Buying or Taking Over a Healthcare Practice in California

Key Takeaways

• A California healthcare practice acquisition typically takes one of three legal forms: asset purchase, stock purchase, or merger. Each has different tax, liability, and structural consequences. Asset purchases are most common for physician practice acquisitions because they let buyers cherry-pick assets and limit liability exposure.
• CPOM and Moscone-Knox constrain what the buyer can actually buy. A non-physician buyer cannot directly acquire a California medical corporation. The buyer either has to be a qualified licensed person, or has to structure the deal through a friendly-PC + MSO
• AB 1415, effective January 1, 2026, requires 90 days’ advance written notice to the Office of Health Care Affordability (OHCA) before a material change transaction involving a healthcare entity or MSO. The notice obligation reaches PE groups, hedge funds, newly-created acquisition vehicles, and MSOs as “noticing entities.”
• SB 351, effective January 1, 2026, voids non-compete and non-disparagement clauses in MSO and asset-purchase agreements between PE/hedge funds and physician or dental practices — with a carve-out for bona fide sale-of-business non-competes otherwise permitted under § 16601.
• Stark Law and the Anti-Kickback Statute reach physician practice acquisitions where Medicare/Medicaid revenue is involved — even purely “private” deals can trigger federal compliance issues if the practice has any federal payor exposure.

Buying or Taking Over a Healthcare Practice in California

If you’re considering buying or taking over a California healthcare practice — whether as a physician acquiring a colleague’s solo practice, a medical group acquiring an adjacent group, a hospital system acquiring a physician practice, an MSO/PE platform doing a roll-up, or a successor stepping into a practice through inheritance or partnership — this post walks through the structural and regulatory framework that applies to your deal.

We’ve covered several adjacent topics elsewhere: the foundational CPOM rules, the MSO/PC architecture, the management services agreement, the SB 351 contract overlay, and the probate-transfer rules. This post pulls those threads together into the M&A context.

f you’re in active diligence on a California healthcare practice acquisition — or you’re contemplating one and want to understand the timing implications of OHCA notice, the SB 351 contract impact, and the CPOM structural requirements — the right time to involve healthcare-specific counsel is before the LOI is signed. Bay Legal, PC counsels buyers, sellers, and lenders in California healthcare practice transactions across asset purchase, stock purchase, merger, and MSO/friendly-PC roll-up structures. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

The Three Deal Structures

A California healthcare practice acquisition typically follows one of three legal structures. Choice depends on what’s being acquired, who’s acquiring it, the tax preferences of the parties, and the liability concerns on each side.

Asset Purchase

The buyer purchases specific assets of the seller’s practice — equipment, leasehold interest, patient records (where transferable), accounts receivable (sometimes), goodwill, contracts assigned with consent, and other identified items. The seller retains the corporate shell with its liabilities; the buyer typically gets a “clean” set of assets.

Buyer preferences:

• Limits exposure to historical liabilities (most successor-liability theories don’t reach asset purchases).
• Lets the buyer cherry-pick assets — exclude obsolete equipment, leases the buyer doesn’t want, contracts that aren’t useful.
• Better tax treatment for the buyer: most asset values can be amortized or depreciated over 15 years (Section 197 intangibles) or shorter periods for tangible assets, generating ongoing deductions.

Seller preferences (typically negative):

• Sellers generally disfavor asset purchases because the corporate shell is left with historical liabilities and no operating business to satisfy them.
• Worse tax treatment: potential double taxation if the practice is a C-corp (corporate-level tax on the asset sale, then shareholder-level tax on the liquidating distribution). Pass-through entities (S-corps, partnerships) avoid this problem.

Healthcare-specific issues:

• Patient records typically transfer in an asset purchase, but California rules on patient consent and notification apply.
• Medicare/Medicaid provider numbers typically don’t transfer — the buyer needs to enroll separately.
• Specific contracts (payor contracts, vendor contracts, equipment leases) typically require third-party consent for assignment.
• DEA registrations and other licenses don’t transfer.

This is the most common structure for physician practice acquisitions in California.

Stock Purchase

The buyer purchases the seller’s shares in the corporation directly. The corporation continues as a going concern under new ownership. All assets and liabilities — known and unknown — pass with the shares.

Buyer concerns:

• Successor liability for everything the corporation owes — tax liabilities, malpractice claims, fee-splitting issues, fraud and abuse exposure, contract obligations, employment claims.
• Worse tax treatment unless the parties make an IRC § 338(h)(10) election (which treats the stock purchase as an asset purchase for tax purposes).

Seller preferences:

• Sellers generally prefer stock purchases — better capital gains tax treatment, the corporate liabilities transfer to the buyer.
• Cleaner exit; less negotiation over which assets transfer.

Healthcare-specific issues in California:

• The CPOM constraint is typically dispositive. A stock purchase of a California medical corporation requires the buyer to be a qualified licensed physician. A non-physician buyer cannot acquire the stock directly; the deal generally has to be restructured (asset purchase + friendly-PC, or MSO arrangement).
• Same constraint applies to nursing corporations, chiropractic corporations, dental corporations, and other Moscone-Knox professional corporations — only qualified licensed persons in the relevant profession can hold the stock.
• Corp. Code § 13407 limits stock transfers to licensed persons in the corporation’s profession, the corporation itself, or another professional corporation in the same profession.

For these reasons, stock purchases of California professional corporations work primarily when both buyer and seller are licensed in the same profession.

Merger

Two entities combine into one surviving entity. Less common than asset or stock purchases for physician practices, but used in certain consolidations.

• A merger can be structured as a forward merger (acquired entity merges into the buyer), reverse merger (buyer merges into the target), or other variations.
• Tax treatment varies; certain mergers qualify for tax-free reorganization treatment under IRC § 368.
• Mergers of California professional corporations face the same CPOM and Moscone-Knox constraints as stock purchases.

For most California physician practice acquisitions, the practical choice is asset purchase. The exceptions are physician-to-physician deals (where stock purchases can work) and large strategic transactions where the operational continuity of the corporate entity matters.

The CPOM Constraint on Buyers

The corporate practice of medicine doctrine — codified in B&P §§ 2052, 2400, and elaborated in People ex rel. State Board of Medical Examiners v. Pacific Health Corp., 12 Cal. 2d 156 (1938), and Conrad v. Medical Board of California, 48 Cal. App. 4th 1038 (1996) — limits who can own a California medical practice.

For a buyer who is not a qualified licensed physician (a PE firm, a hospital system without a contracted medical group, a strategic operator, an investor group), the direct acquisition of a medical practice is not available. The acquisition has to be structured through the friendly-PC + MSO model:

1. A qualified licensed physician (or physicians) owns the professional corporation (PC) that holds the clinical practice — patient relationships, billing in the PC’s name, employment of clinicians.
2. The non-physician buyer acquires (or forms) the management services organization (MSO) — typically an LLC — which provides administrative, operational, and management services to the PC under a management services agreement.
3. The acquisition transaction restructures the seller’s practice into this two-entity form, transferring the clinical operations to the PC and the management infrastructure to the MSO.

We cover the friendly-PC + MSO architecture in detail elsewhere.

The CPOM analysis matters in due diligence too. A target practice that has been operating under a friendly-PC + MSO arrangement with a previous PE backer may have non-compliant contract terms post-SB 351; cleaning those up is part of the acquisition.

OHCA Notice: The 90-Day Pre-Transaction Obligation

AB 1415 (Ch. 641, Stats. 2025), effective January 1, 2026, expanded the California Health Care Quality and Affordability Act to add MSOs and a broader category of “noticing entities” to the Office of Health Care Affordability’s pre-transaction notice regime.

What triggers notice

A “material change transaction” affecting a healthcare entity or MSO triggers the obligation. The statutory definition reaches:

• Sales, transfers, or dispositions of material assets
• Transfers of control, responsibility, or governance over material assets or operations
• Mergers, acquisitions, joint ventures, and similar transactions
• Roll-ups and add-on acquisitions

The thresholds for what constitutes a “material” change are defined in OHCA’s implementing regulations, which continue to develop. Confirm current materiality thresholds and procedural requirements at hcai.ca.gov before relying on specific deal-mechanics assumptions.

Who has to give notice

AB 1415 expands the universe of “noticing entities” to include:

• Health care entities (the traditional category — providers, payors, certain physician organizations)
• MSOs, including those owned by public companies or strategic operators
• Private equity groups as defined in the statute
• Hedge funds as defined in the statute
• Newly-created acquisition vehicles formed for the purpose of healthcare transactions
• Other entities that own, operate, or control healthcare providers

Both operating entities and their financial sponsors can be primary reporters, capturing upstream control structures, indirect ownership changes, and roll-up strategies.

The 90-day window

OHCA must receive at least 90 days’ advance written notice before the covered transaction is consummated. During that window, OHCA may:

• Conduct an initial review
• Make the notice and submitted materials public if additional review triggers are met
• Request additional information
• Conduct a cost and market impact review (CMIR)

The 90 days does not include CMIR review time if OHCA escalates. A deal that triggers a CMIR can face significantly longer review.

MSO data submission

New H&S Code § 127501.5 also requires MSOs to submit data and information to OHCA on a basis to be defined in implementing regulations. The data submission obligation runs alongside the transaction notice obligation and covers cost, quality, equity, and workforce information.

Deal timing implications

For acquisition transactions involving California healthcare entities or MSOs, the OHCA notice obligation has to be built into the deal timeline from the LOI stage:

• LOI signed → financial diligence begins → regulatory diligence runs in parallel → OHCA notice filed at least 90 days before targeted closing → CMIR risk monitored throughout
• Tight closing timelines that don’t accommodate the 90-day window expose the deal to regulatory enforcement, post-closing unwind risk, or post-closing penalties.
• Coordination with deal confidentiality matters — OHCA may make notice materials public if certain review triggers are met.

SB 351: Contract Compliance in M&A

SB 351 (Ch. 409, Stats. 2025), also effective January 1, 2026, applies to MSO and asset-purchase agreements between private equity groups or hedge funds and physician or dental practices in California. The statute voids non-compete and non-disparagement provisions in those agreements, with two narrow carve-outs:

• Bona fide sale-of-business non-competes otherwise permitted under California law (i.e., § 16601 clauses tied to a real sale of goodwill) remain valid.
• Confidentiality clauses protecting material non-public information remain valid, unless they suppress legally required disclosures.

For M&A practice:

• Acquisition agreements between PE/hedge fund buyers and physician/dental practices need to remove non-compete and non-disparagement language outside the carve-outs.
• Pre-2026 MSAs that the target practice has in place may contain language that’s now void under SB 351 — diligence needs to identify and the deal needs to address the cleanup.
• Asset-purchase agreement non-competes tied to the sale of goodwill (real goodwill, paid for, with the buyer carrying on the business) remain enforceable under the § 16601 carve-out.

The California AG can enforce SB 351 directly with injunctive relief, equitable remedies, and attorney’s fees. We covered the non-compete framework in detail elsewhere.

The OHCA 90-day window, the SB 351 contract cleanup, the CPOM structural restrictions, and the due diligence list below all need to be sequenced from the LOI stage to avoid blowing up the deal timing. Bay Legal, PC handles California healthcare practice acquisitions end-to-end — deal structure, OHCA notice, SB 351 contract review, due diligence coordination, definitive documents, and closing — for buyers, sellers, and lenders. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Due Diligence: What a Healthcare Practice Acquisition Actually Requires

Healthcare diligence runs deeper than standard M&A diligence because the underlying business is heavily regulated and historical compliance failures can become the buyer’s problem.

Regulatory and licensing

• Entity status: Articles of Incorporation, Statement of Information, FNP, BCE or other board registration as applicable.
• Professional licensure: All clinicians’ California licenses, NPI numbers, DEA registrations, controlled substances registrations.
• Medical Board / BCE / BRN / DCA disciplinary history: Investigations, accusations, citations, probation, settlements.
• OHCA prior notices: Any prior material change transactions involving the practice.

CPOM and Moscone-Knox

• Ownership structure: Does the corporation actually have qualified licensed persons holding the required percentages?
• Share transfer history: Have past transfers complied with § 13407?
• MSO arrangements: If the practice operates under an MSO, is the MSA SB 351-compliant? Is the medical director arrangement real? Is the FMV documentation current?
• Standardized procedures: For RN-delegated or NP-delegated medical-practice functions, are standardized procedures current and compliant?

Fee-splitting and kickback exposure

• B&P § 650 compliance: Any compensation arrangements with referral sources?
• Stark Law / Anti-Kickback compliance: For practices with Medicare/Medicaid revenue, the federal fraud and abuse rules apply. The Stark Law’s isolated-transaction exception (42 CFR § 411.357(h)) may apply to practice acquisitions but the conditions are strict — FMV, commercially reasonable, no consideration of referral volume or value.
• 650.01 PORA compliance: California’s physician self-referral rules.

Payor relationships

• Commercial payor contracts: Listing, terms, assignment provisions, termination rights.
• Medicare enrollment: Provider number transferability (usually not transferable in asset deals), CMS Form 855 requirements, change of ownership process for stock deals.
• Medi-Cal enrollment: California-specific Medi-Cal provider requirements.
• Accounts receivable: Aged AR by payor, denials patterns, write-off history.

Clinical operations

• Patient volume and demographics: Historical patient counts, payor mix, geographic distribution.
• Patient retention: Active vs. inactive patients, demographic stability.
• Provider productivity: RVU production, panel size, scheduling utilization.
• Quality metrics: HEDIS scores, complaint history, patient satisfaction.

Real estate and equipment

• Leases: Term, options, assignment rights, FMV (HHS-OIG advisory opinion guidance on physician practice real estate).
• Equipment: Owned vs. leased, depreciation schedule, FMV, replacement timelines.
• Maintenance contracts: Service agreements, vendor relationships.

Employment

• Employee vs. independent contractor classification: AB 5 / Borello exposure for non-physician clinicians.
• Compensation arrangements: Physician employment agreements, productivity bonuses, partnership track terms.
• Wage and hour compliance: SB 525 healthcare minimum wage compliance, meal/rest periods, overtime.
• Benefits: 401(k), health insurance, paid time off.

Litigation and claims

• Malpractice history: Closed claims, open claims, threatened claims, NPDB reporting.
• Employment claims: Wage claims, discrimination claims, harassment investigations.
• Patient claims: Refund demands, billing disputes, BBB complaints, online reviews patterns.
• Tax controversies: IRS, FTB, EDD, sales tax.

Insurance

• Tail coverage: Critical for the seller’s malpractice exposure post-closing.
• D&O coverage: Run-off coverage for the corporate entity.
• Cyber coverage: Given HIPAA exposure.
• R&W insurance: Increasingly common in larger transactions; supplements seller indemnification.

The Purchase Agreement and Key Provisions

The definitive document for an asset purchase is an Asset Purchase Agreement (APA); for a stock purchase, a Stock Purchase Agreement (SPA); for a merger, a Merger Agreement. Each has its own structure, but several provisions appear in healthcare deals across structures:

• Purchase price and allocation: Tangible vs. intangible asset allocation; goodwill allocation; restrictive covenant allocation (where applicable).
• Representations and warranties: Standard corporate reps plus healthcare-specific (CPOM compliance, licensure, no fraud and abuse exposure, no Medicare/Medicaid program integrity issues, accurate billing).
• Survival and indemnification: “No survival” structures have become more common in seller-friendly markets; full survival with caps and baskets is more buyer-protective.
• Closing conditions: Regulatory consents (including OHCA), third-party consents, board approvals, no material adverse change.
• Post-closing covenants: Non-competes (subject to § 16600/16601 and SB 351), confidentiality, transition services, employment of seller-clinicians.
• Escrow and holdbacks: Common for warranty and indemnity exposure; sometimes used to cover Medicare/Medicaid audit exposure.
• R&W insurance: Where applicable, allocates risk between buyer and seller via insurance.

Stark Law and Anti-Kickback in Practice Acquisitions

Even private deals can have federal compliance implications. If the practice has any Medicare or Medicaid revenue:

• The Stark Law prohibits a physician from making referrals for “designated health services” payable by Medicare or Medicaid to an entity with which the physician (or an immediate family member) has a financial relationship, unless the relationship fits a Stark exception. The isolated transaction exception (42 CFR § 411.357(h)) can cover a practice acquisition if (1) the compensation is consistent with FMV, (2) the compensation isn’t determined in any manner that takes into account the volume or value of referrals or other business generated, (3) the arrangement would be commercially reasonable even if the physician made no referrals, and (4) there are no additional transactions between the parties for six months after the isolated transaction (with limited exceptions).
• The Anti-Kickback Statute prohibits offering, paying, accepting, or soliciting remuneration for referrals of items or services covered by federal healthcare programs. The AKS is intent-based; an acquisition price that includes “something extra” for the referral relationship can be a problem.
• The CMS Self-Referral Disclosure Protocol is available for historical Stark Law violations that come up in diligence.

For California-specific overlays, B&P § 650 has its own anti-kickback rule for the practice of medicine; § 650.01 (PORA) covers physician self-referrals.

Common Pitfalls and Red Flags

1. Trying to buy a California medical corporation as a non-physician. Need to restructure as asset purchase + friendly-PC, or MSO arrangement.
2. Missing the OHCA 90-day window. Deal timing collapses or the parties face post-closing exposure.
3. Carrying over pre-2026 non-compete or non-disparagement language in PE-backed MSAs — voided by SB 351.
4. Underestimating successor liability in a stock purchase or merger.
5. Failing to verify CPOM compliance in diligence — the seller’s medical director may have been on paper only.
6. Patient records mishandled during the transition.
7. Payor contracts not flagged for non-assignment
8. Stark Law exposure from physician-seller’s referral patterns to facilities the buyer also owns.
9. Tail coverage not arranged for the seller’s malpractice exposure post-closing.
10. Tax allocation of purchase price not handled — particularly relevant for asset purchases where intangible vs. tangible vs. goodwill allocation drives tax outcomes for both sides.

Talk to a California Healthcare M&A Attorney

A California healthcare practice acquisition is more involved than a standard small-business acquisition because the underlying business is heavily regulated and the structural requirements (CPOM, Moscone-Knox, OHCA notice, SB 351 contract compliance) reshape the deal. Getting the structure right at the LOI stage — before significant diligence costs accumulate, before the closing timeline is set — saves substantial money and risk later.

If you’re considering buying or taking over a California healthcare practice, attorneys at Bay Legal, PC counsel buyers, sellers, and lenders on deal structure, OHCA notice planning, SB 351 contract review, healthcare due diligence, definitive document drafting and negotiation, and closing across asset purchase, stock purchase, merger, and MSO/friendly-PC roll-up structures. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

What’s the difference between an asset purchase and a stock purchase for a California medical practice?

An asset purchase transfers specific assets — equipment, patient records, goodwill, certain contracts — from seller to buyer; the seller retains the corporate shell with its historical liabilities. A stock purchase transfers the shares of the corporation; the buyer takes everything, including liabilities. Asset purchases are more common for California physician practice acquisitions because they limit the buyer’s successor-liability exposure and offer better tax treatment for the buyer. Stock purchases of California medical corporations require the buyer to be a qualified licensed physician (Cal. Corp. Code § 13407 limits stock transfers to licensed persons in the corporation’s profession).

Can a private equity firm buy a California medical practice?

Not directly. California’s corporate practice of medicine doctrine prohibits non-physician entities from owning a medical practice or employing physicians. PE acquisitions of California medical practices are structured through the friendly-PC + MSO model: a qualified licensed physician owns the professional corporation that holds the clinical practice, and the PE buyer acquires (or forms) a management services organization that provides administrative and operational services to the PC under a management services agreement. The deal restructures the seller’s practice into this two-entity form.

What is the OHCA 90-day notice requirement?

AB 1415, effective January 1, 2026, requires “noticing entities” — including health care entities, MSOs, private equity groups, hedge funds, newly-created acquisition vehicles, and certain other entities — to file at least 90 days’ advance written notice with the Office of Health Care Affordability before consummating a material change transaction. The 90-day window allows OHCA to conduct an initial review, request additional information, and (if escalated) conduct a cost and market impact review. Tight closing timelines that don’t accommodate the 90-day window create regulatory exposure.

How does SB 351 affect California healthcare practice acquisitions?

SB 351, effective January 1, 2026, voids non-compete and non-disparagement provisions in MSO and asset-purchase agreements between private equity groups or hedge funds and physician or dental practices, with two carve-outs: bona fide sale-of-business non-competes permitted under California law (§ 16601) remain valid, and confidentiality clauses protecting material non-public information remain valid. Acquisition agreements involving PE/hedge fund buyers need to remove non-compete and non-disparagement language outside the carve-outs. Pre-2026 MSAs the target practice has in place may contain language that’s now void; diligence needs to identify them and the deal needs to address the cleanup. The California AG can enforce SB 351 directly.

Does Stark Law apply to a private medical practice acquisition in California?

If the practice has any Medicare or Medicaid revenue, yes. The Stark Law prohibits physicians from making referrals for “designated health services” payable by Medicare or Medicaid to an entity with which the physician has a financial relationship, unless the relationship fits a Stark exception. The isolated transaction exception (42 CFR § 411.357(h)) can cover a practice acquisition if the compensation is FMV, doesn’t take into account referrals, the arrangement is commercially reasonable, and there are no additional transactions between the parties for six months after the isolated transaction. California also has its own anti-kickback (B&P § 650) and physician self-referral (B&P § 650.01) rules that apply independently of federal payor status.

This article provides general information about California law and is not legal, tax, or financial advice. Reading this article, contacting Bay Legal, PC, or sending information through baylegal.com does not create an attorney-client relationship. The information here focuses on California law and may not reflect the law of other jurisdictions. Statutes, regulations, agency guidance, and case law change; this article reflects the authors’ understanding as of the date of publication and may not reflect later developments. For advice about your specific situation, consult a licensed California attorney.