California: AB 1415 and Expanded OHCA Oversight — What Providers, MSOs, and Investors Need to Know
On February 21, 2025, California introduced AB 1415, a bill aimed at expanding the regulatory oversight of the Office of Health Care Affordability (OHCA). As discussed in our previous blog, certain health care entities are required to provide written notice to OHCA of any proposed merger, acquisition, corporate affiliation, or other transaction that will result in a material change to the ownership, operations, or governance structure of a health care entity. AB 1415 seeks to expand the types of entities required to provide notice to OHCA by:
- Expanding the definition of a “health care entity” to include management services organizations (MSOs).
- Imposing notification requirements on private equity groups, hedge funds, and newly formed business entities involved in certain transactions.
- Broadening the definition of “provider” to include health systems and entities that own, operate, or control a provider.
Inclusion of Management Services Organizations
Currently, the OHCA statutes and regulations define a “health care entity” as a payor, provider, or a fully integrated delivery system. AB 1415 would expand this definition to specifically include MSOs within the definition of a health care entity directly regulated by the statute. An MSO is defined in AB 1415 as “an entity that provides administrative services or support for a provider, not including the direct provision of health care services.” The bill specifies that administrative services may include, but are not limited to, functions such as utilization management, billing and collections, customer service, provider rate negotiation, and network development.
This broad definition could capture a broader scope of administrative service providers that have not been traditionally considered an MSO. For example, a business that exclusively provides billing and collections services to health care organizations may be included within the definition of an “MSO,” even though they are not engaged in the management of a health care practice. While these functions align with typical MSO activities, AB 1415’s use of open-ended language in the definition could extend OHCA’s oversight to other intermediaries that support providers but do not exert managerial control over them, such as third-party administrators (TPAs) and health care technology firms.
If interpreted broadly, AB 1415 could impose unintended compliance burdens on entities that offer administrative services without directly influencing health care delivery, potentially increasing regulatory complexity for non-clinical service providers.
Notification Requirements for Private Equity and Hedge Funds
AB 1415 would establish a notification requirement for private equity groups, hedge funds, and newly formed business entities involved in transactions with health care entities. These entities would be required to provide written notice to OHCA before entering into agreements that:
- Sell, transfer, lease, or otherwise dispose of a material amount of a health care entity’s assets to another entity.
- Transfer control, responsibility, or governance over a material portion of the health care entity’s operations or assets.
Notably, the definition of a “private equity group” in AB 1415 is broader than the definition of that same phrase in the recently proposed SB 351. SB 351 similarly targets private equity and hedge fund involvement with management arrangements of medical and dental practices in California.
If enacted, California would be among the first states to require private equity groups to report such transactions, and the only state to explicitly include hedge funds in its health care transaction review law.
Expanded Definition of “Provider”
AB 1415 proposes expanding the definition of “provider” to include both private and public health care providers, health systems, and any entity that owns, operates, or controls a provider.
The current OHCA statute and regulations apply to nearly all health systems in California, because the definition of a “provider” includes acute care hospitals and several other types of provider organizations that comprise a “health system.” AB 1415 would separate “health systems” into their own category of a “provider,” which would encompass both for-profit and nonprofit health systems, and combinations of hospitals and other physician organizations or health care service plans. It is not entirely clear whether the addition of “health systems” to the definition of “providers” will further expand the scope of OHCA’s applicability.
In addition, by expanding the definition of “provider” to include entities that own, operate, or control a provider, AB 1415 would extend regulatory oversight beyond direct care providers to financial and management entities, including holding companies, parent corporations, and private equity-backed groups.
Afhaalmaaltijden
AB 1415 represents a potential significant expansion of regulatory oversight in California’s health care market. By broadening the scope of health care entities required to notify OHCA of material transactions, the bill seeks to increase transparency, prevent unchecked consolidation, and include oversight extending beyond direct care providers. However, the bill’s proposed broad definitions may capture more entities than intended, increase compliance burdens, and slow down transactions in an already complex regulatory environment.
Stay tuned for further updates as AB 1415 moves through the legislative process. For now, health care providers, investors, and management entities should closely monitor its progress. If passed, the bill will create new compliance obligations that could significantly impact future health care transactions and corporate ownership structures.
Meer weten?
- California: Health Care M&A Market Heats up as New Regulator Takes a Closer Look (December 2022)
- California: Proposed Regulations Impacting the M&A Market in California (August 2023)
- Health Care Joint Ventures: What’s the Big Deal? (February 2024)
- California: Health Care Transactions “Material Change” Regulations are Finalized (Jan. 2024)
Foley is here to help you address the short and long-term impacts in the wake of regulatory changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the authors, your Foley relationship partner, or to our Health Care Practice Group with any questions.
