California Legislature Sends OCHA Authority Legislation to the Governor
Update - On October 11, the Governor signed AB 1415, and it was subsequently chaptered by the Secretary of State, making it California law.
In May, The Source shared information about Assembly Bill 1415 and Senate Bill 351, bills introduced in February 2025 as part of the state's ongoing efforts to regulate private equity healthcare transactions and costs. After four amendments, AB 1415 has been enrolled and sent to Governor Newsom's desk. The early draft of the bill sought to cast a wide net by thoroughly expanding definitions of terms such as "healthcare entity" and "provider" to include them under the class of entities to be subject to the new regulation. In contrast, the version that was passed, which has been described as "watered down", pivots to narrowly defined terms in addition to the inclusion of notice and data responsibilities targeted at the actors of influential transactions. The new version, currently awaiting Governor Newsom's signature, preserves the Office of Health Care Affordability's (OHCA) oversight powers but reduces the scope of transactions to which it will be applicable.
Health Care Entity & MSO Oversight
The most noticeable shift from the initial draft to the current version is in how the term "health care entity" is defined. In the February version, the bill sought to expand the term to include management services organizations (MSOs). MSOs are agencies that provide administrative tasks and support to "risk bearing organizations," such as health plans and hospitals, which lack the technological capabilities to do so in-house. If enacted, it would have made MSOs subject to all the requirements attached to "health care entities." However, the final draft of the bill no longer includes MSOs under the definition of a Health Care Entity. Instead, the final bill mandates OHCA to receive information regarding MSO transactions and deals.
To capture the most significant number of organizations under the umbrella of oversight, the definition of an MSO will include entities that conduct the following tasks: utilization management, billing and collections, customer service, network development, and provider rate negotiations. Moreover, the September version of the bill defines MSOs as having two main functions: provider rate negotiations and revenue cycle management. Using these two functions will also help control healthcare costs by providing oversight where MSOs typically have the most influence on costs – rate setting. As a result, this directly places MSOs under OHCA's oversight.
Similarly, the current version mandates direct notices to OHCA for MSO transactions when the deal seeks to transfer control, responsibility, or governing of a "material amount of assets or operations," making parties subject to their review, regardless of how they are labeled. In addition, MSOs will now be required to provide notice to OHCA for deals that seek to modify those responsible for price formation, even if they are classified as "providers" on paper.
“Provider” & “Health System”
In February, the text of the bill opened with a section of relating to “A Private or Public Health Care Provider” that listed an exhaustive set of terms that would be included in the definition such as: “health systems”; “any entity that owns, operates, or controls the listed providers, regardless of whether those owners were currently operating or licensed.” The purpose behind such phrasing was to ensure the inclusion of a wide variety of entities not currently defined as a "provider," so that they would be subject to oversight. The current text has deleted that section, as well as deleted "health systems" and further terms that would have subjected upstream owners and providers to the oversight focus. The expansion of the provider has been minimally extended to include only those that communicate systems close to the bedside and operating room.
Likewise, "health system" has been significantly altered from the February version. The original text of the bill included "hospital system"; "a combination of one or more hospitals", "physician organizations", and "health care service plans or health insurers." This definition would have expanded transaction regulation to a substantial number of entities, but it was dropped from the enrolled version. The definition has, in fact, been entirely deleted from the bill's text, and with it goes the ability to apply complex corporate structures that classify themselves as providers. The outcome will be a reduction in the likelihood that parent companies or affiliations providing direct care will be subject to regulation in the event they are a part of a transaction. As such, no direct notice will be required so that OHCA will be able to review the transaction.
Notices
Much of the text from the February bill relating to notices remains the same. When specified conditions are satisfied, the statute mandates that a 90-day advanced notice be sent to OHCA, where such notices will be made publicly available. The importance of these notices is substantial; along with the expansion of transparency, they will allow OHCA the opportunity to analyze the potential impacts a transaction may have on the market prior to the close of a deal. Furthermore, section two of the bill further defines OHCA's role and functions in reviewing transactions. The aim of the oversight is to increase price transparency and enforce healthcare cost goals through data analysis. Additional authority, including the ability to request performance improvement plans and impose administrative penalties, is also included. The culmination of OHCA's authority, combined with the updated notice system, enables a framework that connects changes resulting from transactions to spending and market trends, paving the way for more robust transparency in healthcare costs.
Oversight Authority
Although OHCA's role in the bill is thoroughly discussed, it also further details the authority of other entities, including the Department of Managed Health Care, the Department of Insurance, and the Attorney General. Section four of the bill has been added to the enrolled bill to clarify the roles and responsibilities of such offices. The Department of Managed Health Care will continue to review service plan transactions relating to market consolidation under the Know-Keene Act. Additionally, they have the authority to transfer transaction reviews to OHCA in the event a market impact analysis is required. The Department of Insurance will continue to operate under the state insurance code and will provide approval of changes to insurance plans and fees. Finally, the Attorney General will maintain authority to review nonprofit healthcare transactions under the Corporation Code. As is the current system, the AG is not required to transfer transactions to OHCA for market impact review, but may do so if necessary.
The result will keep "providers", as narrowly defined under the statute, squarely within OHCA's purview. MSOs will now be directly responsible for their role in price formation through the submission of data regarding transactions and providing notice to the appropriate offices, despite the fact that they are no longer classified as healthcare entities. Likewise, other entities not classified as "provider" will also be subject to submitting notices, including private equity sponsors, parent companies, and owner-operators.
In Conclusion
Over the seven months and four amended versions of AB 1415, the bill has undergone significant alterations, shifting from a classification and label-based regulatory system to one that functions as an event-based oversight. Although the initial text hoped to cast a wide net over diverse corporate structures by including them under the "provider" and/or "health care entity" umbrella, the final version allows for oversight of the systems that drive price changes by mandating transparency. Material changes for transactions, including acquisitions, affiliations, and asset transfers, will be expected to submit 90-day notices to OHCA and be subject to public disclosures of those notices. The final bill also narrowly defines several terms that were initially drafted to be far more wide-reaching. Lastly, critical offices responsible for reviewing these healthcare transactions have been more clearly defined; however, no office holds the authority to deny a transaction in its entirety.
In 2024, the California Legislature passed AB 3129, which would have added restrictions on how private equity groups and hedge funds could participate in the ownership and management of California healthcare facilities. However, it was vetoed by the Governor on September 28, 2024. At the time, Governor Newsom released a statement explaining that he believed it was inappropriate to shift the review of PEG and hedge fund transactions in healthcare to the AG due to the presence of the Office of Healthcare Affordability. It is uncertain if this year’s AB 1415 differs enough from last year’s attempt to garner the Governor’s approval. Once AB 1415 leaves Governor Newsom's desk, we will provide an update on the outcome.