California Expands Health Care Transaction Review to Private Equity, Hedge Funds, MSOs, and Health Care Real Estate

Newsletter

California has expanded the reach of its health care transaction review framework. On October 2, 2026, the California Office of Administrative Law approved emergency regulations issued by the Office of Health Care Affordability (OHCA), effective November 2, 2026. The regulations implement and clarify statutory changes under Assembly Bill (AB) 1415 and extend potential notice obligations to private equity groups, hedge funds, management services organizations (MSOs), newly created transaction entities, and certain owners or controllers of health care providers.1

The practical impact is significant because investors, MSOs, and buyers or sellers of health care real estate may now have their own filing obligations. Parties should evaluate covered transactions early because OHCA generally requires 90 days’ advance notice and may conduct a longer cost and market impact review (CMIR).2

For additional background on California’s related corporate practice of medicine and private equity legislation, see Quarles’ prior alert, California Cracks Down: New Laws Governing the Corporate Practice of Medicine and PE Deals, which discusses AB 1451 and related developments.

Key Definitions

Health care entity. For OHCA notice purposes, the term includes payers, providers, fully integrated delivery systems, pharmacy benefit managers, and specified parents, affiliates, or subsidiaries acting in California on behalf of a payer. Physician organizations with fewer than 25 physicians generally are excluded unless they are determined to be high-cost outliers, although a health care entity entering into a transaction with such an organization may still have a notice obligation.3

Health care real estate. Not every transfer of medical property is reportable. The regulations generally focus on sale-leaseback and similar transactions in which real estate used to provide health care services is sold, but the provider continues operating at the property and pays rent or another occupancy charge.4

What May Trigger a Filing

The existing transaction triggers, which include transactions valued at $25 million or more and specified transfers of control, remain in place. However, the amended rules add or clarify several categories of potentially reportable transactions.5

Additional entities now include:

  • Private equity and hedge fund investments. A filing may be required when a private equity group or hedge fund acquires 10% or more of the assets, equity, debt, or liabilities of a qualifying health care entity or MSO. An investment below 10% may also be reportable if it includes specified control rights, such as rights involving leadership appointments, veto authority, approval of debt, management fees, or a sale-leaseback arrangement.6
  • MSO arrangements. A transaction involving an MSO may be reportable when it results in the MSO providing support services for a large health care entity, or two or more providers with at least $10 million in combined California revenue, or when it involves a transfer of control of a health care entity.7
  • Health care real estate. Certain sales of health care property may require notice when a provider continues to deliver health care services to the property and, following the transaction, pays rent to use the property.8

The regulations also require parties to consider certain prior acquisitions by a health care entity or MSO during the preceding 10 years when applying specified transaction thresholds.9

Filing Thresholds, Timing, and Process
  • 90-day advance notice. A required notice generally must be submitted to OHCA at least 90 days before the transaction closes.10
  • Existing entity thresholds. The framework generally applies to a health care entity with at least $25 million in annual revenue or California assets, or at least $10 million when another party to the transaction meets the $25 million threshold.11
  • Expanded disclosures. Notices are submitted through OHCA’s portal under penalty of perjury. Required information may include ownership through the ultimate parent, portfolio holdings, debt ratios, and certain transaction-contingent management compensation.12
  • Initial OHCA review. After OHCA receives a complete notice, the regulations provide review periods for OHCA to either waive further review or determine that a CMIR is required.13
  • CMIR timeline. A CMIR generally must be completed within 90 days and may be extended by 30 days. A transaction subject to a CMIR generally may not be implemented until 60 days after OHCA issues its final report.14
  • Tolling permitted. The regulations afford OHCA broad authority to toll the review periods for its initial review and a CMIR (if it determines that one is required) for a number of reasons, including if it is awaiting further information from the parties.15
  • Changes after filing. Material amendments or cancellations generally must be reported to OHCA within five business days.16
Consequences of Noncompliance

The statute does not establish a fixed monetary penalty solely for failing to submit the required notice. However, OHCA may seek specific performance, injunctive relief, other equitable remedies, and recovery of attorneys’ fees and costs. Because notices are submitted under penalty of perjury, inaccurate filings may create additional exposure. OHCA may also refer to findings arising from a CMIR to the California Attorney General for further review.17

The expanded notice requirements should also be evaluated alongside California Senate Bill 351, which separately restricts contractual arrangements that give private equity groups or hedge funds control over specified physician or dental practice decisions.18

Practical Takeaways
  • Evaluate control rights, not only ownership percentages. An investment below 10% may still be reportable if it includes specified governance or control rights.
  • Build OHCA review into the deal timeline. Account for the 90-day notice period and the possibility of a CMIR when setting outside dates and regulatory closing conditions.
  • Gather disclosure information early. Ownership, portfolio, debt, and compensation information may be needed to complete the filing.
  • Review prior acquisitions. The 10-year aggregation rule may affect a transaction that would not independently appear to meet a filing threshold.
  • Monitor further rulemaking. The rules effective as of November 2, 2026 are emergency regulations, so parties should monitor OHCA’s permanent rulemaking and related guidance.

For questions about California health care transaction review requirements or how they may affect a pending or planned transaction, please contact your Quarles attorney or:

END NOTES

1 AB 1415, ch. 415, Stats. 2025; Cal. Code Regs. tit. 22, §§ 97431-97442.

2 Cal. Code Regs. tit. 22, §§ 97435(a), 97440-97442.

3 Health & Safety Code § 127500.2(k); Cal. Code Regs. tit. 22, § 97431(g)

4 Cal. Code Regs. tit. 22, §§ 97431, 97435(c)(11).

5 Cal. Code Regs. tit. 22, § 97435(c).

6 Cal. Code Regs. tit. 22, § 97435(c)(9).

7 Cal. Code Regs. tit. 22, § 97435(c)(10).

8 Cal. Code Regs. tit. 22, § 97435(c)(11).

9 Cal. Code Regs. tit. 22, § 97435(c)(8).

10 Cal Code Regs. tit. 22, § 97435(a).

11 Code Regs. tit. 22, § 97435(b)(1)-(2).

12 Cal. Code Regs. tit. 22, § 97435(c); see also OHCA Material Change Notice Submission Portal.

13 Cal. Code Regs. tit. 22, § 97440.

14 Cal. Code Regs. tit. 22, § 97442.

15 Cal. Code Regs. tit. 22, § 97440, Cal. Code Regs. tit. 22, § 97442.

16 Cal. Code Regs. tit. 22, § 97438.

17 Health & Safety Code §§ 127507.2, 127507.6.

18 Cal. Bus. & Prof. Code §§ 1190-1190.5 (added by SB 351, ch. 377, Stats. 2025).

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