- within Food, Drugs, Healthcare and Life Sciences topic(s)
- with Senior Company Executives, HR and Finance and Tax Executives
- in European Union
- in European Union
- in European Union
- in European Union
- in European Union
- with readers working within the Media & Information and Law Firm industries
Less than a week after California Governor Gavin Newsom signed SB 351 into law to reinforce California's prohibition on the corporate practice of medicine, the Governor signed AB 1415, which will bring a new scope of health care investors under regulatory scrutiny for material transactions.AB 1415 will take effect on January 1, 2026, providing the health care industry with less than three months' notice to prepare for the changes.As set forth below, AB 1415 expressly defines a "noticing entity" to include a hedge fund or private equity group and management service organizations providing certain services.
Office of Health Care Affordability's Expanded Role in Oversight
AB 1415 broadens the scope of the Office of Health Care Affordability (OHCA) oversight of health care transactions in California, and expands the scope of the agency's review of the health care market. OHCA was established in 2022 in part to investigate anti-competitive consolidation among health care entities and to monitor the rising cost of health care in the state. Beginning in 2024, regulated health care entities were required to notify OHCA 90 days in advance of entering into certain material transactions.
Effective January 1, 2026, OHCA's review process will require "noticing entities" to provide notice of certain types of material transactions between the noticing entity and a health care entity or management services organization, or an entity that owns or controls the health care entity or management services organization. A "noticing entity" is defined as: a private equity group or hedge fund; a newly created business entity created for the purpose of entering into an agreement or transaction with a health care entity; a management services organization; and an entity that owns, operates, or controls a provider.
What is a "Noticing Entity"?
AB 1415 provides several definitions to clarify the types of organizations that are considered "noticing entities" required to submit an OHCA notice. The broadest category of noticing entities are management services organizations or "MSOs," which are defined to include entities that provide management and administrative support services to a provider in support of the delivery of health care services. The definition of an MSO specifies that management and administrative support services shall include provider rate negotiation, revenue cycle management or both. An MSO also does not include an entity that owns one or more licensed health care facilities. Notably, this definition of an MSO indicates that the MSO must be providing a specific type of management service to a health care provider that is regulated by OHCA in order to be a "noticing entity." While the OHCA definition of a provider is broadly drafted to encompass a range of health care providers, there are some exceptions to the definition, which may limit the types of MSOs that are required to submit an OHCA notice.
A "noticing entity" also includes a "hedge fund" and "private equity group." AB 1415 defines a "hedge fund" as a pool of funds managed by investors for the purpose of earning a return on those funds, regardless of the strategies used to manage the fund. A "private equity group" means an investor or group of investors who primarily engage in the raising or returning of capital and who invest, develop, dispose of, or purchase any equity interest in assets, either as a parent company or through another entity the investor or investors completely or partially own or control. Both the definitions of a hedge fund and private equity group exclude natural persons who contribute funds to the enterprise but do not participate in the management of the assets of the entity, or in any change in control of the entity.
Currently, transactions involving the change of control or sale of assets by an MSO, private equity group, or hedge fund likely avoid OHCA regulatory review. AB 1415 will make many of those transactions reportable. Stakeholders will need to review their existing operations to determine whether they meet the definition of a "noticing entity" under the new law, and if any future transactions will require a pre-closing filing with OHCA.
National Trends
California's new requirements for health care investment are in line with the national trend of increasing state scrutiny of health transactions. For example, Colorado, Connecticut, Oregon, and Texas have recently proposed legislation that specifically targets private equity and management service organizations. Massachusetts passed legislation earlier this year, which, among other things, enhanced the authority of the Massachusetts regulatory authorities to scrutinize health care mergers, acquisitions, and other significant market transactions.
What Happens Next?
OHCA will engage in a rulemaking process over the next several months, which should clarify the filing obligations of noticing entities under AB 1415. Stakeholders should monitor the rulemaking process, and may consider submitting comments to OHCA for its review during the rulemaking process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
