California’s attorney general has taken aggressive new steps this year to curb private equity-backed models that separate clinical practice from business operations, delivering a one‑two legal punch that industry players say could upend longstanding MSO‑physician practice arrangements. On March 30, 2026, Attorney General Rob Bonta filed an amicus curiae brief in Art Center Holdings, Inc. v. WCE CA Art, LLC advancing a sweeping interpretation of the state’s corporate practice of medicine (CPOM) doctrine. On May 4, 2026, his office secured a stipulated final judgment and permanent injunction against Aspen Dental Management, Inc., imposing steep penalties and detailed operational limits.
In the Art Center amicus brief, Bonta argued that commonly used contractual devices—stock transfer restriction agreements (STRAs) and restrictive termination provisions in management service agreements (MSAs)—can themselves violate CPOM even if those reserved rights are never exercised. The brief asserts that merely reserving the right to replace a physician‑owner “causes an impermissible division of loyalties,” and it advances an aiding‑and‑abetting theory of liability that could reach both management services organizations (MSOs) and physician‑owners. The brief also rebuffed industry custom as a defense, saying a practice’s prevalence does not render it legal.
The Aspen Dental stipulation translates theory into concrete enforcement. The judgment bars Aspen Dental Management from owning practice property, enforcing non‑compete agreements against clinicians, determining clinician salaries, controlling physician hiring, or using practice revenue as a basis for service fees. It requires that practice owners be able to renegotiate—and, if they choose, terminate—MSA arrangements on an annual basis. The settlement includes $2 million in civil penalties, $300,000 in patient restitution, and mandates 36 months of compliance monitoring to ensure the injunction’s terms are followed.
These enforcement actions come on the heels of Senate Bill 351, signed by Governor Gavin Newsom on October 6, 2025, which explicitly extended CPOM restrictions to private equity and hedge fund involvement in healthcare and granted the attorney general expanded authority to seek injunctive relief, equitable remedies and attorneys’ fees. Taken together, the statute, the amicus brief and the Aspen Dental judgment form what Bonta’s office and outside observers describe as a coordinated regulatory campaign: legislate the limits, publicly articulate a narrow reading of CPOM, and pursue court‑ordered remedies to reshape operating arrangements.
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For private equity sponsors, MSOs and healthcare platforms looking at California opportunities, the message is unambiguous: standard deal terms that have been viewed as safe—long‑term MSAs, STRAs that limit ownership transfers or reserve replacement rights—may now be enforcement targets. The attorney general’s position that contractual reservation of rights can be unlawful even absent their exercise elevates the risk profile of transactional documents as well as day‑to‑day operational interactions between MSOs and physician practices. The Aspen Dental order’s operational prohibitions show that remedies can include both monetary sanctions and structural operational changes.
Market participants and their legal advisors are likely to face increased diligence scrutiny, bespoke contractual structuring, and potentially more conservative valuation assumptions for platform deals in California. The broader industry will be watching how the Art Center litigation develops and whether other courts adopt Bonta’s theories, which could further clarify—or complicate—the contours of permissible MSO involvement in medical and dental practices.
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With California’s enforcement machinery now active and backed by recent legislation, private equity investors and MSO operators must consider structural and operational reviews of existing arrangements and planned transactions to assess CPOM exposure. How courts ultimately resolve the legal questions at the center of the Art Center case will determine whether the state’s approach produces a narrow set of changes or a wider reworking of the MSO‑practice model.
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