OHCA publishes draft regulations expanding oversight of PE and MSO transactions

Background

OHCA’s healthcare transaction review process took effect on April 1, 2024, and requires certain “health care entities” to provide notice to OHCA at least 90 days before closing material healthcare transactions that satisfy specified revenue, asset, or change-of-control thresholds. Certain transactions already subject to review by other state agencies, as well as transactions that do not satisfy the applicable thresholds, are exempt from the notice requirement. After reviewing a submitted notice, OHCA may elect to conduct a more extensive cost and market impact review (CMIR), which can delay closing by several additional months.

AB 1415, which took effect on January 1, 2026, significantly expanded OHCA’s transaction review authority by extending certain notice obligations beyond “health care entities” to include specified “noticing entities,” including private equity groups, hedge funds, and MSOs. Under AB 1415, these noticing entities now have independent obligations to report certain transactions to OHCA. The proposed regulations provide additional detail regarding the types of transactions subject to notice, which parties are required to file, and the information that must be submitted in connection with a reportable transaction.

Expanded definitions

The proposed regulations revise several key definitions relevant to OHCA notice obligations:

• “Health care entity.” Under the regulations, entities that “own, operate, or control a provider, regardless of whether the provider is currently operating, providing healthcare services, or has a pending or suspended license,” would now expressly be considered health care entities. These entities would qualify as both noticing entities and health care entities because they are already considered “noticing entities” under the statute as amended by AB 1415. 

• MSO. In addition to satisfying the statutory definition of “management services organization” enacted under AB 1415 (i.e., “an entity that provides management and administrative support services for a provider in support of the delivery of health care services”), an entity must satisfy at least one of the following criteria to qualify as an MSO: 
  • Be owned by a hospital and have two or more physician organizations as clients or affiliates;
  • Employ the physician-owner of one or more physician organizations, or otherwise have an agreement with such physician-owner defining the services to be provided and compensation for such services;
  • Share directors, officers, investors, or other natural persons with the ability to exercise control with respect to a health care entity; or
  • Be affiliated with at least two of the following:
    • A health plan;
    • Two or more physician organizations; or
    • A hospital.

• “Submitter.” Submitters (i.e., parties required to provide written notice of material change transactions to OHCA) would include health care entities, noticing entities, and parties referred to OHCA by another California state agency.

Materiality thresholds

The current materiality thresholds applicable to health care entities (i.e., generally, at least one health care entity that is party to the transaction must have $25 million in revenue or California assets) remain largely unchanged. However, the draft regulations would result in a health care entity with only $10 million in revenue or California assets being considered a submitter if it is party to a transaction with a noticing entity that meets certain requirements (discussed below).

Circumstances requiring filing for private equity groups and hedge funds

The circumstances under which a noticing entity must file written notice to OHCA vary depending on the type of noticing entity involved.

If the noticing entity is an MSO, it will need to provide OHCA with written notice of transactions that:

• Result in an MSO providing management and administrative support services for a health care entity with at least $25 million in revenue or California assets;
• Result in an MSO providing management and administrative support services for two or more providers that collectively generate $10 million annually from California patients; or
• Involve a transfer of control, responsibility, or governance, in whole or in part, of the MSO, or result in a change of 25% or more of the MSO’s ownership.

If the noticing entity is a private equity group or hedge fund, it will need to provide notice of transactions that do one of the following:

• Result in the private equity group or hedge fund holding 5% or more of the assets, equity, debt, or liabilities of an MSO or a health care entity that satisfies the $10 million revenue or asset threshold (including situations where multiple private equity groups, hedge funds, or groups of investors collectively hold 5% of a health care entity’s assets or equity); or

• Result in the acquisition of any assets, equity, debts, or liabilities of an MSO or a health care entity satisfying the $10 million revenue or asset threshold, including situations where the private equity group or hedge fund has the authority to do any of the following:

• Appoint or replace the leadership or governing body of a health care entity or MSO;

• Veto health care entity or MSO decisions;

• Alter operations by expanding or reducing healthcare services offered by the health care entity or changing arrangements between a health care entity and MSOs or payers;

• Purchase health care entity real property where services are provided and leased back to the health care entity;

• Cause, require, approve, or veto the incurrence of debt by a health care entity or MSO;

• Manage or operate a health care entity or MSO (such as through management agreements, consulting agreements, administrative services agreements, or affiliated management services agreements);

• Charge fees to a health care entity or MSO; or

• Spend the capital and net income of a health care entity or MSO, including approving, directing, restricting, or controlling budgets, capital expenditures, distributions, or the use of net income or tax reserves.

Healthcare real estate transactions

The proposed regulations would separately expand OHCA oversight over certain healthcare real estate transactions. Health care entities satisfying the applicable revenue or asset thresholds would be required to provide notice of transactions involving the sale or transfer of real estate where healthcare services are provided if the entity acquiring the real estate is separate from the entity acquiring the health care entity or its direct parent, and the surviving health care entity will be required to lease or pay rent for the transferred property following closing. These provisions appear intended to capture a broad range of healthcare sale-leaseback transactions, transactions involving real estate investment trusts (REITs), and other real estate financing arrangements involving provider facilities. If the transaction involves a REIT, this would be a factor in OHCA’s determination of whether to conduct a CMIR.

Confidential treatment of submissions

The proposed regulations reorganize the information currently captured in 22 CCR § 97438(d) and offer additional clarification on the process for requesting confidential treatment during the notice filing process. OHCA seeks to promulgate language that formally adopts the guidelines for submitting requests for confidential treatment. The regulation would require submitters to include a justification for the request for confidential treatment, including a detailed statement about the applicable grounds on which confidentiality is claimed and an explanation of why confidentiality is necessary, a statement of the specific time for which confidential treatment of the information is necessary and an explanation for why that specific time is necessary, and a statement describing how the information has been confidentially maintained by the entity.

The proposed language also would permit a submitter to request confidentiality of information or documents that it has obtained from another party to the transaction if it lacks personal knowledge to establish their confidential nature. In this event, a submitter could submit a declaration from the party to meet the requirements of the regulations and obtain confidential treatment for such information or documents.

Expanded information and documentation requirements

The proposed regulations would expand the information that parties must submit when providing notice of material change transactions:

• MSO submitters must provide a list of all services offered, the services provided to all health care entities involved in the transaction, and the geographic service areas.

• Private equity group and hedge fund submitters must disclose, and provide documentation supporting, the names of all health care entities and MSOs owned or financed by participating asset managers and funds they manage.

• Private equity group and hedge fund submitters must provide documentation evidencing the ratio of debt to enterprise value or debt-to-equity ratio, the source of any debt, and the post-recapitalization debt ratio for any acquired health care entity or MSO.

• Healthcare providers must list the owner of any real property where services are provided, and submitters must provide copies of any proposed lease-back agreements.

• All submitters must identify affiliates, parents, subsidiaries, and members of their governing bodies.

• All submitters must provide organizational charts for each party to, or subject of, the transaction that show the ultimate parent entity and any subsidiaries, including all entities with 5% or more ownership of any health care entity or noticing entity in the transaction.

• Submitters must provide documents or presentations shared with investors or the governing body of the health care entity or noticing entity.

The proposed regulations also would require submitters to provide information regarding post-transaction changes to:

• Ownership, governance, and the operational structure of the submitter and parties to the transaction, including all entities or persons with 5% or more ownership of the entity for any acquiring or merging entity, as well as any entities controlled by the acquiring entity at the time of the transaction and post-transaction;

• Voting rights, decision-making authority, and management and compliance structures; and

• Real estate where healthcare services are provided, including encumbrances and updates to landlord-tenant agreements.

The regulations would require submitters to describe the nature, scope, and dates of any material change transactions between the submitter and any other entity (including parents, subsidiaries, and any entity or person with 5% or more ownership of the entity) that are either pending or planned to occur within 12 months following the date of notice.

Key takeaways

• Interested stakeholders should consider submitting comments to CMIR@hcai.ca.gov before June 11, 2026, to influence the development of the final regulations. There may be an additional opportunity to comment on the proposed regulations in July 2026. OHCA intends to submit the final regulations as an emergency rulemaking package in July to be effective in August 2026.

• The proposed regulations would significantly expand OHCA’s oversight authority over healthcare transactions and demonstrate California’s continued focus on private equity investment, MSO structures, and healthcare real estate arrangements, including sale-leaseback transactions involving provider facilities and other real estate financing structures. The proposed regulations may substantially increase timelines for healthcare transactions involving private equity sponsors, MSOs, and healthcare real estate arrangements. Healthcare providers, MSOs, private equity sponsors, hedge funds, and investors participating in California healthcare transactions should carefully evaluate whether transactions that previously might not have triggered notice obligations could fall within OHCA’s expanded reporting framework.

• The proposed regulations would significantly expand the categories of information and documentation that parties must submit to OHCA, including up-the-chain ownership information, governance structures, debt financing information, and post-transaction operational details. Private equity groups and hedge funds engaging in certain healthcare transactions in California should be prepared to potentially disclose detailed ownership information if a notice is required to be submitted to OHCA.

• While the proposed regulations would further refine the definition of “management services organization,” it is important to note that the statutory definition of “management services organization” still applies, such that an MSO under OHCA’s definition must provide provider rate negotiation services, revenue cycle management services, or both, to a statutorily defined “provider.” Importantly, the definition of “provider” includes medical groups with 25 or more physicians, so an MSO that only provides services to small medical practices may not be captured by OHCA’s statutes and regulations. Additionally, under the statute, an entity that owns one or more general acute care hospitals or acute psychiatric hospitals remains excepted from the definition of MSO.

• The proposed regulations may result in a lower materiality threshold for reporting transactions. Currently, a health care entity with $10 million in revenue would only become a submitter if it was party to a transaction with $25 million in revenue. However, the proposed regulations could result in a health care entity with $10 million in revenue becoming a submitter if it is party to a transaction with a noticing entity, with no revenue or asset threshold.

• OHCA’s proposed regulations signal the agency’s increased focus on the treatment of real property in healthcare transactions and a desire for increased oversight over transactions with REITs.