Growing concerns about clinical autonomy, competition, and patient access spurred states to increasingly enact legislation targeted at private equity investment in health care last year.
The new year will likely bring more deals subject to state review, tighter regulatory guardrails, and increased scrutiny of highly leveraged transactions and serial acquisitions consolidating multiple medical practices.
Ultimately, transactions that credibly safeguard clinical independence, maintain sustainable financing, and deliver demonstrable gains in access and outcomes will be best positioned for state approval and durable performance.
State Guardrails
Historically, states developed corporate practice of medicine, or CPOM, doctrines to bar corporations from practicing medicine, employing physicians for clinical care, sharing in practice profits (fee splitting), or otherwise influencing clinical judgment.
In states with these restrictions, private equity firms alternatively invest in a management services organization, or MSO, that runs the non-clinical operations of the target medical practices. Meanwhile, these physician-owned medical practices employ providers and retain control over medical decisions. This arrangement is commonly referred to as a PC–MSO model.
Since the 2000s, consolidation and private equity interest in health care has expanded MSO use, prompting states to issue tougher guidance on control, fee splitting, and investor influence.
Updates in 2025 have tightened definitions of investor “control”; raised penalties for violations; and ultimately made deals more complex, expensive, and state-specific.
Legislation and Enforcement
California has led the charge with two pivotal legislative measures going into effect Jan. 1, 2026.
AB 1415 expands notice obligations to the state for certain health-care transactions involving MSOs and private equity funds and broadens the scope of transactions that require filing to include certain acquisitions and transfers of control or material assets. California SB 351 tightens CPOM restrictions, explicitly prohibiting non-physician investors from influencing clinical decision-making.
Other states have followed suit:
Pennsylvania’s proposed Healthcare System Protection Act aims to extend oversight downstream, identifying sale leasebacks as a potential risk and empowering the attorney general to block acquisitions that could disrupt continuity of care.Oregon has enacted limits on MSO control over certain medical practice operations—including scheduling, compensation, coding, billing, and payor terms—to ensure licensed physicians remain in charge. Washington is considering similar measures.Connecticut introduced a proposal to bar private equity from acquiring or increasing control of hospitals or health systems, while expanding the definition of “provider” to include MSOs, ambulatory surgical centers, and behavioral health facilities.Illinois is contemplating expanded pre-merger notifications for transactions driven by private equity and hedge funds.Massachusetts, New Mexico, New York, Vermont, and Washington have attempted to enhance attorney general authority or introduce new review mechanisms for health-care deals.Broader, Earlier Oversight
The once-reliable PC–MSO model is no longer a de facto safe harbor. Regulators are prioritizing substance over form to ensure that licensed physicians, not investors, direct clinical decisions.
Oversight is also becoming broader and earlier: Serial add-ons, carveouts, and sale leasebacks increasingly face pre-close notice obligations to certain states, attorney general review, public comment, and ongoing monitoring—even when federal Hart-Scott-Rodino thresholds aren’t met.
This means deals may take longer, incur higher costs, and carry increased execution risk. More conditions related to access, quality, staffing, and continuity of care are also anticipated, including commitments to maintain service lines, capital expenditure plans, staffing levels, limits on dividend recapitalizations, and governance that safeguards physician autonomy.
Operations are shifting toward physician-led governance, minority or joint venture structures, narrower scope of services for MSOs, and robust documentation of compliance and quality outcomes, with many entities proactively incorporating state-imposed conditions into their operating models.
MSO platforms that demonstrate physician autonomy, segregate clinical and business functions, and integrate a regulatory narrative from the outset will be best positioned for approvals by states implementing more stringent oversight of health-care transactions.
The Bottom Line
States aren’t imposing a blanket ban on private equity investments in health care. However, recent legislative action demonstrates that states are looking for deals that protect access, quality, and physician autonomy.
In the face of growing enforcement, investors should structure deals and operations for CPOM compliance, right-size leverage, and demonstrate how deals can enhance patient care.
This includes building physician-led governance that cleanly separates clinical judgment from business operations; narrowing MSO scopes to non-clinical functions; adopting disciplined capital structures; and committing to transparent, measurable improvements in access and quality—such as service-line continuity, reduced wait times, outcomes reporting, and staffing stability.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Erin S. Whaley is a partner at Troutman Pepper Locke and represents health-care providers.
Emma E. Trivax is an associate at Troutman Pepper Locke and represents health-care providers.
Write for Us: Author Guidelines