Two new California laws took effect on January 1, 2026, with significant implications for healthcare transactions.
The first, SB 351, largely puts existing corporate practice of medicine (CPOM) rules into statute. It bars private equity groups and hedge funds from overriding the clinical decisions of licensed healthcare professionals or exercising certain types of control over healthcare entities, including through management services organizations (MSOs).
The second, AB 1415, expands existing deal-reporting requirements to cover private equity groups and hedge funds when they enter into certain transactions involving healthcare entities.
Both laws are part of a multi-year push by California to curb the growing influence of private equity and hedge funds in the healthcare sector.
What’s restricted?
- Clinical Hiring Decisions: Non-clinical entities cannot control hiring or firing based on clinical judgment
- Patient Quotas: Setting a “30 patients per day” rule is now a direct violation of provider autonomy.
- Control of Medical Records: Licensed providers must retain control of patient records.
- Contract Restrictions: Some non-compete and non-disparagement clauses, especially those limiting discussion of business practices, may no longer be enforceable.
How does this apply in healthcare transactions?
The new law voids any non-compete or non-disparagement clauses in contracts involving the management of a physician or dental practice, or the sale of real estate or other assets owned by those practices.
That said, there is an important carve-out. The law does not invalidate a non-compete tied to the sale of a business, as long as it does not function as an employee non-compete. So a buyer acquiring a professional corporation can still enter into a non-compete with a licensed professional, but only under California’s narrow sale-of-business exception. To qualify, the licensed professional must either sell all of their ownership interest in the business, or sell both the goodwill and the assets of the practice. If those conditions are met, a geographically limited non-compete is enforceable, provided the buyer continues operating the business in substantially the same way.
As a practical matter, this means professional corporations should still be able to enforce non-competes against former physician owners who sold their interest in the practice — the so-called “friendly physician” structure that is common in MSO arrangements.
Why this matters
These changes go directly to clinical autonomy and how your practice is structured. Agreements that were standard before may now create risk if they haven’t been revisited.
The Farukhi Law Take
We’re seeing many practices operating under agreements that haven’t been updated since SB 351 and AB1415 took effect. A quick review now is far easier than dealing with compliance issues later.
If you’re unsure whether your current structure holds up, we’re happy to take a look.
Have a question? Schedule a free consultation with us!
