California AB 1415: Expanded Oversight for Private Equity and Hedge Fund Investors in Healthcare Deals

Existing law requires health care entities that meet specified revenue thresholds, among other requirements, to provide notice to OHCA at least 90 days prior to the closing date to allow OHCA to review the transaction and determine whether such transaction will be further evaluated under a “cost and market impact review” (CMIR). “Health care entities” are defined as payors, providers such as hospitals, physician organizations, clinics, ambulatory surgery centers, laboratories, and imaging facilities, fully integrated delivery systems, pharmacy benefit managers (PBMs), including parent, subsidiary, or affiliated entities that act on behalf of a payer.

A “material change transaction” is defined as a merger, acquisition, corporate affiliation, or agreement that involves a transfer of assets or control that would affect the provision of health care services in California and transactions that meet specified materiality thresholds. A material change transaction does not include transactions that occur in the ordinary course of business, such as corporate restructuring – if the health care entity already directly or indirectly through intermediary entity controls – is controlled by or under common control with all parties to the transaction.

I. A health care entity that is a party to (as buyer, seller, or both), or subject of, a material change transaction that meets at least one element in Section I and at least one element in Section II must file a pre-transaction notice with OHCA if:

– It has annual revenue of at least $25 million or owns or controls California assets of at least $25 million;

– It has annual revenue of at least $10 million or owns or controls California assets of at least $10 million, and is a party to or subject of a transaction with:

- any health care entity that has annual revenue of at least $25 million or owns or controls California assets of at least $25 million, or

- any entity that owns or controls a health care entity that has annual revenue of at least $25 million or owns or controls California assets of at least $25 million.

– It is a provider or fully integrated delivery system that provides health care services in a designated primary care health professional shortage area (HPSA) in California.

Notably, health care entities such as affiliates or subsidiaries that are not listed as parties to the purchase agreement may still be deemed “subject of” a material change transaction if, as a result of the transaction, their assets, governance, responsibility, or operational control will be transferred.

II. A health care entity (buyer, seller, or both) meets the criteria for a material transaction if it meets any one of the elements in Section I and any one of the elements listed below:

– The proposed fair market value of the transaction is $25 million or more, and the transaction is for the provision of health care services;

– The transaction is more likely than not to increase annual California-derived revenue of any health care entity that is a party to or subject to the transaction by either $10 million or more or 20% or more of the annual California-derived revenue;

– The transaction involves the sale, transfer, lease, exchange, option, encumbrance, or other disposition of 25% or more of the total California assets of the submitter entity;

– The transaction involves the transfer of control, responsibility, or governance in whole or in part of the submitter entity;

– The transaction will result in an entity contracting with payers on behalf of consolidated or combined providers and is more likely than not to increase annual California-derived revenue of any provider in the transaction by either $10 million or more or 20% or more of annual California-derived revenue;

– The transaction involves the formation of a new health care entity, affiliation, partnership, joint venture, or parent corporation for purposes of providing health care services in California and it is projected to have at least $25 million in annual California-derived revenue or the transfer or control of California assets related to such health care services valued at $25 million or more;

– The transaction is part of a series of related transactions for the same or related health care services (otherwise known as a Roll up) occurring over the past 10 years involving the same health care entities or affiliated entities and those combined transactions comprise a single transaction for purposes of determining revenue thresholds, including asset and control circumstances; or

– The transaction involves the acquisition of a health care entity by another entity, and the acquiring entity has consummated similar transactions in the past 10 years with a health care entity that provides the same or related health care services and the proposed transaction plus the prior similar transactions will be treated as a single transaction for determining revenue thresholds, including asset and control circumstances.

AB 1415 (Bonta) amends the California Health & Safety Code §§127500 et seq. to broaden definitions for entities subject to the OHCA pre-transaction notice obligations. Effective Jan. 1, 2026, management service organizations, private equity, hedge fund managers, any newly created business entities created for the purpose of entering into agreements or transactions with a health care entity (otherwise known as NewCos), and an entity that “owns, operates, or controls a provider, regardless of whether the provider is currently operating, providing health care services, or has a pending or suspended license” defined as “noticing entities” must provide written notice to OHCA regarding proposed agreements or transactions between:

1. A noticing entity and a health care entity;
2. A noticing entity and MSO; or
3. A noticing entity and an entity that owns or controls the health care entity or MSO.

OHCA is expected to issue a notice of proposed rulemaking that will provide additional guidance for management service organizations, including clarifying regulations intended to prevent duplicative notice filings. It remains unclear, however, whether the forthcoming regulations will address monetary thresholds for determining a “material change transaction” under existing law, and whether those thresholds will extend to noticing entities.

Gov. Newsom vetoed a similar bill introduced last year, AB 3129 (Wood). In his veto message, Newsom wrote, “However, OHCA was created as the responsible state entity to review proposed health care transactions, and it would be more appropriate for the OHCA to oversee these consolidation issues as it is already doing much of this work.” Unlike AB 1415 (Bonta) pre-transaction notice requirement, AB 3129 (Wood) would have mandated a pre-consent process for private equity backed healthcare transactions.

There is an upward trend across the country towards greater oversight of private equity investments in the healthcare industry. In a press statement, Assemblymember Mia Bonta revealed her perspective on private equity investments in healthcare: “Research shows that as market consolidation rises, so do prices. Over the past decade, hospital mergers have steadily increased, often leading to service reductions or closures as profits are prioritized over community needs.” 

Gov. Newsom additionally signed SB 351 (Cabaldon), which codifies the corporate practice of medicine and authorizes the California attorney general to enforce the corporate bar against private equity groups or hedge funds that interfere with the professional clinical judgment of physicians or dentists. The new statute additionally prohibits certain clauses in practice management contracts that would (i) limit provider competition with the practice in the event of termination or resignation, or (ii) disparaging, opining, or commenting on the practice on any issues relating to quality of care, utilization, ethical, or professional challenges in the practice of medicine, dentistry, or revenue-increasing strategies used by the private equity group or hedge fund. Together with the forthcoming OHCA regulations, SB 351 underscores the importance for investors and health care organizations to review existing arrangements to ensure alignment with state law requirements.

Additional states with proposed legislation include states like Massachusetts1, Illinois2, and Pennsylvania3.

Outstanding Issues

• This bill adds to the growing patchwork of state laws that may differ from federal regulations.
• It is unclear whether a noticing entity’s internal corporate restructuring would fall under the purview of AB 1415.
• What constitutes “material amount of assets or operations” in a proposed transaction remains unclear.



Considerations

Private equity and hedge fund investors may wish to:

• Proactively assess whether their active or proposed transaction falls within the parameters of AB 1415 and adjust timelines accordingly;
• Actively review MSO/PC arrangements and harmonize with new laws; and
• Monitor and consider engaging in OHCA regulatory rulemaking process (proposed regulations forthcoming).

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1 See, S.868.

2 See, SB 1998.

3 See, HB 1460.