California AG Signals Harder Line on CPOM in PC-MSO Succession Agreements

The California Attorney General’s (“AG”) recent amicus filing is another clear signal that California is intensifying its scrutiny of the corporate practice of medicine (“CPOM”) and PC-MSO relationships (i.e. relationships between professional corporations (“PCs”) and management services organizations (“MSOs”)). In a recent amicus brief filed in Art Center Holdings, Inc. v. WCE CA Art, LLC on March 30, 2026, the AG took aim at succession provisions which are common in California PC-MSO structures. These arrangements allow the MSO to influence or control who succeeds the physician-owner of the PC, often through continuity or succession rights that give the MSO substantial leverage over ownership transition. The AG’s position is that if the MSO retains that degree of leverage, it can effectively control the PC, and that such power is inherently inconsistent with California’s prohibition on the corporate practice of medicine.

Succession rights, continuity agreements, transfer restrictions, and similar protective mechanisms are common features of California friendly-PC-MSO models. For years, many have treated them as standard tools for preserving continuity and protecting the MSO’s investment. The AG is now signaling that those same provisions may instead be viewed as evidence of impermissible control, especially where the physician-owner cannot realistically terminate or replace the MSO without risking loss of the practice.

The AG’s filing also makes clear that it is not solely focused on actual interference in clinical decision-making. Rather, the brief argues that an MSO’s contractual right to control the PC can itself be enough to violate California’s prohibition on CPOM. In other words, the critical question is whether the PC-MSO structure bakes in the ability for the MSO to dictate physician ownership, replacement, or succession, not whether that control has actually been exercised.

At the same time, this is not necessarily a declaration that every existing PC-MSO arrangement is unlawful. The better reading is that California is taking a much harder look at contractual features that shift real leverage to the MSO side of the relationship. That nuance matters. But so does the direction of travel. Between this filing and California’s broader statutory and enforcement posture, the message is clear: provisions that once looked like routine deal protection may now be viewed as void, unenforceable, and contrary to public policy. For many organizations, the immediate issue is not just abstract CPOM risk, but whether key protective provisions would actually hold up when they are most needed—in a dispute, a default, an ownership transition, or a contested exit.

The AG’s filing comes just months after the enactment of two (2) significant statutory developments reshaping California’s CPOM landscape: Senate Bill 351 and Assembly Bill 1415. Together, these bills materially expand California’s regulatory scrutiny of PC-MSO arrangements involving private equity groups, hedge funds, and entities they control, including MSOs. SB 351 codifies longstanding CPOM principles by expressly prohibiting covered investor groups from exercising control over core clinical and operational functions, such as patient medical records, payor contracting, billing decisions, medical equipment selection, and certain non-compete provisions-rendering any such terms void as against public policy. AB 1415 complements these substantive prohibitions by pulling additional PC-MSO transactions into the California Office of Health Care Affordability’s (“OHCA”) pre-closing notice framework. The bill requires both PCs and MSOs to provide advance notice of at least 90 days prior to the closing of a defined “material change” transaction to OHCA. In the coming months, OHCA plans to release the exact thresholds under which a transaction would require advance notice. Read against this backdrop, the AG’s recent filing reflects not an isolated enforcement position, but an increased willingness by California regulators to scrutinize PC-MSO arrangements for indicia of improper control over physician practice ownership, governance, or clinical operations.

The practical takeaway is that California MSOs, physician owners, investors, and platform operators should not assume their legacy friendly-PC-MSO documents are still compliant just because they have been the norm until now. Provisions that may once have been defended as ordinary operational protections may now invite much closer scrutiny. Now is the opportune time to pull existing agreements and reexamine succession provisions, stock transfer restrictions, termination rights, continuity arrangements, and other provisions that give the MSO meaningful leverage over PC governance and ownership. If the physician-owner is effectively captive, that is exactly the kind of fact pattern the AG appears interested in targeting.

Leech Tishman closely monitors CPOM developments in California and nationally. For questions about how these developments may affect your organization’s PC-MSO structure, succession arrangements, or broader California CPOM risk, please contact Harry J. Nelson at hnelson@leechtishman.com, Joshua G. Singer at jsinger@leechtishman.com, or Adella Katz at akatz@leechtishman.com, attorneys in Leech Tishman’s Healthcare Practice Group. Moshe Bock, a Law Clerk with Leech Tishman’s Healthcare Practice Group, contributed to the research and drafting of this article.