California SB 351 and AB 1415: what MSOs must change in 2026
Two laws took effect January 1, 2026. SB 351 draws a hard line around what an MSO may control, and AB 1415 gives OHCA 90 days notice and a look at the money. The management fee is now a document regulators read.
California spent decades with a corporate practice of medicine doctrine that everyone structured around and nobody enforced. That era ended January 1, 2026, when SB 351 and AB 1415 both took effect. One codifies the control line MSOs cannot cross. The other makes MSOs report themselves to a state agency with authority to look at the financials. Neither grandfathers the deals already done.
SB 351: the control list
SB 351 writes the friendly-PC handshake into statute. An MSO, and any private equity group or hedge fund behind one, may not control or interfere with:
Clinical decisions, including diagnoses, referrals, and treatment. Patient volume, scheduling, and hours. Hiring, firing, or supervising clinical staff based on competence. Ownership or control of medical records. Billing, coding, reimbursement strategy, and payer contracting. Selection of medical equipment, supplies, and pharmaceuticals.
Read that list against a standard management services agreement and the problem is obvious: billing, coding, and payer contracting are the spine of most MSO service lists. Direct or indirect influence both count, so drafting around it with committees and recommendations is the kind of cleverness the statute was written to catch.
SB 351 also voids two contract staples. Non-competes restricting a physician or dentist after leaving a practice are unenforceable, and so are gag clauses stopping providers from speaking about quality of care, ethics, or financial practices. Pre-2026 agreements are not retroactively invalidated, but non-compliant provisions stopped being enforceable on January 1. The Attorney General enforces, with injunctive relief and other equitable remedies on the menu.
AB 1415: OHCA can now see you
AB 1415 pulls MSOs, private equity groups, and hedge funds inside the Office of Health Care Affordability's reporting perimeter. A sale or transfer of a material amount of assets, or any change of control, governance, or operational responsibility, requires written notice to OHCA at least 90 days before closing. OHCA can wave it through, open a cost and market impact review, or refer the matter to the Attorney General.
The quiet part: a regulator reviewing a transaction reads the management services agreement, and the fee is the first number on the page. OHCA authority to demand financial disclosures means the MSO fee, long a private arrangement between affiliates, is now a document with an audience.
What this means for the fee
The fee question and the control question are the same question. A percentage-of-revenue fee that scales with collections looks like an MSO holding an economic interest in clinical volume, which is precisely the interest SB 351 says it may not act on. A cost-plus fee reads the opposite way: the MSO sells defined services at their market cost plus a market markup, median 22.7% on cost, and profits from operating well rather than from clinical throughput.
California nominally permits percentage compensation under B&P 650(b) when it is commensurate with the value of the services. Before 2026, nobody checked. Now the checker has subpoena-shaped authority, "commensurate" needs a cost base and a markup behind it, and the structure comparison across states tilts further toward cost-plus.
What to do this quarter
Three passes through the MSA. First, screen every service against the SB 351 control list, and expect payer contracting, coding policy, and clinical staffing decisions to move back to the PC. Second, reprice: a smaller service list means a smaller cost base, and the fee should shrink with the scope. Third, strip the dead provisions, since a void non-compete sitting in a live contract is an invitation to litigate. Then paper the fee support before anyone asks, because 90-day notice windows are a bad time to start building an FMV file.
California is the biggest MSO market in the country, but it is not an outlier anymore. Oregon went further, and the map is filling in.
Common questions
When did SB 351 take effect? January 1, 2026, alongside AB 1415. Pre-existing agreements were not voided wholesale, but non-compliant provisions became unenforceable that day.
Do existing MSO arrangements have to comply? Yes. Both laws reach arrangements already in place as well as new deals. There is no California equivalent of Oregon's 2029 runway for legacy structures.
What does AB 1415 require MSOs to report? Written notice to OHCA at least 90 days before a material asset transfer or change of control, governance, or operational responsibility. OHCA can review the transaction's cost and market impact or refer it to the Attorney General.
Can an MSO still handle billing in California? The MSO can perform billing operations as a service. What SB 351 targets is control over billing and coding decisions and payer contracting. Where the line falls for a given MSA is a question for healthcare counsel.
Sources and method
Based on California SB 351 and AB 1415 as effective January 1, 2026, and B&P Code 650(b), as summarized in current health-law analyses. Benchmark figures are free-tier medians from the MSOs module: cost benchmarks from public CMS data covering roughly 1.1 million clinicians, markups implied by 73 outsourced-services comparables in the Scope Research Healthcare M&A Valuation Database.
This article is general regulatory and market information, not legal advice, and not a fair market value determination. Statutory interpretation in this area is unsettled and moving; consult healthcare counsel for any specific arrangement.