backCalifornia Codifies Prohibitions Against Corporate Practice of Medicine by Hedge Funds and Private Equity
On October 6, 2025, California Governor Gavin Newsom signed into law SB 351, which codified California’s existing prohibitions on corporate practice of medicine (CPOM) and dentistry. The new law also prohibits certain noncompete clauses. Importantly, SB 351’s prohibitions only apply to private equity groups and hedge funds.
Corporate Practice of Medicine Provisions
California’s new law imposes limitations on what hedge funds and private equity groups can do as a part of their involvement in physician or dental practices conducting business in California, with the stated goal of “ensur[ing] that clinical decisionmaking and treatment decisions are exclusively in the hands of licensed health care providers.”
The law prohibits a private equity group or hedge fund involved as an investor or owner in a physician practice or dental practice in the state of California from:
- Interfering with the professional judgement of physicians and dentists in making healthcare decisions, including by determining the appropriateness of diagnostic tests, determining the need for referrals or consultations, or interfering with the overall care or the treatment options of a patient;
- Determining how many patients a physician or dentist must see or how many hours the physician or dentist must work in a given period of time;
- Owning or determining the content of patient medical records;
- Exercising power of hiring practices;
- Setting parameters over contracting with other physicians or dentists based on clinical competency or proficiency;
- Setting parameters over third-party payer contracting;
- Exercising power over coding and billing practices for patient services; and
- Approving the selection of medical equipment and supplies for the physician or dental practices.
The law also prohibits private equity groups, hedge funds, and entities controlled in whole or in part by a private equity group or hedge fund from entering into contracts that violate any of the above restrictions. The form of the practice does not affect the applicability of the restrictions.
The CPOM prohibitions of SB 351 largely mirror existing California Medical Board guidance. However, the Medical Board’s guidance is nonspecific and is not limited to private equity or hedge funds.
Noncompete Provisions
SB 351 also prohibits contracts between a private equity group or hedge fund, or an entity controlled by a private equity group or hedge fund, from imposing a noncompete clause, unless the noncompete agreement is otherwise enforceable as connected to the sale of a business as permitted under California law. Existing California law already largely prohibited noncompete agreements in the employment context, including for physicians.
The law also prohibits non-disparagement clauses. Non-disparagement includes disparaging, opining, or commenting with respect to quality or utilization of care, ethical concerns, or revenue strategies of the private equity group, hedge fund, or the practice. However, the law does not prohibit confidentiality clauses that protect confidential business information, so long as the clause doesn’t prevent disclosures about quality or ethical concerns.
SB 351 takes effect January 1, 2026 and grants enforcement authority to the California Attorney General. The California Medical Board guidance remains in effect until the statute takes effect. SB 351 is available here.
Reporter: Alana Broe, Atlanta, +1 404 572 2720 abroe@kslaw.com
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