California just reshaped the future of medical and dental practice ownership, sending a shockwave through the healthcare and aesthetics industry.
On October 6, 2025, California Governor Gavin Newsom signed Senate Bill 351 (SB 351) into law. This law is a significant expansion of corporate practice of medicine (CPOM) restrictions. Effective January 1, 2026, this law limits how private equity, management companies (MSOs), and investors can influence licensed medical, dental and aesthetic practices. If you operate, manage, invest in, or are planning to open a med spa, concierge medical practice, or physician-led aesthetics business in California, this law matters to you.
Why? Because SB 351 directly targets private equity involvement, MSO structures, and investor-backed medical practices — the exact business model dominating the aesthetics industry today.
Quick Summary: What SB 351 Does
SB 351 strengthens the corporate practice of medicine and dentistry rules by restricting how private equity groups and hedge funds can influence clinical practices.
The law prohibits non-physician investors from being delegated or exercising any control over:
- Clinical decision-making, patient care, and treatment recommendations
- Hiring or firing clinical staff based on skill or clinical judgment
- Setting physician or dentist schedules
- Access to or control over medical records
- Billing, coding, reimbursement, or payer contracting strategies
- Selection of medical devices, supplies, or pharmaceuticals
It also bans specific contract clauses commonly found in PE-backed MSO deals, including:
- Non-competes restricting physicians or dentists after separation
- Non-disparagement and gag clauses preventing providers from criticizing business practices or care quality
Violations can trigger Attorney General enforcement, injunctions, and penalties.
Why This Matters for the Aesthetic Industry
Although SB 351 does not mention “medical spas” by name, it absolutely applies to aesthetic practices owned by physicians, including those operating through MSO structures.
This means:
- Investor-backed med spa chains must immediately audit MSO and MSA agreements for compliance
- Revenue-sharing tied to patient volume may trigger enforcement scrutiny
- Any interference – direct or indirect –with a physician judgment may be deemed unlawful corporate control
If you run or plan to launch a med spa in CA with a physician “friendly PC” and non-clinical investors, this law directly affects your structure.
Why California Passed SB 351
The state is cracking down on what it views as:
- Corporate influence over medical judgment
- PE-driven medical roll-ups
- Profit-first medicine
California health regulators have been signaling this direction for years. SB 351 makes it official — and enforceable.
Expect additional legislation, guidance memos, and scrutiny of:
- MSO management fees
- PC ownership arrangements
- Medical director “rental” models
Other states are watching. Historically, California sets the trend. We expect similar bills to appear in New York, Massachusetts, Illinois, and Washington within the next 3–5 years.
What You Should Do Now
If you are currently operating in California using an MSO/PC structure, you should:
- Review all MSO and Medical Agreements. Identify terms that could violate SB 351 compliance – especially control, non-compete, and fee provisions.
- Remove or Revise Prohibited Clauses. Eliminate language that allows or implies investor or MSO influence over clinical judgment, staffing, or medical records.
- Separate Business and Clinical Decisions in Writing. Document clear boundaries between operational and medical functions to demonstrate physician autonomy more clearly and formally.
- Restructure Management Fees. Use a flat or fixed fee based on the fair market value (FMV) of administrative services – not a percentage of clinical revenue, patient volume, or collections.
- Update Compliance Documentation. Maintain policies, minutes, and attestations showing that all clinical decisions remain under physician control.
Most MSO and “friendly PC” agreements created before 2025 will require amendment to meet SB 351standards. Early review reduces enforcement risk when the law takes effect on January 1, 2026.
The Opportunity Hidden in the Risk
This is not the end of MSOs.
It’s the end of badly structured MSOs.
If done correctly, an MSO can still:
Handle marketing, admin, operations, staffing, HR, billing support
Create scalable aesthetics platforms
The key is maintaining strict separation between business operations and medical decision-making, and structuring compensation in a compliant way.
How Lengea Law Can Help
We are already updating California-compliant MSO agreements to align with SB 351. Our support includes:
- Review + Redline of Existing MSO/PC Agreements
- Restructuring of Management Fees to Avoid Enforcement Risk
- Updated “Friendly PC” and Medical Director Models
- Physician + Investor Protective Language
- Templates that Remove Prohibited Clauses
If you plan to expand into California or need your structure reviewed, now is the time — before enforcement begins.
To schedule a strategy call with our team, contact us.
Final Thoughts
SB 351 is a wake-up call for the aesthetics industry.
The era of casual, copy-paste MSO agreements is over.
The firms, investors, and med spa owners who adapt early will thrive — and stay out of enforcement crosshairs.
Lengea will continue to monitor guidance and release updates as regulations evolve.