TL;DR (3 bullets):

  • SB 351 is now law. It codifies California’s corporate practice rules and bars hedge funds and private equity groups (and entities they control) from exerting clinical or certain operational control over physician and dental practices. Contracts enabling that control are void. Noncompetes and certain gag clauses in covered deals are also void (with a narrow sale‑of‑business exception). LegInfo+1
  • Effective date: As a non‑urgency bill chaptered October 6, 2025, SB 351’s provisions become effective January 1, 2026 (the default rule for California statutes). LegInfo+2Justia Law+2
  • AB 1415 (signed October 11, 2025) separately expands California’s OHCA pre‑transaction notice regime to include MSOs, PE groups, and hedge funds as “noticing entities.” More MSO‑provider deals will require 90‑day notice to OHCA starting in 2026. LegInfo+1

Who should care? Physician‑owned medical spas, dental aesthetics practices, MSOs (especially those with PE/HF capital), and lenders/investors structuring PC/MSO platforms in California.

What SB 351 actually says—in plain English

Who it targets. The law applies to “private equity groups” and “hedge funds,” defined broadly (with carve‑outs for passive investors, banks providing debt, hospitals/hospital systems, and public agencies). It also reaches entities directly or indirectly controlled by those investors. LegiScan

What’s prohibited—“interference” with clinical judgment. Covered investors may not interfere with clinicians’ professional judgment, including: deciding diagnostics, referrals/consults, treatment options, or setting patient‑volume/hour quotas for physicians or dentists. LegiScan

What’s prohibited—“control” over key operations. Covered investors may not control or be delegated power to:

  • Own or determine the content of medical records
  • Select/hire/fire physicians, dentists, allied health staff, or MAs based on clinical competency/proficiency
  • Set parameters for payer contracting or for how clinicians contract with other clinicians
  • Make coding & billing decisions for patient care services
  • Approve the selection of medical equipment and supplies
    If a contract enables any of the above, those terms are void and unenforceable. LegiScan

Noncompete & non‑disparagement limits. In management agreements or asset/real estate sale agreements between covered investors and a physician/dental practice (or their controlled entities), the contract cannot:

  • Bar any provider from competing after resignation/termination; or
  • Prevent providers from opining/commenting on quality of care, utilization, ethical issues, or revenue‑increasing strategies of the PE/HF sponsor.
    Sale‑of‑business noncompetes remain permitted (but may not be used as employee noncompetes). Ordinary confidentiality can still protect material non‑public information (not quality‑of‑care speech). LegiScan

Enforcement. The Attorney General can seek injunctive relief and recover attorneys’ fees for violations. LegiScan

Timing. The bill was approved and chaptered on October 6, 2025 and will take effect January 1, 2026 under California’s default effective‑date rules for non‑urgency statutes. LegInfo+2Justia Law+2

Context: SB 351 is sometimes described as “codifying CPOM.” It largely tracks the Medical Board of California’s corporate practice guidance but makes the rules statutory and ties them specifically to PE/HF involvement—a narrower, targeted approach after the Governor vetoed AB 3129 (2024), which would have required AG consent for a broad range of health‑care transactions. McGuireWoods

AB 1415: Expanded OHCA pre‑transaction notice now reaches MSOs (and PE/HF)

Separate and apart from SB 351, AB 1415 amends the California Health Care Quality and Affordability Act to:

  • Add MSOs, private equity groups, and hedge funds as “noticing entities.”
  • Require written notice to OHCA at least 90 days before certain material transactions (sell/transfer/lease of material assets, transfers of control/governance, etc.) involving a health care entity or MSO.
  • Direct OHCA to study MSOs and collect data (with future rulemaking). LegInfo

California’s OHCA already runs the Material Change notice and (when warranted) Cost & Market Impact Reviews that can extend timelines and impose conditions. AB 1415 means more MSO‑related deals will be within that process starting 2026. HCAI

What this means for the PC/MSO model used by medical spas

Core takeaway: You can still run a compliant PC/MSO structure. But decision rights must be documented and lived so that clinical autonomy stays with the professional entity—and so that the MSO and any PE/HF sponsor don’t cross into reserved areas.

Decision‑rights crosswalk: what the statute forbids vs. practical “safe lanes”

Statute‑barred controlWhat the MSO may still do (with guardrails)Interfere with clinical judgment (diagnostics, referrals, treatment options) or set patient quotas/hoursProvide scheduling, non‑clinical workflow optimization, and recommend patient‑flow benchmarks—but no quotas that dictate clinical decisions or visit length; the PC sets clinic templates and can override at any time. LegiScanOwn/determine medical record contentLicense/maintain EHR as service provider; act under a BAA as a business associate; no ownership of record content; the PC is custodian of records and final arbiter of charting policies. LegiScanSelect/hire/fire clinicians based on clinical competenceProvide recruiting funnels, onboarding, payroll admin and present candidates, but the PC decides clinical hiring/discipline/termination. Document that the medical director (or PC officers) make final clinical staffing decisions. LegiScanSet parameters for payer contracting or clinicians’ clinical competency parametersPrepare analyses and recommend payer terms; the PC negotiates/signs and sets its own competency/credentialing standards. LegiScanMake coding & billing decisions for patient careOffer RCM services (claim prep, submission, follow‑up) under PC‑approved coding policies and physician sign‑off; the PC owns coding guidelines and can override vendor/MSO edits. LegiScanApprove equipment/suppliesRun procurement, vendor diligence, and pricing recommendations; the PC approves equipment formularies and final purchase decisions. LegiScan

Pro tip: Update your “Decision Rights Matrix” and policy manuals so operations mirror the paper. California regulators (and the AG) care about how things work day‑to‑day, not just what your MSA says. McGuireWoods

Contract terms to review (and likely revise) before 1/1/2026

  1. Management Services Agreements (MSAs)
    • Remove or narrow any approval/veto rights that touch the statute’s reserved areas.
    • Add explicit clinical autonomy and medical records clauses specifying the PC’s control.
    • Clarify that any MSO role in billing/coding is ministerial, following PC‑set policies. LegiScan
  2. Equity/Asset/Real Estate deal documents with a PE/HF party (or its controlled entities)
    • Delete noncompetes targeting providers in management or asset deals; keep only sale‑of‑business noncompetes where they truly fit—and never as an employee noncompete.
    • Delete or narrow gag clauses so providers can speak about quality/utilization/ethics and investor strategies; keep confidentiality for material non‑public information. LegiScan
  3. Governance exhibits & SOPs
    • Attach a one‑page Decision Rights Schedule: clinical decisions (PC), business admin (MSO), and advisory areas.
    • Ensure EHR agreements reflect the PC’s role as custodian of medical records content and the MSO’s role as a service provider. LegiScan
  4. Transaction planning (2026 and beyond)
    • Screen deals for OHCA notice requirements under AB 1415 and plan +90 days into the timeline. Coordinate with counterparties on who files and when. LegInfo+1

“Are we covered?”—quick applicability guide

  • Applies if: A PE/HF is “involved in any manner” with your physician/dental practice (e.g., investor in the PC or owner/investor in the assets supporting it), or controls your MSO that contracts with the practice. Out‑of‑state funds are not exempt if the practice does business in California. LegiScan
  • Does not apply (by definition) to banks/creditors providing debt, hospitals/hospital systems, or public agencies (but other laws still apply). LegiScan
  • If your MSO has no PE/HF ownership/control: SB 351’s statutory prohibitions may not directly apply, but California CPOM principles still do—meaning the same control lines are prudent regardless. mbc.ca.gov

Why this happened now (and what’s next)

  • In 2024, Governor Newsom vetoed AB 3129 (which would have given the AG broad consent rights over many health‑care transactions), noting the state’s OHCA was better positioned to handle consolidation. In 2025, lawmakers returned with a targeted pair: SB 351 (codified CPOM limits for PE/HF) and AB 1415 (expanded OHCA notice to MSOs and investors). Expect more rulemaking and enforcement in 2026. McGuireWoods

Aesthetics‑specific watchouts (medical spas & cash‑pay services)

  • Throughput metrics (e.g., “visits per hour,” “X injections/day”) can be interpreted as clinical quotas if they pressure diagnostic/treatment choices. Use operational, not clinical, KPIs—and let the PC set them. LegiScan
  • Coding/discounts/memberships: Even in cash‑pay models, documentation and coding touch patient care (complications, combination treatments). Keep MSO influence advisory; the PC approves coding policies and any “clinical bundles.” LegiScan
  • Device procurement: MSOs can negotiate pricing, but the PC approves device selection (and clinical protocols tied to those devices). LegiScan

A practical 30‑day action checklist

  1. Inventory all agreements between the PC, MSO, and any PE/HF‑related entities (management, financing, IP, data, device leases, real estate).
  2. Build a simple Decision Rights Matrix and compare it to the statute’s do‑not‑cross list. Close gaps. LegiScan
  3. Amend MSAs and deal docs to remove/replace problematic approval rights, noncompetes, and gag clauses. Add clinical autonomy, medical records, and coding governance provisions. LegiScan
  4. Operationalize: Update SOPs, credentialing, coding manuals, and procurement workflows so practice leadership—not the MSO or investors—signs off.
  5. Calendar OHCA notice for 2026: if a transaction could be “material,” assume 90‑day notice and align counterparties on filing responsibilities. LegInfo+1

FAQs

Does SB 351 ban MSOs from billing services?
No. It bans control over coding and billing decisions. An MSO can still perform RCM functions under PC‑approved policies and direction. LegiScan

Can we keep a noncompete for providers in our management agreement with a PE‑backed MSO?
No. In covered management or asset/real estate deals, such provider noncompetes are void. Only sale‑of‑business noncompetes survive—and they cannot be employee noncompetes. LegiScan

If we’re not PE‑backed, are we in the clear?
You still must honor California’s CPOM doctrine. SB 351 heightens enforcement risk for PE/HF structures, but any lay control over clinical matters is risky under existing law. mbc.ca.gov

What counts as “control…in whole or in part”?
The statute doesn’t define “control” numerically. Treat board seats, vetoes, management agreements, or super‑majority rights that touch reserved areas as red flags—even with minority equity. Get counsel to analyze your specific facts. LegiScan

Bottom line

California has drawn a bright statutory line: clinical decision‑making and several closely related operational levers must remain with licensed professionals, particularly where PE/HF is involved. For medical spas using the PC/MSO model, that means tight contracts, tighter governance, and disciplined day‑to‑day practices—plus earlier OHCA planning for transactions in 2026.

If you’d like, ProspyrMed can help you map decision rights, triage your contracts, and coordinate with your counsel to implement compliant structures before the effective date.

Sources & further reading

  • AmSpa: summary of the new law affecting MSOs (Oct 9, 2025). americanmedspa.org
  • SB 351 (chaptered Oct 6, 2025): statutory text and bill status (adds Health & Safety Code §§1190–1192). LegiScan+1
  • Default effective date for CA statutes: California Constitution, Art. IV §8(c); CA Secretary of State guidance. Justia Law+1
  • AB 1415 (chaptered Oct 11, 2025): expands OHCA notice to MSOs/PE/HF and authorizes MSO data collection. LegInfo
  • OHCA material change & CMIR: official HCAI page on notices and reviews. HCAI
  • Context after AB 3129 veto: overview of 2025 approach (SB 351 + AB 1415) and CPOM codification. McGuireWoods

This article is for educational purposes only and does not constitute legal advice. Consult qualified California counsel for advice tailored to your specific structures and transactions.

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