California SB 351, Private Equity in Healthcare, and False Claims Act Risk
On October 6, 2025, California Governor Gavin Newsom signed Senate Bill 351 into law, codifying and expanding California’s longstanding prohibition on the corporate practice of medicine. The law took effect on January 1, 2026, and directly targets private equity groups and hedge funds involved in physician and dental practices.
SB 351 establishes clear limits on how investors can influence clinical decision making, billing practices, and clinical staffing. Providers that violate SB 351 and continue billing Medi-Cal may face exposure under both the California False Claims Act and the federal False Claims Act.
What SB 351 prohibits
SB 351 applies to any private equity group or hedge fund involved in any manner with a physician or dental practice operating in California, including through management services organizations and asset ownership structures. The law prohibits these entities from interfering with the professional judgment of physicians and dentists and from exercising control over key practice functions.
Specific prohibitions include:
- Making billing and coding decisions for patient care services
- Selecting, hiring, or firing clinical staff, including physicians, allied health professionals, and medical assistants, based on clinical competency or proficiency
- Determining what diagnostic tests are appropriate, when referrals are needed, what treatment options to provide, or how many patients a provider must see
- Setting the parameters under which physicians enter contracts with third-party payers
The law also voids non-compete and non-disparagement clauses in management agreements with private equity groups or hedge funds, including provisions that restrict providers from speaking out about quality of care, utilization, or investor driven revenue strategies.
The California Attorney General is authorized to seek injunctive relief and recover attorneys’ fees in enforcement actions under SB 351.
Private equity and healthcare fraud
The government’s concern about private equity in healthcare is well documented. Between 2010 and 2019, private equity deals in healthcare nearly tripled in value, from $43 billion to $124 billion, totaling $750 billion over the decade. As private equity investment in healthcare has grown, fraud enforcement has also increased.
According to data compiled by The Anti-Fraud Coalition, between 2013 and 2022, at least 25 private equity owned healthcare companies, and in some cases the private equity firms themselves, entered settlements or judgments totaling more than $600 million to resolve allegations of fraudulent overcharging of government payers. Each of those 25 cases began with a whistleblower.
Research has also linked private equity ownership to higher costs and mixed to harmful effects on care quality. A study cited by TAF found that private equity acquisitions were associated with up to a 32 percent increase in costs for payers and patients, along with mixed to harmful effects on patient outcomes.
Federal scrutiny has increased as well. In March 2024, the Department of Justice, the Federal Trade Commission, and the Department of Health and Human Services launched a joint cross-government inquiry into the role of private equity in healthcare. That inquiry specifically examined the influence investors may have over billing decisions, revenue benchmarks, and patient care. The DOJ made clear that private equity firms can face liability under the False Claims Act, not only when they submit false claims directly, but also when their conduct plays a significant and foreseeable role in advancing a fraudulent billing scheme.
How SB 351 violations may create False Claims Act liability
Providers who participate in Medi-Cal must certify compliance with applicable California law as a condition of payment. When a provider operates under an arrangement that violates SB 351 and continues submitting claims to Medi-Cal, those claims may be false.
Examples may include a private equity controlled MSO directing billing and coding decisions, or investors driving clinical staffing decisions rather than licensed professionals.
A false certification of compliance with California law can support liability under both the California False Claims Act, Government Code § 12650 et seq., and, where federal funds are involved through Medi-Cal, under the federal False Claims Act. Because the federal government funds a substantial portion of Medi-Cal costs, false claims submitted to Medi-Cal can create federal as well as state liability. Under both statutes, the government may recover up to three times the amount paid, plus civil penalties for each false claim.
Whistleblowers can come forward
Physicians, dentists, practice administrators, billing staff, and employees of management services organizations may all have visibility into arrangements that violate SB 351. If you work in a California medical or dental practice backed by private equity and have observed investors or management companies making billing decisions, directing clinical staffing based on productivity rather than patient care, or otherwise overriding provider judgment, you may be able to file a qui tam complaint on behalf of the government.
Individuals who file successful False Claims Act cases may be protected from employer retaliation and may also be entitled to a share of the government’s recovery.
Speak with a whistleblower attorney
If you are aware of conduct that may violate SB 351 and involves billing to Medi-Cal or other government programs, contact the whistleblower attorneys at Keller Grover. We have significant experience handling healthcare fraud and billing cases, and we can evaluate your situation, protect your legal rights, and advise you on the most effective path forward.
Contact our office today.