July 24, 2026
By: Harry J. Nelson, Esq.
For several years, we watched California make a series of false starts at “reining in” the corporate practice of medicine (CPOM). In 2021, the Legislature considered SB 642, an effort to restrict nonphysician business influence over medical care and professional decision-making. The bill ultimately stalled. In 2024, Governor Gavin Newsom vetoed AB 3129, a broader attempt to regulate private equity and hedge-fund involvement in healthcare transactions and management arrangements. In his veto message, the Governor pointed to the newly created Office of Health Care Affordability (OHCA), arguing that OHCA, rather than a parallel Attorney General approval process, was the more appropriate body to oversee healthcare consolidation. Although a broad coalition of labor, consumer, and healthcare-policy stakeholders had mobilized against private equity’s growing role in medicine, the early legislative efforts had not produced lasting change.
That changed in 2025. California enacted two important laws. SB 351 expressly restricts private equity groups and hedge funds from interfering with physician and dental professional judgment or exercising control over specified functions, including patient volume, medical records, clinician selection based on clinical competency, payer-contracting parameters, coding and billing, and medical equipment. It also gives the Attorney General authority to seek injunctive relief. AB 1415 expands the Office of Health Care Affordability’s visibility into healthcare transactions involving private equity groups, hedge funds, management services organizations (MSOs), newly formed transaction entities, and entities that own, operate, or control healthcare providers. Both laws became effective January 1, 2026. At the time, many observers wondered how aggressively California intended to use them, and how they would interact with the State’s longstanding corporate practice prohibition.
The answer is now clearer. During the first half of 2026, California Attorney General Rob Bonta made CPOM enforcement a highly visible part of his healthcare agenda. In April, the Attorney General filed an amicus brief in Art Center Holdings v. WCE CA Art. The brief argued that an arrangement allowing a lay-controlled MSO to replace the physician owner of a professional corporation gave the MSO the effective power to own or control the medical practice. It also argued that a physician owner who could not terminate the MSO without risking loss of the practice lacked meaningful independence. In May, the Attorney General announced a proposed settlement with Aspen Dental Management involving alleged violations of California’s corporate practice of dentistry prohibition and consumer-protection laws. The proposed settlement includes $2 million in penalties, $300,000 in restitution, and extensive restrictions involving practice ownership, staffing, compensation, incentives, advertising, property, equipment, and the rights of dentist owners. In June, the Attorney General announced a proposed $4.5 million resolution involving Carbon Health and its co-founder and former CEO. The complaint and proposed settlement extend similar scrutiny into the medical “friendly PC” context, targeting MSO control rights, physician-owner replacement provisions, ownership options, financing leverage, advertising, patient agreements, insurance representations, and billing practices.
These actions are plainly intended to send a broader message: the State is looking past the formal ownership structure and wants physicians, not MSOs, to control practices.
Having been deeply involved in CPOM issues for more than two decades, I have been inundated with requests to explain what these developments mean and where California is heading. The first thing that stands out is that the Attorney General’s campaign is proceeding largely through litigation positions and negotiated injunctions rather than through the comprehensive development of prospective industry standards. The State is attacking particular companies, characterizing familiar contractual provisions as evidence of unlawful control, and negotiating settlements whose detailed restrictions may function as informal guidance for the rest of the market.
That approach may produce headlines, but does not offer clarity. Settlements are shaped by the facts, negotiating leverage, litigation risk, financial condition, and business objectives of the parties involved. A provision accepted by one company to resolve a case does not automatically establish the boundary of lawful conduct for every medical group, MSO, investor, or specialty.
Inevitably, though, the market will treat these settlements as signals. Although we are already revising documents to satisfy the Aspen and Carbon injunctions, we are doing so based on de facto guidance without a clear process for distinguishing prohibited control from legitimate support, formal rights from actual conduct, and problematic financial incentives from appropriate business accountability.
What the Attorney General seems to be missing is that he is not attacking a novel structure used only by a handful of private equity renegades. The professional corporation–MSO model is foundational infrastructure across large parts of American healthcare. By my rough count, at least six dozen public companies rely on some version of the friendly-PC or affiliated professional-entity model. They include not only telehealth companies such as Hims & Hers and Teladoc, but literally the largest healthcare organizations and provider platforms in the country. Tens of thousands of practices, some investor-backed, many not, use MSOs to centralize nonclinical functions. The model is present in every specialty. Even physician-owned groups use centralized MSOs to coordinate revenue-cycle management, staffing, and other non-clinical functions. The model has proliferated because of its virtues. It forces financial transparency, reduces duplication, and creates incentives to improve systems. It help practices achieve sufficient scale to negotiate and operate in a healthcare environment dominated by large health systems and payers.
The current enforcement campaign also overlooks why the PC–MSO structure became so widespread. Restrictions on nonphysician ownership were intended to protect clinical judgment. But those same restrictions made it more difficult for physician practices to obtain outside capital, build technology, recruit management expertise, and achieve scale. Investors, entrepreneurs, operators, and capital markets stepped into that gap. Some of the voices opposing “private equity healthcare” almost seem to pine for a return to a healthcare system that no longer exists, losing sight of the way that the PC-MSO structure is an underpinning of what healthcare (at least for-profit healthcare) demands.
It’s not that the model was perfect. Some PC-MSO structures infringed on the clinical oversight needed for high quality care. Some economic incentives placed the wrong kind of pressure on clinical decisions. Those problems should be confronted. But the answer cannot simply be to pretend that modern medical practices can return to a world in which individual physicians personally finance, manage, and administer every aspect of increasingly complex healthcare enterprises. The horse is out of the barn.
California can force MSOs and professional entities to strengthen compliant structures. It cannot realistically return the healthcare system to a pre-MSO world without accelerating consolidation into hospitals, payers, and other large institutions that raise their own concerns about cost, competition, and professional autonomy. The question is therefore not whether MSOs will continue to play a central role in healthcare. The question is what standards should govern them.
If the Attorney General wants to improve corporate practice compliance, I would argue for a more transparent and collaborative approach, one that convenes all stakeholders to develop standards that distinguish responsible organizations from bad actors. That kind of collaboration would result in sustainable healthcare policy and clarity, making life easier for both government and the healthcare industry. I’m working now on a book diving into what an industry-wide consortium to develop CPOM standards would look like. In the interim, we’ll keep advising clients through a period of regulation by ambush and pressing for a more nuanced conversation.
