Concerns about how healthcare is managed have increased recently. Many states are now passing laws to regulate private equity investment in healthcare. These changes are driven by fears that patient care might be compromised in pursuit of profit.
As we head into the new year, expect more scrutiny on healthcare deals. States will likely set stricter rules and require reviews of deals that involve multiple medical practices. Those that can show they protect clinical independence, offer fair financing, and improve patient access will have a better chance of getting approvals.
State Oversight
In the past, states aimed to keep corporations from directly influencing how medicine is practiced. They created rules—called corporate practice of medicine (CPOM)—to ensure that only licensed medical professionals could make clinical decisions. Private equity firms, in response, started investing in management services organizations (MSOs) that handle non-clinical aspects of healthcare. This allowed doctors to remain in control of patient care while still using investment dollars.
However, since the early 2000s, the trend of consolidation in healthcare has led states to tighten their rules. From 2025, states will have more detailed definitions of what constitutes “control” by investors and higher penalties for violations. This means that healthcare deals are becoming more complicated and costly.
Recent Legislation
California is at the forefront of adjusting its laws. Starting January 1, 2026, new measures will require more transparency for healthcare transactions. California Assembly Bill 1415 expands notice requirements for certain deals involving MSOs and private equity funds. Meanwhile, Senate Bill 351 strengthens restrictions on non-physician investors influencing medical decisions.
Other states are also making strides:
- Pennsylvania is pushing its Healthcare System Protection Act, which aims to empower the attorney general to block harmful acquisitions.
- Oregon limits MSO control over vital operations like scheduling and billing, ensuring that licensed physicians remain in charge.
- Connecticut is looking to restrict private equity from gaining control of hospitals.
- Illinois plans to enhance pre-merger notifications for healthcare-related deals.
All these legislative changes reflect a growing trend: states want to ensure that healthcare remains accessible and of high quality.
Impact of New Rules
The previously reliable PC–MSO model is losing its appeal. Regulators now prioritize real control over formalities to ensure that medical decisions stay with physicians.
Due to these new rules, healthcare deals may take longer to finalize and cost more. Increased scrutiny means that states are likely to impose conditions related to patient care, staffing, and overall service quality.
Healthcare operations are evolving. More emphasis is placed on physician-led governance and compliance mechanisms. MSO platforms that can show a clear separation between clinical practices and business functions will be better equipped to navigate the new landscape.
The Bigger Picture
States aren’t banning private equity investments in healthcare, but they are making sure those investments don’t jeopardize patient care. Investors must adapt by structuring their deals to comply with new regulations. This means:
- Establishing governance led by physicians.
- Clearly defining MSO roles to focus on non-clinical tasks.
- Committing to improvements in patient access and care quality.
A focus on transparent operations, including service continuity and staffing stability, will be critical for future success in this space.
For more details, check out the official texts of California’s AB 1415 and SB 351.
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