a pre-transaction review of transactions that involve private equity groups and hedge funds. Again, the significant difference here is that it’s a response to the express veto the governor issued last year. Instead of the California attorney general having the opportunity to review these bills, the existing agency, OCHA, will be reviewing the bills. On the corporate practice side, the corporate practice provisions that were in the vetoed bill are fairly consistent with existing California law, as evidenced by long-standing California attorney general opinions and frequently asked questions and guidance put out by the California Medical Board and Dental Board. What S.B. 351 does is pick up on those long-standing prohibitions in California, with the only change being that the California attorney general does have enforcement authority with respect to these prohibitions. Stated more specifically, the California attorney general does have the ability to issue adjunctions and to seek attorney’s fees for entities that violate these corporate practice and restrictive covenants, which we’ll talk about further. The change here is that historically, prior to S.B. 351, the Medical Board of California, for example, or the Dental Board, had the ability to refer matters to the California attorney general. With this new law, it’s been codified into statute that the attorney general independently has such authority.

BK: Thanks, Dan. It’s interesting to hear and understand the differences in the approach of these two bills that were passed this year after what happened last year. The percentage of these transactions that result in the heightened or more heavily scrutinized review is interesting to me because it sounded like everything was going in the other direction. Maybe these state bodies and governing bodies just want to know what’s happening and have the right and authority to do the further review if they would like to.

Implications for Health Care Transactions: Key Takeaways

BK: What are the implications for clients in this space who are looking to enter into transactions? What are the key takeaways?

DC: There are a couple from my perspective. With respect to A.B. 1415, the mini HSR, just a couple of notes that I think impact the takeaways: The way the bill is structured is that private equity groups, hedge funds, and management services organizations now have an obligation as “noticing entities” to provide notice to OCHA of health care–related transactions where they have involvement. Importantly, the way the bill is structured, transactions between MSOs — in other words, one MSO having a change of control over another MSO — arguably are subject to notice to OCHA, which has not happened in California before. I mention that because the bill is not specific with respect to what this notice is going to look like in terms of substance and what types of documentation must be provided. The bill does say that it’s going to strive to not have duplicative noticing requirements for different entities, but it remains to be seen what happens. From an administrative perspective, there is a long-standing procedure in California whereby agencies may leverage emergency rulemaking procedure, which we anticipate to happen here. We expect that by mid-November or so, OCHA will issue draft regulations with respect to A.B. 1415. Under these emergency rulemaking procedures, the comment period on proposed regulations is significantly shrunk. It’s likely that we’ll get final rules in mid to late December of this year on an expedited and condensed schedule. Those rules will say a lot in terms of takeaways and what entities need to think about when it comes to transactions in California. I’ll stop there to let Deb provide some insights from her perspective in terms of takeaways.

DD: Thank you, Dan. Picking up on your last point, understanding the specific requirements and thresholds is key. For our investor clients, for example, one of the things we try to do early in any deal process is help them understand the specific requirements in each jurisdiction where the deals are contemplated. This is both for traditional acquisition transactions as well as de novo builds, joint ventures, and financing, whether it’s equity or capital. We’ve been helping clients well in advance of these launches to analyze the requirements nationwide, and we’re keeping a close eye on what those regulations say.

A few other takeaways before those draft regulations come out: Obviously, we are looking at our deal structures and our deal documents. This is both for investors as well as current health care providers. We already know from these bills that there is an enhanced interpretation of the clinical judgment that needs to be retained by providers. For example, whereas in the past there might be varying levels of control or ownership over medical records, those clearly now need to stay with the physician or dentist or other practitioner. To the extent that management agreements or directed stock transfer agreements, employment agreements, or any other documents that are in place have provisions that would violate these new laws, we are recommending revisions.

Other things we typically see in these agreements that will need to be redrafted or reconsidered are the selection and hiring and firing of not only the health care practitioners, but medical assistants. The setting of parameters for physicians and other practitioners entering into contractual relationships with third parties, if it touches on the delivery of care, they need to stay with the practitioner. A key takeaway is that even before we get the regulations, there are things we need to be helping our clients do now and that our clients need to be considering now.

DC: I think that’s exactly right. The other area that we have not touched on yet is the restrictive covenant provisions in S.B. 351. Specifically, they cover non-compete and non-disparagement clauses that are fairly typical in some of the transactions and deal documents that Deb just mentioned. With respect to the non-compete provisions in the bill (now law; by the way, both of these laws are effective January 1, 2026), the non-compete provisions are fairly consistent with general California law to date. In other words, they are not more expansive than the non-compete provisions that are currently in California. For example, the non-competes that are fairly typical in the sale of a business are still allowable. On the non-disparagement side, arguably it is a slight change: S.B. 351 applies to solely physician and dental practices and it applies solely to private equity and hedge funds. So there could be a situation where, for example, a private equity or hedge fund has an arrangement utilizing an MSO to provide services to a dental practice that does currently have some non-disparagement clauses that say things like you cannot comment or opine upon departure, or even while there, about the quality of care or the specific strategies that the MSO might be using with respect to that dental practice. Now, effective January 1 of next year, those types of provisions would no longer be allowable. So that’s another area where we are being asked by clients to take a peek at agreements and, consistent with this law, reform things effective January of next year.

BK: Those recommendations are so helpful. What I’m hearing loud and clear is that preparation and advance notice and planning are going to be key in terms of compliance with the variety of state laws in this space.

Wrap-up

BK: Dan, Deb, thank you again so much for sharing your expertise regarding these newly enacted laws and the trend among states in regulating these activities. Listeners and readers, we are so lucky to have Dan and Deb be willing to come back and talk to us more when the proposed rules are released next month. This has been sort of a precursor conversation, and we will come back to analyze those rules in 2026 to closely follow the impacts of this trend across state laws. Again, thank you for joining us for this episode of Health Law Diagnosed. If you have any questions on the updated laws, please feel free to reach out directly or email us at [email protected]. I’m Bridgette Keller and this was Health Law Diagnosed.

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