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Update: California State Assembly passes AB 3219, requiring state approval of private equity deals in healthcare | Sheppard Mullin Richter & Hampton LLP

California's AB 3219, which requires private equity firms and hedge funds to obtain prior approval to enter into certain healthcare-related transactions, is now one step closer to passage by the State Assembly on May 22, 2024. The bill will now be considered by the California State Senate, where approval must be obtained before the end of the legislative session in August if it is to take effect later this year.

As mentioned in our previous blog post, if enacted, AB 3219 would require private equity firms and hedge funds to file an application with the state's attorney general at least 90 days before a transaction involving the acquisition or change of control of healthcare entities and provider groups and, in most cases, wait for approval to complete the transaction. In addition, the bill would significantly limit the ability of private equity and other investors to implement “friendly PC-MSO” and similar arrangements, which are now commonly used by stakeholders as an investment structure to avoid violating California's ban on the commercial practice of medicine.

Although the bill has not yet become law, its passage by the State Assembly represents a positive boost for supporters of the legislation. Stakeholders should also be aware of the far-reaching impact of this legislation on the design and conduct of health-related transactions in the state.

We will keep our readers updated on further developments in this bill.