New California Law Affects MSOs

Posted By Madilyn Moeller, Thursday, October 9, 2025

California state capitol

A newly passed law in California will prohibit certain contractual provisions between medical and dental practices and private equity groups or hedge funds. This may affect what terms can be included in management services agreements (MSAs) between medical practices and management service organizations (MSOs). The new law, known as Senate Bill 351 (SB 351), was signed into law on October 6, 2025. This article takes a look at what this new law requires.

SB 351 applies to “Hedge Funds” and “Private Equity Groups,” but the definitions for these terms may include groups and persons that we may not traditionally think of as hedge funds or private equity groups. In SB 351, a hedge fund is defined as a “pool of funds managed by investors for the purpose of earning a return on those funds.” This can include limited partnerships or other entities. The definition specifically excludes the individuals who passively invest in these pools, entities that provide loans, hospitals, and public agencies. Private equity groups are one or more investors who “primarily engage in the raising or returning of capital and who invests, develops, or disposes of specified assets.” Hospitals and public agencies are similarly excluded, as well as entities that contribute funds to the group but that don’t participate in the management of the group.

Under this new law, private equity groups and hedge funds are prohibited from interfering with the professional judgment of physicians and dentists in making health care decisions. This prohibits private equity groups and hedge funds from:

  • Determining what diagnostic tests are appropriate.
  • Determining the need for referrals to, or consultation with, other health professionals.
  • Being responsible for the ultimate overall care of the patient, including what treatment options are available.
  • Determining how many patients a physician or dentist shall see in a given period of time or how many hours a physician or dentist shall work.

SB 351 goes on to prohibit hedge funds and private equity groups from exercising control over or being given the power to do any of the following:

  • Owning or determining the content of the medical records.
  • Selecting, hiring, or firing physicians, dentists, allied health staff, and medical assistants based, in whole or in part, on clinical competency or proficiency.
  • Setting the parameters under which a practice shall enter into contractual relationships with third-party payers.
  • Setting the clinical competency or proficiency parameters under which a physician or dentist shall enter into contractual relationships with other physicians or dentists for the delivery of care.
  • Making decisions regarding the coding and billing of procedures for patient care services.
  • Approving the selection of medical equipment and medical supplies for the physician or dental practice.

Private equity groups and hedge funds may not enter any contract, agreement, or arrangement with a physician or dental practice that would interfere in the areas listed above. Contractual provisions that violate these restrictions are considered void and unenforceable.

Additionally, any contracts that involve the management of physician or dental practices or contracts for the sale of real estate or assets from a physician or dental practice to a private equity group or hedge fund, or an entity controlled by either may not include contractual terms that prohibit providers from competing with the practice in the event of a resignation or termination of that provider. The contracts also cannot prohibit the providers from disparaging or commenting on the practice on issues that involve the quality of care, utilization of care, ethical or professional challenges, or revenue-increasing strategies implemented by the private equity group or hedge fund. These terms are all considered void, unenforceable and against public policy. Noncompete clauses for the sale of businesses are still permitted but they may not be expanded to include employees. And non-disclosure policies that restrict the disclosure of material nonpublic information may still be employed provided that they do not prohibit any of the above disclosures.

The stated goal of all of these provisions is to keep the decisions of clinical and treatment matters with the licensed health care providers and to prohibit unlicensed persons from exerting influence or control over the delivery of care. Unlicensed persons are still able to assist or consult with physicians and dentists on many of these issues provided that the ultimate decision and approval comes only from the licensed physicians or dentists. 

If you are part of an MSO in California, you will want to consult with your legal team to see if these provisions affect your current practices and if any changes or amendments are needed to your agreements.

AmSpa Members receive legal updates straight to their inbox. For instant access to the latest med spa laws in your state, sign up to join the most supportive community in aesthetics. Learn more about the resources available to AmSpa Members.

Related Tags

Subscribe to Our Email List

Medical spa news, blogs and updates sent directly to your inbox.