California’s AB 3219, which would require private equity firms and hedge funds to obtain prior approval to consummate certain healthcare-related transactions, is now one step closer to becoming law following the State Assembly’s May 22, 2024 passage of the pending legislation. The legislation is now being considered by the California State Senate, where approval must be obtained prior to the end of the legislative session in August if it is to be enacted into law this year.

As previewed in our prior blog post, if enacted, AB 3219 would require private equity firms and hedge funds to file an application with the state Attorney General at least 90 days in advance of a transaction involving the acquisition or change of control of healthcare facilities and provider groups and in most cases, await approval to close the transaction. Furthermore, the bill would place significant restrictions on the ability of private equity and other investors to implement “friendly PC-MSO” and similar arrangements, which are widely used today by stakeholders as an investment structure to avoid violating California’s prohibition on the corporate practice of medicine.

While the bill has not yet been enacted into law, the State Assembly’s passage of the bill does represent positive momentum for proponents of the legislation, and stakeholders should be aware of the legislation’s broad implications on the structuring and consummation of healthcare-related transactions in the state.