California MSOs: New Requirements Coming for 2026

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California will soon exercise more oversight on MSO and PE healthcare deals.

Big changes are on the horizon for those operating MSOs in California. Beginning on January 1, 2026, California’s new laws require MSOs, private equity firms, and hedge funds to report more information to the State. They also significantly reel in the role that these business entities can play in healthcare decisions. As the changes are implemented, we anticipate that this may slow down some deal timelines and negotiations.

Management services organizations (“MSOs”) play a prominent role in modern healthcare practice operations. Generally, an MSO is a business entity that provides non-medical administrative support to a medical practice, often handling billing, scheduling, HR, and marketing. Although MSOs cannot be involved in medical decision-making, these new California MSO requirements signal legislators’ and regulators’ growing awareness of the significant role that MSOs play in healthcare today.

California’s New MSO Reporting Requirements

California’s new requirements stem from the State’s goal of better protecting patients. In part, legislators hope to do this by increasing transparency in healthcare deals and doubling down on the requirement that medical decisions only be made by licensed providers.

The State recognizes that MSOs and PE are playing an increasingly large role in healthcare operations. Governor Gavin Newsom signed two new laws, SB 351 and AB 1415, to provide greater scrutiny over healthcare deals and business relationships.

Patient Care Decisions Are the Purview of Licensed Providers

Senate Bill 351 (SB 351) restrains private equity firms, hedge funds, and MSOs from influencing medical decisions, including decisions about billing and coding. It builds upon existing laws that define the professional scopes of practice for physicians and dentists, and it seeks to ensure that only properly licensed providers can control patient care. Specifically, the law “prohibit[s] a private equity group or hedge fund … involved in any manner with a physician or dental practice doing business in this state from interfering with the professional judgment of physicians or dentists in making health care decisions….”

Explicit Restrictions on the Role of MSOs in Healthcare Operations

In the past, healthcare attorneys working with California MSOs and medical practices relied upon the Medical Practice Act to determine what was and wasn’t considered the practice of medicine. In drafting the contract between the MSO and the medical practice – known as a Management Services Agreement (“MSA”) – we carefully identified the responsibilities of the MSO but also the limitations on its involvement in the medical practice. Moving forward, these restrictions will be more explicit, as they are now set out in the law.

MSOs and PE firms are now expressly prohibited from interfering with physicians’ professional judgment in patient care. The law restricts the MSO’s ability to be involved with determining:

• • What diagnostic tests should be ordered for a patient or condition

• • Whether a referral to another provider is warranted

• • The patient’s treatment options

• • How many patients does a physician see in a period of time

• • How many hours a physician works

The law also restricts the ability of an MSO to be involved in:

• • Patient medical records

• • Provider hiring or firing for any reason relating to clinical competency

• • Contracts with third-party payors

• • Clinical competency parameters or requirements

• • Coding and billing decisions

• • Purchase of medical equipment or medical supplies

To many MSOs now operating in California, this list of “don’ts” comes as a shock. While properly established MSOs know to leave all medical decision-making to the licensed providers, it is common for them to play a large role in HR, third-party contracting, billing, and purchasing decisions. The new law very expressly identifies those elements of practice management that are so strongly correlated with patient care that they must be left to the purview of the physician.

Similarly, for many physician practices that now contract with MSOs to manage their practices, this law may come as a disappointment or stressor. A physician who contracted with an MSO for the very purpose of dedicating more of their time and attention to patient care may find themselves drawn back into more elements of practice management than they have the bandwidth for. This could mean the physician practice needs to reduce the number of hours spent on patient care to redirect physicians’ time to those elements of practice management that had been left to the MSO.

How the New Law Affects Management Services Arrangements

In addition to changing how many MSOs operate, the law also restricts the language that can appear in an MSA. It’s common for MSAs to contain restrictive covenants – even in a state that is generally hostile towards these clauses. The law sets out to change this and to reel in the MSO’s ability to restrict what the physician does or says after leaving the practice.

Crucially, the MSA cannot contain a non-competition clause for the physician. If the physician resigns from or is terminated from the practice, they cannot be barred from competing with the practice. Additionally, the MSA cannot prohibit the physician from “[d]isparaging, opining, or commenting on that practice in any manner as to any issues involving quality of care, utilization of care, ethical or professional challenges in the practice of medicine or dentistry, or revenue-increasing strategies employed by the [MSO, PE group, or hedge fund].”

What about non-physicians and non-dentists? How does this law impact nurse practitioners and non-physician owned medical practices, like the nursing corps?

The new requirements focus on protecting the independent clinical judgment of licensed health care professionals. Although the laws explicitly reference physicians and dentists, the principles behind the restrictions apply more broadly.

California already has strict corporate practice of medicine (CPOM) rules that limit the extent to which unlicensed individuals or entities can influence clinical decisions by any licensed provider. Nurse practitioners (“NPs”) practicing under standardized procedures, independent practice authority, or within a nursing corporation still retain responsibility for making clinical decisions within their authorized scope.

While the new MSO restrictions do not reference NPs by name, MSOs, private equity groups, and hedge funds cannot interfere with the clinical judgment of any licensed person. This includes interference in:

• • Clinical decision-making by NPs

• • Decisions about referrals, clinical protocols, and patient care workflows

• • Coding or billing choices tied to clinical judgment

• • Hiring/firing decisions based on clinical competency for any licensed provider

Accordingly, MSOs serving NP-owned medical practices, or any entity utilizing NPs, must observe the same boundaries and avoid involvement in any activity that could influence clinical care.

If my MSO is incorporated outside of California, can I avoid the new rules?

No. Incorporating your MSO in another state does not exempt it from California law.

If an MSO provides management services to a California medical practice or health care provider, it is considered to be doing business in California. Under the California Corporations Code, any foreign entity doing business in the state must register with the California Secretary of State and is subject to California’s regulatory requirements.

Moreover, the new requirements apply to any MSO, private equity group, or hedge fund “doing business in this state” or “involved in any manner” with a California physician, dentist, or practice.

This means:

• • If you manage, support, or derive revenue from a California medical practice, you must comply with California law regardless of where your entity is incorporated.

• • Trying to structure the MSO’s operations from outside California does not change the jurisdictional analysis.

• • If your MSO provides services into California without registering, you may face penalties for transacting intrastate business without qualification.

The bottom line: If you manage a California practice, you play by California’s rules.

If I am a party to an MSA in California, does it need to be revised? Or does this just impact new relationships starting in 2026?

Yes. Existing MSAs must be reviewed and revised. These laws do not apply only to new MSAs beginning in 2026, they apply to all MSOs and all existing arrangements that continue to operate after the effective date.

There are several reasons why revision is necessary:

1. 1. Illegal Terms Cannot Remain in Force. Beginning January 1, 2026, MSAs cannot contain prohibited provisions such as:
      • • Non-compete clauses for physicians.
      • • Restrictions on the physician’s ability to discuss quality-of-care issues.
      • • Language that grants the MSO influence over patient care, staffing tied to clinical competency, or billing/coding decisions.

If an existing MSA contains these terms, they will be unenforceable and may expose the MSO or practice to regulatory scrutiny.

2. 2. Operational Restrictions Must Be Brought Into Compliance Many MSAs currently delegate HR, billing, contracting, or purchasing functions to the MSO in a manner that will be prohibited under the new requirements. Continuing to operate under these terms after 2026 would violate the law.

3. 3. The MSO Must Carve Out Protected Clinical Functions Agreements must be updated to clearly delineate which functions remain exclusively under the control of licensed providers.

4. 4. Failing to Revise an Existing MSA Increases Regulatory and Transaction Risk Because these laws are aimed at transparency and preventing clinical interference, regulators will expect existing arrangements to be brought into compliance. Leaving outdated terms in place creates liability for both parties, especially in the event of a dispute, acquisition, audit, or complaint.

In short: If your MSA continues past January 1, 2026, it needs to be amended. The new rules govern all ongoing relationships, not just new ones.

New Notification Requirements for Business Transactions

Assembly Bill 1415 (AB 1415) is another noteworthy new California law that expands the authority of California’s Office of Health Care Affordability (OHCA). OHCA’s role is to track healthcare costs and spending in California, and to develop policies to lower healthcare costs. OHCA’s work is heavily data-driven and research-focused, and this law will require entities to give them a plethora of additional data. Many MSOs, PE firms, and hedge funds will now be required to notify the State before making significant business changes.

Heightened Scrutiny of Healthcare-Related Business Sales and Acquisitions

Starting on January 1, 2026, California’s OHCA will collect more information about the business activities of private equity firms, hedge funds, MSOs, and any company that owns or controls a healthcare entity. A “material change transaction” includes selling, buying, transferring, or taking control of healthcare-related businesses. It focuses both on transactions between two or more healthcare entities and transactions that involve MSOs.  The law’s definition of healthcare “providers” is broad, and it includes physician organizations, health facilities, outpatient and specialty clinics, ASCs, clinical laboratories, and imaging facilities.

Under the new law, health care entities must provide OHCA with written notice of any agreements or transactions that “sell, transfer, lease, exchange, option, encumber, convey, or otherwise dispose of” the entity’s assets to any other health care entity. Entities must also give written notice if they transfer “control, responsibility, or governance” of the entity to any other entity. The law broadly defines a “health care entity” to include payers, providers, and fully integrated delivery systems.

The law further requires that OHCA be given written notice when a healthcare entity or MSO engage in these transactions. Importantly, the law requires that this written notice be given to OHCA at least 90 days prior to entering into the agreement or transaction. This means that those engaging in healthcare-related mergers, acquisitions, and other business relationships plan ahead to accommodate this notice period. In certain situations, OHCA will make information about the change publicly available. Those engaging in these transactions should also be prepared to pay fees that the State will likely require when submitting these notifications.

How does this impact already existing entities and relationships?

AB 1415 applies not only to future deals, but also to existing healthcare entities and MSO relationships that undergo a “material change transaction” on or after January 1, 2026.

If an existing MSO arrangement, joint venture, ownership structure, or management relationship remains as-is, no notice is required simply because the relationship exists. However, if the parties take any action that meets the statute’s definition of a material change transaction, then the 90-day OHCA notice requirement is triggered.

In other words: The law does not grandfather in currently existing relationships. Any qualifying transaction occurring in 2026 or beyond, whether part of a long-standing structure or a brand-new deal, must comply with AB 1415.

How will the timing work with someone who’s just entering into an MSA? When do they do this?

If an MSO and a healthcare entity are entering into a new MSA on or after January 1, 2026, and the arrangement constitutes a “material change transaction” under AB 1415, then the parties must:

1. 1. Provide written notice to OHCA at least 90 days before executing the MSA, and

2. 2. Wait for the 90-day period to lapse (or receive OHCA clearance) before finalizing the agreement.

Whether a new MSA triggers notice depends on how the arrangement is structured. Many MSOs provide significant managerial, financial, operational, or governance support to provider organizations – functions that typically qualify as a transfer of “control, responsibility, or governance” under the statute.

As a practical matter, most MSOs entering into California relationships should assume that a new MSA will require 90-day advance notice unless the arrangement is unusually limited in scope.

Do we know practically what this notice will look like yet?

Not yet. As of now, OHCA has not released final regulations or a standardized notice form that outlines precisely what information must be submitted.

What we do know from AB 1415 and from OHCA’s existing cost-and-market-impact process is that the required information will likely include:

• • basic corporate and ownership details of the entities involved,

• • the nature and structure of the transaction,

• • financial and operational information relevant to market impact,

• • any anticipated effect on cost, access, or quality of care, and

• • governance or control changes resulting from the transaction.

OHCA is expected to begin rulemaking and stakeholder engagement ahead of the 2026 launch, and the agency’s ultimate regulations should clarify requirements.

For now, the safest approach for MSOs and healthcare entities planning 2026 transactions is to:

• • anticipate significant information-gathering requirements,

• • build additional time into deal structure and closing timelines, and

• • monitor OHCA updates closely as regulations roll out.

Get Legal Support

Working with a healthcare attorney can help companies understand the rules and navigate contract reviews and deal requirements.

If you operate in a state where our attorneys are licensed, you can schedule a consultation to discuss your options.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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Helpful Links

California Department of Health Care Access and Information – Office of Health Care Affordability (OHCA)

California Department of Health Care Access and Information – AB 1415 Frequently Asked Questions

California Legislative Information – Senate Bill No. 351

California Legislative Information – Assembly Bill No. 1415

Medical Board of California – Physician Licensing & Regulation

Governor Gavin Newsom – Portal for Governor News and Updates