TL;DR — Key Takeaways

• California ambulatory surgery centers (ASCs) operate under a different framework than physician practices. H&S Code § 1248 governs licensing and ownership.
• Most California ASCs are owned by some combination of physicians who use the center, hospital systems, and third-party investors (including PE).
• Physician ownership in ASCs is generally permitted under California law, but must comply with federal anti-kickback safe harbor requirements when federal program patients are treated.
• California’s restrictive interpretation of the Corporate Practice of Medicine doctrine still applies to clinical activities at the ASC, even though entity ownership rules are different.
• SB 351 applies to physician practices, not directly to ASCs. PE involvement in ASCs is regulated separately through federal kickback rules and CMS conditions of participation.

Who Can Own an Ambulatory Surgery Center in California?

California’s ASC ownership rules are different from physician practice ownership rules. ASCs are licensed under California Health and Safety Code § 1248 et seq., which establishes a separate framework.

Licensed ASCs in California are generally owned by physicians (often a syndication of surgeons who use the center), hospital systems or hospital-affiliated entities, ASC management companies (operating chains of centers), or private equity (often through joint ventures with physician owners).

California has had a complex regulatory history regarding ASCs and physician ownership, including a 2007 California Supreme Court decision (Capen v. Shewry) that addressed ASC licensure and physician ownership. The current regulatory framework allows physician-owned ASCs subject to compliance with state licensure and federal regulatory requirements.

The mix of owners varies significantly based on the center’s size, specialty mix, payer contracts, and strategy. A multi-specialty ASC in a metro market may have 30-40 physician owners plus a hospital or PE partner. A small single-specialty center may have 4-5 surgeon owners and no outside partners.

What Licensing Is Required to Operate a Surgery Center in California?

ASCs in California require licensure from the California Department of Public Health (CDPH) under H&S Code § 1248 unless they qualify for exemption.

CDPH ASC license. The principal license. Requires compliance with physical plant standards, infection control, staffing, governance, and quality assurance requirements.

Medicare certification (optional but typical). Most ASCs pursue Medicare certification through CMS, which requires meeting the federal Conditions for Coverage. Medicare-certified ASCs can also typically participate in Medicaid and most commercial payer networks.

Accreditation (optional but common). Many ASCs pursue accreditation through AAAHC, The Joint Commission, or AAAASF. Accreditation is required by some payers and can serve as deemed status for Medicare certification.

State controlled substance permits. If the ASC stocks controlled substances, California pharmacy board permits and DEA registration in the medical director’s name (or other appropriate prescriber).

Local permits. Building permits, occupancy certificates, fire department clearances, environmental health permits.

Can a Private Equity Firm Invest in a California Surgery Center?

Yes. PE investment in California ASCs is permitted and common. The structures vary.

Pure equity ownership. PE owns a percentage of the ASC alongside physicians and hospital partners. This is the most common model for established centers.

Joint venture with physicians. PE provides capital and management expertise; physicians provide clinical leadership and case volume. The JV structure is the typical model for new ASC development.

Joint venture with a hospital. Three-party arrangements between PE, physicians, and a hospital system. Increasingly common as hospitals partner with PE-backed ASC management companies.

Acquisition of management company. PE buys an existing ASC management company that owns or operates multiple centers, becoming the indirect owner of the underlying ASCs.

PE involvement in ASCs is regulated primarily through federal anti-kickback statute safe harbor compliance (for ASCs treating Medicare/Medicaid patients) and through disclosure obligations. SB 351 does not apply directly to ASCs because the statute targets physician and dental practices specifically; the practice of medicine that occurs at an ASC is conducted by the surgeons, who are separately employed or contracted.

What Governance Structures Reduce Liability for Surgery Center Owners?

ASC governance has both regulatory and risk management dimensions.

Medical executive committee. The clinical governance body. Reviews credentialing, peer review, quality of care, and adverse events. Required by Medicare conditions and most accreditors.

Quality assurance / performance improvement program. A formal QAPI program documenting quality metrics, infection rates, patient outcomes, and corrective actions. Required by CMS and accreditors; protects the ASC if a regulatory inspection or malpractice claim occurs.

Board of managers / directors. The corporate governance body. Oversees business operations, financial performance, and major decisions. Composition reflects the ownership mix.

Operating agreement. The foundational document for an ASC organized as an LLC. Addresses governance, voting rights, transfer restrictions, buy-sell mechanics, distributions, and dispute resolution. Critical for resolving disputes among owners.

Compliance program. A formal compliance program with a designated officer, written policies, training, monitoring, and reporting. The OIG has issued ASC-specific compliance guidance that provides a roadmap.

Insurance. Professional liability for the entity, individual malpractice for surgeons, errors and omissions for officers and directors, employment practices liability, cyber, general commercial.

How Does CPOM Apply to Surgery Center Ownership?

California’s Corporate Practice of Medicine doctrine applies to the practice of medicine, not to entity licensure. The distinction matters for ASCs.

The ASC itself is a facility license under H&S Code § 1248. The entity that holds the ASC license can be owned by a mix of physicians, non-physicians, and corporate entities. Non-physician ownership of the ASC entity is generally permitted by the ASC licensure statute.

However, the surgeons who perform procedures at the ASC are practicing medicine. The surgeons must operate through their own physician-owned medical practices (or be employed by a CPOM-compliant entity). The ASC and the medical practice are separate entities. The ASC bills facility fees; the medical practice bills professional fees.

Most ASCs operate using independent physician-owners or medical groups that bill professional fees separately from the facility’s billing. The ASC contracts with these physicians for use of the facility, not for the medical care itself. This separation is what allows non-physician investment in the ASC entity without violating CPOM.

Federal Anti-Kickback and Stark Law Considerations

Physician ownership in ASCs treating Medicare and Medicaid patients implicates federal anti-kickback statute (AKS) considerations. The federal ASC safe harbor (42 C.F.R. § 1001.952(r)) defines specific requirements that, if met, protect physician-investor arrangements from AKS liability.

Safe harbor requirements include: physician investors must use the ASC for at least one-third of their practice (the “one-third test”); physicians must perform a substantial portion of their procedures at the ASC; investment terms must not vary based on referrals; required disclosures must be made; and the ASC must meet other operational criteria. [VERIFY: confirm current ASC safe harbor requirements; the regulation has been amended.]

The Stark law (federal physician self-referral law) generally addresses physician referrals for designated health services. ASCs themselves are generally not Stark-designated services for the surgery itself, but ancillary services and referrals from the ASC may implicate Stark.

ASC investments that don’t fit a safe harbor can still be permissible if structured to avoid AKS violations on a facts-and-circumstances basis. Most practitioners aim for safe harbor compliance to reduce exposure.

This article is for general information and is not legal advice. For guidance on your specific situation, contact Bay Legal, PC at 650-668-8000 to schedule a consultation.