Beginning January 1, 2026, an amendment to California’s material change transaction law expands the authority of the Office of Health Care Affordability (OHCA) to review and approve health care transactions involving certain investment and management entities. Our Health Care Group explains how the OHCA’s broader oversight and the 90-day notice requirement could affect deal planning and compliance in the state’s health care sector.
- OHCA’s approval authority now extends to private equity firms, hedge funds, management services organizations, and newly formed entities
- The 90-day notice requirement adds a compliance step for material change transactions involving these entities
- Evaluating compliance obligations early can help prevent closing delays and reduce enforcement risk
Investors face new reporting rules for health care transactions under a California law signed into law on October 11, 2025. The law, California Assembly Bill 1415 (AB 1415), effective January 1, 2026, requires private equity groups, hedge funds, management services organizations (MSOs), and newly created entities to notify the Office of Health Care Affordability (OHCA) at least 90 days before closing health care deals involving material changes.
As part of a broader trend of increased scrutiny of private investment in the health care industry, the newly enacted law expands the OHCA’s authority to approve or deny transactions and adds private equity groups and hedge funds to the existing OHCA notification framework.
Introduced February 21, 2025, the bill faced a long and winding road to becoming law. A similar measure, AB 3129, passed the California legislature last session but was vetoed by Governor Gavin Newsom. AB 1415 underwent several amendments and markups as it wound its way through committees during the legislative process. Now that it has been enacted, stakeholders and investors in California’s health care sector should take note of its effect on deals in the state.
Current law requires “health care entities” to notify the OHCA 90 days before closing deals involving certain material changes. Although the enacted bill does not add new types of health care entities to that requirement, it establishes a new category of “noticing entity,” defined as:
- A private equity group or hedge fund.
- A newly created business entity created for the purpose of entering into agreements or transactions with a health care entity.
- A management services organization.
- An entity that owns, operates, or controls a provider, regardless of whether the provider is currently operating, providing health care services, or has a pending or suspended license.
Each of these, even if not a health care entity under existing law, must also provide 90 days’ notice to the OHCA before participating in certain health care transactions.
AB 1415 also augments California’s material change transaction law with updated entity definitions that align with the new “noticing entity” category:
- Hedge fund “means a pool of funds managed by investors for the purpose of earning a return on those funds, regardless of the strategies used to manage the funds. Hedge funds include, but are not limited to, a pool of funds managed or controlled by private limited partnerships or other types of private corporate or partnership formations.”
- Management services organization “means an entity that provides management and administrative support services for a provider in support of the delivery of health care services, excluding the direct provision of health services. Management and administrative support services shall include provider rate negotiation, revenue cycle management, or both. A management services organization does not include entities that own one or more health facilities, as defined in subdivision (a) or (b) of Section 1250.”
- Private equity group “means an investor or group of investors who primarily engage in the raising or returning of capital and who invest, develop, dispose of, or purchase any equity interest in assets, either as a parent company or through another entity the investor or investors completely or partially own or control. A private equity group does not include natural persons or other entities that contribute or promise to contribute funds to the private equity group, but otherwise do not participate in the management of the private equity group or the group’s assets, or in any change in control of the private equity group or the group’s assets.”
The addition of private equity, hedge funds, newly created entities, and MSOs to the material change transaction law brings those entities within the OHCA notification requirement, materially broadening the scope of existing law. Unlike last year’s vetoed AB 3129, AB 1415 does not create additional burdens on transactions or new enforcement mechanisms.
Takeaways
Private equity groups, hedge funds, and MSOs will need to be vigilant in complying with OHCA notification regulations. Although the bill does not create a widely expanded enforcement mechanism or dramatic changes to the regulatory landscape, it signals increased scrutiny of private equity investments in California’s health care sector and a potential move toward stricter enforcement. Before entering into any health care transactions involving California operations, these organizations should evaluate their reporting obligations and timelines under the amended law as early as possible in the deal process.
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