On March 30, 2026, California Attorney General Rob Bonta filed an amicus curiae brief in Art Center Holdings, Inc., et al. v. WCE CA Art, LLC, et al.,[1] a case involving a contractual dispute between a professional medical corporation (“PC”) and its affiliated management services organization (“MSO”) that is currently pending before California’s Second Appellate District, Division Three. The brief sets out the Attorney General’s strict interpretation of California’s corporate practice of medicine (“CPOM”) prohibition, consistent with the trial court’s holding, and argues that contractual arrangements giving a lay entity the right to replace a medical practice’s physician-owner violate CPOM by giving the MSO direct control over physician employment and indirect control over the broader operations of the PC.
The Attorney General’s brief outlines its opinion that certain MSO-PC structures can erode the legal separation CPOM requires between the delivery of professional medical services and lay control, with potential consequences for cost and quality of care.[2] In many MSO-PC arrangements, one or more licensed physicians own the stock of the PC, and the PC and MSO operate under a long-term management services agreement pursuant to which the MSO provides administrative and operational support. Those arrangements may also include ancillary agreements addressing the PC’s equity ownership, governance, and succession. Together, those agreements are intended to preserve physician control over clinical matters while permitting the MSO to provide business and operational support (and often allowing the MSO to consolidate the financial performance of the PC for accounting purposes).
The Attorney General’s brief emphasizes facts in Art Center Holdings that, in its view, raise significant CPOM compliance concerns for MSO-PC relationships structured in a similar way. Specifically, the brief focuses on arrangements in which: (a) the physician-owner may not transfer the PC’s equity without MSO approval; (b) the MSO has the unilateral ability to trigger a transfer of the PC’s equity to another physician selected by the MSO, for example by exercising a “unilateral” termination right under an ancillary agreement; and/or (c) the physician-owner does not retain the practical ability to replace the MSO without losing ownership of the PC.[3] The brief characterizes these features as giving the MSO “near complete control” over the physician-owner and creating a “captive PC.”[4] It further asserts that even if the MSO never exercises its contractual ability to influence ownership succession of the PC, these types of provisions may impermissibly divide physicians’ loyalties between their patients and the MSO’s business interests, thereby undermining the professional relationship and violating CPOM.[5] At the same time, the Attorney General’s brief acknowledges that not every MSO-PC arrangement is impermissible and that the CPOM analysis turns on the totality of the circumstances.[6]
The filing also comes after enactment of S.B. 351, signed on October 6, 2025, which expands California’s statutory oversight of private equity and hedge fund involvement in physician and dental practices.[7] Specifically, S.B. 351 prohibits private equity groups and hedge funds from interfering with physicians’ and dentists’ professional judgment in making health care decisions, including decisions regarding diagnostic testing, referrals, treatment options, and provider workload.[8] It also prohibits those entities from exercising control over, or being delegated authority with respect to, specified practice functions, including ownership or control of patient records, provider hiring and firing decisions based on clinical competency, payor contracting parameters, coding and billing decisions, and approval of medical equipment and supplies.[9] The statute reaches contracts and other arrangements that would enable such interference or control, and it provides that offending provisions are “void, unenforceable, and against public policy.”[10] The enforcement consequences are significant: the Attorney General may seek injunctive relief and other equitable remedies and recover attorney’s fees and costs incurred in remedying violations.[11] Risks may include loss of enforceability of key contractual protections, court-ordered changes to governance or management arrangements, increased enforcement exposure, and pressure to revisit existing ownership, succession, and operational provisions in private equity- and hedge fund-backed MSO-PC structures.[12]
The Court of Appeal has not yet ruled in Art Center Holdings. Although the Attorney General’s brief is not binding law, it offers a meaningful indication of how the Attorney General may scrutinize specific MSO-PC provisions and the types of arrangements that may face heightened attention under California law and future CPOM enforcement actions. For MSO-PC stakeholders, particularly private equity- and hedge fund-backed MSO entities affected by S.B. 351, this is an appropriate time to review management services agreements and related ancillary documents with particular attention to ownership transfer restrictions, succession and continuity provisions, termination rights, and other terms that could be characterized as reserving control over the physician-owner or the PC’s clinical or employment positions. As the Attorney General’s brief emphasizes, challenged provisions may be alleged to violate CPOM, may be treated as void, unenforceable, and against public policy, and may expose parties to injunctive or other equitable remedies sought by the Attorney General, together with attorney’s fees and costs under S.B. 351 where applicable.[13] In addition, increased regulatory scrutiny may create pressure to revise existing governance and succession arrangements and, in some cases, to restructure aspects of the MSO-PC relationship to reduce enforcement and operational risk.
For now, stakeholders should continue to monitor developments in Art Center Holdings and related California enforcement activity closely. At the same time, parties with existing MSO-PC arrangements, particularly those involving private equity or hedge fund participation, may wish to begin evaluating whether their current documents and governance structures remain appropriately calibrated in light of the Attorney General’s position and S.B. 351’s expanded enforcement framework. These developments warrant close attention, and stakeholders should consider assessing risk, reviewing existing arrangements, and evaluating potential alternatives where appropriate to preserve operational objectives while reducing regulatory and enforcement exposure. If California continues to develop its CPOM framework along the lines contemplated by the Attorney General’s amicus brief, experience navigating MSO-PC structures in other jurisdictions that have adopted more restrictive approaches to lay entity involvement in PC equity transition and succession will be particularly informative in evaluating compliance strategies and structural alternatives.
FOOTNOTES
[1] Brief for the California Attorney General as Amicus Curiae, Art Center Holdings, Inc. v. WCE CA Art, LLC, No. B338625 (Cal. Ct. App. Mar. 30, 2026).
[2] AG Amicus Brief, supra, at 17-20.
[3] AG Amicus Brief, supra, at 21-22.
[4] AG Amicus Brief, supra, at 22, 27-28.
[5] AG Amicus Brief, supra, at 27-30.
[6] AG Amicus Brief, supra, at 25, fn. 9.
[7] See Cal. Health & Safety Code, Division 1.7, Section 1191, https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=HSC&division=1.7.&title=&part=&chapter=&article=.
[8] Id., at 1191(a)(1)
[9] Id., at 1191(a)(2).
[10] Id., at 1191(c)(1)-(2).
[11] Id., at 1191(e).
[12] See our previous blog posts on the passage of SB 351, as well as related legislative developments: California Enacts SB 351 New Law Aimed At Limiting | Sheppard; Governor Newsom Signs AB 1415 Expanding OHCA Oversight | Sheppard; Major Regulatory Updates from the West Coast: New California and Washington Approaches to Healthcare Private Equity and MSO Regulation | Healthcare Law Blog | Sheppard.
[13] AG Amicus Brief, supra, at 16-17.