The Source Blog

The California State Legislature kicked off the first year of its 2025-2026 biennial Legislative Session on December 2, 2024. This year, the legislature got off to a sprinting start as it raced to meet the February 21, 2025 deadline to introduce new bills. Compared to last year, this year’s legislature proposed a wider swath of bills aimed at healthcare-related concerns, including enhanced merger review, the use of artificial intelligence (AI) in healthcare, and expanding access to both provider and coverage options for consumers.

In this month's California Legislative Beat, we highlight a few bills that, if passed, could significantly impact healthcare competition and pricing in the state, specifically concerning healthcare transactions, prescription medication, data privacy, and AI.

Healthcare Transactions

As the impact of private healthcare investments from private equity groups (PEGs) and hedge funds increases throughout the country and the state, merger review has become a hot topic within California. Just last year, the California legislature passed Assembly Bill (AB) 3129 – a bill that would have required the state Attorney General's (AG) approval for healthcare acquisitions and changes of control involving a PEG or hedge fund and a healthcare facility or provider group. However, that bill was blocked before it could be enacted when Governor Gavin Newsom vetoed the bill for attempting to shift the review of these transactions away from the Office of Healthcare Affordability (OHCA) to the AG.

When we left off last year, there were questions about whether future bills would attempt to tackle the growing impacts of private investments after the departure of the original bill’s champion, Assemblyman Jim Wood. The answer to those concerns looks like a resounding "yes!" This year, the California legislature has proposed three new bills aimed at providing enhanced transaction review, antitrust protections, and the reinforcement of corporate practice of medicine (CPOM) restrictions. We detail them below.

AB-1415: California Health Care Quality and Affordability Act

Assemblywoman Mia Bonta introduced the California Health Care Quality and Affordability Act on the last day of the legislative session's introduction deadline. The bill aims to enhance transaction review by the Office of Health Care Affordability (OHCA) for private investments into healthcare by PEGs and hedge funds. Specifically, AB-1415 acts on its intent by expanding the definition of “health care entity” to now encompass management service organizations (MSOs), imposing reporting obligations on PEGs and hedge funds when they enter certain health care transactions, and changing the definition of "provider" to a more open-ended, holistic, and broad listing from its prior closed, exhaustive list. If enacted, the bill will require PEGs, hedge funds, and newly created business entities to provide written notice to OHCA about significant agreements or transactions involving healthcare entities at least 90 days before entering into an agreement.

This bill is a direct follow-up to last year’s AB-3129. From the outset, legislators have clearly taken stock of Governor Newsom’s reasoning for his 2024 veto when crafting AB-1415 to ensure that it works within his suggested parameters. Unlike AB-3129, AB-1415 preserves transaction review duties with OHCA instead of the California AG. While the bill still doesn't provide OHCA with transaction approval authority, it would allow OHCA to conduct exhaustive cost and impact review processes, which can significantly delay the closing time of a transaction. AB-1415 also maintains the definition of "provider organization" as medical groups consisting of at least 25 physicians and is aimed at a broader group of providers than AB-3129 had proposed. However, the bill maintains existing exemptions for certain types of transactions and will not alter the corporate practice of medicine doctrine.

SB-25: Antitrust: Premerger Notification

While the Uniform Law Commission (ULC) does not enact laws, it proposes laws that it hopes to have adopted by all fifty states. Regarding the ULC's recently proposed Uniform Antitrust Pre-Merger Notification Act, California and New York could soon join Pennsylvania in codifying it.

SB-25 is modeled after the ULC’s Uniform Antitrust Pre-Merger Notification Act and will require certain filers of premerger notifications pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) to now also provide a filing of those notifications to the California AG. The HSR currently requires certain filers to provide premerger notifications to the Federal Trade Commission (FTC) or the Department of Justice (DOJ), and this bill would just add an additional submission with the intent of looping in state regulators on important merger and acquisition information. If companies attempt to circumvent this requirement, the AG may impose civil penalties of up to $10,000 per day for non-compliance with the filing requirements. If passed, this bill would only apply to HSR filers whose principal place of business is in California or companies with annual net sales representing at least 20% of the HSR filing threshold in California.

SB-351: Health Facilities

Introduced by Senator Christopher Cabaldon, Senate Bill (SB) 351 aims explicitly to codify and reinforce California's corporate practice of medicine (CPOM) and corporate practice of dentistry (CPOD) restrictions. California joins a number of other states in attempting to curb the influence of PEGs and hedge funds in healthcare. Similar bills are currently being discussed in Oregon (SB-951) and enacted in Massachusetts (H-5159).

If passed, the bill will prohibit PEGs and hedge funds from interfering with clinical decision-making by preventing these entities’ interference with decisions regarding diagnostic test use, patient care options, referrals, patient loads, and work hours. PEGs and hedge funds would also be prevented from controlling medical practices by barring them from managing medical records, making hiring/firing decisions based on clinical competence, and making billing decisions alongside several other actions. To ensure enforcement, SB-351 provides the California AG with the authority to seek injunctive relief and recover legal costs for enforcing these provisions. The bill will apply to medical and dental practices regardless of corporate structure.

Prescription Drugs

This year, legislators have focused on improving medication delivery and access for patients by proposing new bills that will tighten restrictions on the price and delivery of medications, and the decision-making authority of health insurers, health plans, and pharmacy benefit managers (PBMs). Below, we detail some of the top bills aimed at improving transparency, accessibility, and affordability of prescription drugs for Californians.

AB-577: Health Care Coverage: Anti-Steering

Introduced by Assemblywoman Lori Wilson, this new bill could significantly impact how prescription medications are dispensed in California, with a preference for patient choice. AB-577 aims to improve healthcare coverage by prohibiting steering practices by healthcare service plans, health insurers, and pharmacy benefit managers. The bill will prevent these entities from using specific pharmacies or distribution methods that may not be in the patient’s best medical interests by preferencing provider-suggested drug administration methods and preventing PBMs, health insurers, and health plans from retaliating against providers for exercising their clinical decision-making rights. For instance, health plans and insurers will no longer be able to force patients to self-administer injectable or infused medications when a provider determines it would be best administered in a clinic, infusion center, or provider’s office.

The bill faces both vocal support and critiques. Proponents believe it will empower patients and providers to make the most appropriate pharmaceutical decisions for their individualized needs. Meanwhile, critics argue that this bill could significantly impact the healthcare system's cost management practices. In other words, critics believe this bill could increase costs for insurers, which would then be passed on to consumers. However, the bill may also spark increased competition between pharmacies, which could result in improved consumer prices.

SB-40: Health Care Coverage: Insulin

California is facing an insulin issue. It has been estimated that approximately 4 million adults in the state have diabetes and have been facing financial barriers in accessing life-saving insulin as prices have tripled, with almost one-quarter of insulin users reporting underusage due to the high costs of the medication. Introduced by Senators Scott Winer, Susan Rubio, Joaquin Arambula, and Jasmeet Bains, SB-40 directly addresses insulin affordability and access in California by prohibiting providers from imposing copayments that exceed $35 for a 30-day supply of insulin with bans on additional deductibles, coinsurance, or cost-sharing. The bill will also eliminate step therapy protocols, which require patients to try less expensive treatments before approving insulin as a prerequisite for insulin coverage.

AB-910: Pharmacy Benefit Management

Pharmacy benefit managers (PBMs) are third-party administrators responsible for managing prescription drug benefits for health insurance plans. Introduced by Assemblywoman Mia Bonta, AB-910 makes some technical amendments to Section 1385.004 of the California Health and Safety Code, which governs the relationship between PBMs and health care service plans. While the proposed changes are non-substantive and do not change existing laws, this bill change could represent the legislature's commitment to ensuring transparency, fairness, and appropriate conduct when regulating PBMs and prescription drug coverage in the state.

SB-41: Pharmacy Benefits

The state continues its focus on regulating PBMs by introducing a new set of comprehensive regulations for PBMs in the state, including now requiring PBMs to obtain a license from the California Department of Insurance. This new bill, SB-41, aims to improve transparency in pharmacy benefit management and protect consumers by increasing state oversight of PBM practices. SB-41 includes several new provisions, such as requiring PBMs to use passthrough pricing models, prohibiting discriminatory practices against non-affiliated pharmacies, and requiring detailed reporting regarding drug pricing, rebates, and pharmacy payments to the Department of Insurance. If PBMs are found to be in violation of the bill’s proposed provisions, the AG has the authority to investigate and prosecute any unfair business practices, including giving out civil penalties of up to $7,500 per violation.

Healthcare Data and AI

As states across the country grapple with evolving reproductive health laws and the rapid emergence of AI and privacy concerns, California has taken steps this term to safeguard the information that is both given to and taken from patients. This term, the state has proposed several new bills aimed at regulating data privacy and the implementation of AI within healthcare settings in the state. Below, we outline a few bills that have proposed potential solutions to some of the data privacy and AI issues plaguing the state and country's healthcare system.

AB-45: Privacy: Health Care Data

This bill will make it illegal to use geofencing - technology that creates virtual geographic boundaries - around healthcare facilities that provide in-person services to ensure individual privacy is maintained when seeking healthcare services. AB-45 is part of California’s attempt to safeguard reproductive healthcare privacy. Specifically, this bill aims to protect individuals from facing potential legal consequences initiated by other states with more restrictive reproductive health and abortion laws.

AB-302: Confidentiality of Medical Information Act

AB-302 proposes amendments to the Confidentiality of Medical Information Act to narrow the circumstances under which medical information can be disclosed. It requires that mandated disclosures be only effective pursuant to a court order or warrant from a California state court or order from a state court whose laws do not conflict with California. Introduced by Assemblywoman Rebecca Bauer-Kahan, this law focuses on reproductive privacy and aims to prevent the unauthorized sharing of sensitive medical data.

AB-489: Health Care Professions: Deceptive Terms or Letters: Artificial Intelligence

As the world continues to grapple with how to incorporate AI into the day-to-day work of different industries while staying vigilant against misinformation, California lawmakers are looking to regulate the use of AI in the state’s healthcare industry. Specifically, AB-489 seeks to address the use of deceptive terms, letters, or phrases by AI in the healthcare sector by prohibiting AI programs from using any terms to suggest that the care or advice from its outputs comes from a licensed healthcare professional when it does not. The legislation aims to protect patients by ensuring they receive accurate information free from misrepresentations.

The Source will continue to track the California legislature's response and actions to the 130+ proposed healthcare bills this term. For updates as these bills progress through the legislative process, continue following the California Legislative Beat.

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