Since Governor Newsom signed AB 1415 into law last October, stakeholders have been awaiting the release of draft regulations from California’s Office of Health Care Affordability (“OHCA”) to clarify the statute’s notice and clearance requirements with respect to private equity (“PE”) firms and management services organizations (“MSOs”) involved in certain healthcare transactions.[1] On May 15, 2026, OHCA published its anticipated proposed regulations, which, if finalized as drafted, would significantly expand OHCA’s material change transaction reporting regime. This article examines the requirements of the proposed regulations, where they expand beyond the statute, and what healthcare stakeholders should be considering as the rulemaking process moves toward finalization.
Background: What AB 1415 Required
AB 1415 was signed into law by Governor Newsom on October 11, 2025 and became effective January 1, 2026. Before AB 1415, OHCA’s pre-transaction notice framework applied mainly to health care providers and payor entities. AB 1415 expanded that framework to cover a new category of parties, collectively termed “noticing entities”. These include private equity groups and hedge funds, MSOs, newly created business entities formed for the purpose of entering into transactions with a healthcare entity, and entities that own, operate, or control a health care provider.
The statute broadly defines covered “transactions” to include any agreement or transaction that sells, transfers, leases, exchanges, options, encumbers, conveys, or otherwise disposes of a material amount of a health care entity’s or MSO’s assets, or that transfers control, responsibility, or governance of a material amount of its assets or operations. Health care entities (defined to include payors, providers, and fully integrated delivery systems) must provide OHCA with written notice at least 90 days before closing any such transaction. Noticing entities must separately file notice of a covered transaction entered into with a health care entity, an MSO, or an entity that owns or controls either. MSOs bear an additional and broader obligation. Other noticing entities must file only when entering into a covered transaction with a health care entity, MSO, or an entity that owns or controls either, but an MSO must file notice of any covered transaction regardless of the counterparty’s identity.
While the statute specifies the 90-day advance notice requirement for healthcare entities, it delegated the timing framework for noticing entities and MSOs filings to OHCA to establish by regulation. As discussed in detail below, OHCA’s proposed regulations now provide that framework, extending the 90-day advance notice requirement to noticing entities.
The statute also directed OHCA to adopt regulations to eliminate duplicative reporting when a transaction triggers notice obligations under more than one provision, and to establish requirements for MSOs to submit data and other information as necessary to support OHCA’s functions. However, as discussed below, neither of these directives were addressed in the proposed emergency regulations, and both remain unimplemented.
Who Needs to File? New Triggers and Thresholds
1. Private Equity Groups and Hedge Funds
AB 1415 left several critical details to the filing process unresolved. The law did not specify what percentage of ownership would trigger a reporting obligation for private equity groups or hedge funds, nor did it define what level of involvement triggers classification as a “private equity group” or “hedge fund” under the statute. It also did not identify which specific contractual or governance rights, if granted to a PE or hedge fund investor, would give rise to a reporting obligation. The proposed regulations fill those gaps with some specificity.
Under the proposed regulations, a transaction involving a private equity group or hedge fund triggers a notice obligation if it results in the fund holding 5% or more of the assets, equity, debt, or liabilities of a qualifying health care entity or MSO. This includes situations where multiple private equity firms or hedge funds invest together and collectively meet or exceed that 5% threshold.
Separately, a notice is required if the transaction grants the private equity group or hedge fund any of the following rights, regardless of ownership stake:
- The right to appoint or replace leadership or governing body members;
- The right to veto decisions of the health care entity or MSO;
- The right to alter operations by expanding or reducing health care services or changing arrangements with MSOs or payors;
- The right to purchase the real property of a health care entity where services are provided and then lease the property back;
- The right to cause, require, approve, or veto the incurrence of indebtedness;
- The right to manage or operate a health care entity or MSO through management agreements, consulting agreements, administrative services agreements, or affiliated MSOs;
- The right to charge fees to the health care entity or MSO; or
- The right to spend the capital and net income of a health care entity or MSO, including by approving, directing, restricting, or controlling budgets, capital expenditures, distributions, or the use of net income or tax reserves.
Two aspects of these triggers are particularly noteworthy. The 5% ownership threshold is lower than what had been proposed in similar proposals in recent years. AB 3129, which Governor Newsom vetoed, would have set the threshold at 15%. The enumerated governance rights trigger is also significant because it applies independently of any minimum ownership stake. A governance arrangement that grants veto rights or board appointment authority, for example, may make a transaction reportable even if the investor holds a minimal equity position.
2. MSOs
AB 1415 defines an MSO as an entity that provides management and administrative support services for a health care provider in support of the delivery of health care services, excluding the direct provision of health care services. Notably, the proposed regulations narrow this definition. To qualify as an MSO under the proposed regulations, an entity must also meet at least one of four additional criteria:
- it is owned by a hospital and has two or more physician organizations as clients or affiliates;
- it employs the physician-owner of one or more physician organizations, or otherwise has an agreement with such physician-owner, that defines the services to be provided and the compensation for those services;
- it shares directors, officers, investors, or other natural persons with the ability to exercise control over a health care entity; or
- it is affiliated with at least two of the following: a health plan, two or more physician organizations, or a hospital.
The transaction triggers are broad for entities that qualify as an MSO. A transaction involving an MSO requires a notice filing if any of the following apply: the transaction results in the MSO providing management and administrative support services for a health care entity with at least $25 million in California revenue or assets; the transaction results in the MSO providing such services for two or more providers that collectively generate $10 million or more annually from California patients; or the transaction involves a transfer of control, responsibility, or governance of the MSO (in whole or in part), or a change in 25% or more of the MSO’s ownership.
Additionally, the proposed regulations appear to include MSOs within the scope of the existing rule that looks at related transactions over the prior ten years. Under the current regulations, a series of related transactions over the prior decade are treated as a single transaction for purposes of determining whether reporting thresholds are met. This rule currently applies only to health care entities and their affiliates. OHCA’s proposed regulations appear to extend this concept to MSOs and their affiliated entities, though the draft language does not align cleanly with the new MSO-specific triggers.[2] If this reflects OHCA’s intent, it could be particularly significant for PE platforms that grow through multiple MSO acquisitions over time.
3. Real Estate Transactions
The proposed regulations also add a new, stand-alone reporting trigger for real estate sale-leaseback transactions. Specifically, a transaction triggers a notice filing obligation if it involves the sale or transfer of real estate where a health care entity provides services, the buyer of the real estate is a party other than the entity acquiring the health care entity itself (or the acquiring entity’s direct parent company), and the health care entity will be required to lease or pay rent for that real estate after the deal closes.
This proposed trigger is notable because AB 1415 did not expressly address real estate transactions. Similar to the pushback OHCA received on its original 2023 draft regulations which attempted to classify MSOs as health care entities, [3] this proposed provision may face further scrutiny and revision as the rulemaking process continues.
What Must Be Disclosed? New Filing Requirements
For parties that do trigger notice obligations, the proposed regulations specify what must be included in the filing, depending on the type of party involved. Key requirements include:
- Portfolio disclosure. Private equity groups and hedge funds must provide documentation listing the names of all health care entities or MSOs held in the portfolios of their participating asset managers.
- Debt disclosures. Private equity groups and hedge funds must provide documentation showing the ratio of debt to enterprise value or ratio of debt to equity, the source of any debt, and the post-recapitalization debt ratio for any acquired health care entity or MSO.
- Full ownership transparency. Filers must describe how ownership, governance, and operational structure will change after the transaction. This includes identifying all entities or persons with 5% or more ownership of each entity involved, covering the acquiring or merging entity and all intermediate entities between it and the ultimate parent company, any entities controlled by the acquiring entity at the time of the transaction, and all entities or persons with 5% or more ownership of any acquired or merging entity and its controlled entities that will exist post-transaction.
- Real estate detail. Filers must describe post-transaction changes to real estate where health care services are provided, including sales, transfers to affiliates, encumbrances, or updates to landlord-tenant agreements. Copies of any lease-back agreements must also be submitted.
- Pending and planned transactions. Filers must describe the nature, scope, and dates of any material change transactions, whether pending or planned within the next 12 months, between the filer and any other entity, including parent companies, subsidiaries, and any entity or person with 5% or more ownership.
- Organizational charts. Filers must provide a current organizational chart for any party to or subject of the transaction, tracing ownership up through the ultimate parent entity and down through any subsidiaries. They must also provide a chart showing all entities or persons with 5% or more ownership, as well as proposed organizational charts showing the structure after the transaction.
Changes to the Cost and Market Impact Review (CMIR) Process
The proposed regulations also make several notable changes to the cost and market impact review (“CMIR”) process, which is the deeper review that OHCA can conduct to assess a transaction’s effects on healthcare costs and market competition.
- REIT factor. OHCA proposes adding a new factor to its decision on whether to conduct a CMIR: whether the transaction involves a real estate investment trust (“REIT”) whose terms could weaken the financial position of the health care entity or place access to care at risk.
- Remand option. If parties challenge a decision to conduct a CMIR, the Director of OHCA would now have the express authority to remand the determination back to OHCA for further review based on new information. After a remand, OHCA would have up to 30 calendar days to complete the additional review.
- Expanded ground for expedited review. A filer could request an expedited review on the basis that an urgent situation exists that was not of the filer’s own making, such as a public health emergency, natural disaster, or legal mandate, and that the public interest would be best served by an expedited review.
What the Proposed Regulations Do Not Yet Address
Two requirements from AB 1415 remain unaddressed in the proposed regulations, and stakeholders should be aware of both.
- Anti-duplication regulations. Section 127507(c)(2)(C) of the Health and Safety Code requires OHCA to adopt regulations that eliminate duplicative reporting when a party must file notice under more than one provision.[4] The proposed regulations include some general cross-referencing allowances but do not establish a clear mechanism to prevent duplicate filings. As a result, it remains unclear how parties should handle transactions that trigger notice obligations under multiple provisions. For example, a private equity group’s acquisition of a health care entity could potentially require filings under both the health care entity framework and the private equity noticing entity framework, with no clear guidance on how to reconcile or consolidate the overlapping obligations.
- MSO data reporting. Section 127501.5 of the Health and Safety Code directs OHCA to establish requirements for MSOs to submit data necessary to carry out the office’s functions.[5] The proposed regulations address only the pre-transaction notice component of the law and do not implement this specific directive.
Both of these open items are areas where the rulemaking process, including the comment period and OHCA Board discussion, may lead to further development.
What to Do Now
OHCA is accepting comments on the proposed regulations through an informal comment period that closes on Thursday, June 11, 2026. The agency also plans to discuss the draft regulations at its upcoming Board meeting on June 24, 2026. The final proposed text of the regulations is expected to be published and submitted to the Office of Administrative Law in July, with the final regulations likely taking effect in August.
The comment period is a meaningful opportunity to weigh in on these proposals. Parties who believe the proposed regulations are overbroad, ambiguous, or inconsistent with the statute may wish to submit written comments before June 11. In the meantime, AB 1415 is already in effect, and parties closing transactions on or after January 1, 2026, should evaluate whether the new noticing entity obligations apply, even before the proposed regulations are finalized.
All stakeholders in the healthcare industry – not just hedge funds, private equity, their portfolio companies, and MSOs – should be proactive in reviewing the new requirements as they relate to upcoming transactions involving California healthcare interests, whether directly or indirectly. The proposed regulations reinforce that point. Hospitals, physician groups, MSO counterparties, and real estate participants in healthcare transactions all have potential obligations to plan for under the proposed framework.
FOOTNOTES
[1] See Sheppard’s previous article on AB 1415: Governor Newsom Signs AB 1415 Expanding OHCA Oversight | Sheppard.
[2] See Proposed 22 C.C.R. § 97435(c)(7)-(8).
[3] See Sheppard’s prior article on OHCA’s draft regulations implementing SB 184 which discusses the MSO inclusion issues: Update from OHCA: Proposed Regulations re Material Change Transactions and Pre-Transaction Review | Sheppard.
[4] See Section 127507(c)(2)(C) of the Health and Safety Code.
[5] See Section 127501.5 of the Health and Safety Code.