California Attorney General Files Amicus Brief Scrutinizing Continuity Agreements

From the West Coast Healthcare Desk

California Attorney General (AG) Rob Bonta recently filed an amicus curiae brief in a pending appeal in the Art Center Holdings, Inc., et al. v. WCE CA Art, et al. In the brief, Bonta urges the California Second District Court of Appeal to adopt a stricter reading of California's long-standing corporate practice of medicine (CPOM) doctrine as it relates to continuity agreements – an interpretation that goes beyond what has previously been endorsed by the California legislature and courts and even further than the trial court's decision in the pending appeal. Although the brief (and related press release) is informative as to where Bonta currently stands on the issue, it lacks precedential value because it is not formal regulatory guidance, an enforcement action or even a formal opinion of his office. Nevertheless, it is the only public data point with respect to the Bonta's views on CPOM since Senate Bill (SB) 351, as explained in a previous Holland & Knight alert, went into effect in January 2026.

Recent California CPOM Developments

California has long maintained one of the nation's most comprehensive CPOM doctrines, rooted in Business and Professions Code Sections 2052 and 2400, which prohibit unlicensed entities from practicing medicine or employing physicians. Over the past decade, the state's legislative landscape has evolved primarily in response to growing concerns about corporate investment in healthcare delivery systems. A significant shift began with the establishment of the Office of Health Care Affordability (OHCA), which was tasked with reviewing healthcare transactions for cost and market impact starting in 2024. Later that year, the California legislature passed Assembly Bill (AB) 3129, which would have required private equity groups and hedge funds to obtain the AG's consent before closing certain healthcare transactions. However, Gov. Gavin Newsom vetoed the bill, citing redundancy with the OHCA review process. In 2025, the legislature revisited the issue and split AB 3129 into SB 351, which codifies CPOM, and AB 1415, which expands OHCA reporting to include private equity and management service organization (MSO) transactions. Newsom signed both bills in October 2025, with an effective date of January 1, 2026, further codifying California's CPOM doctrine.

Art Center Holdings and Bonta's Position

Holland & Knight previously analyzed the trial court's decision in Art Center Holdings two years ago. In short, the trial court found that a continuity agreement¹ by an MSO implicated California CPOM because the underlying cause involved a clinical decision being taken by the MSO. A broader reading of that court's decision could be that any "no cause" trigger of a continuity agreement implicates California CPOM, not that the agreement itself per se implicates California's CPOM law.

Bonta takes the position in the brief that continuity agreements inherently implicate California's CPOM doctrine regardless of the underlying triggers in the agreement. The brief also takes time to explain the history of California CPOM and reiterate the foundations of SB 351, giving a potential preview of how it might interpret the law in the future. It bears noting, however, that SB 351 was not in effect when the events at issue in Art Centers Holdings occurred.

Bonta's position regarding continuity agreements has not been previously endorsed by the California legislature. Specifically, it was not reflected in SB 351 (2025) or AB 3129 (2024) when lawmakers considered how to codify CPOM. The California legislature also considered SB 642 in 2022, which would have expressly prohibited continuity agreements, but the bill did not pass. If Bonta's view was enforced and/or adopted by a court, California would be the only state in the country to expressly prohibit continuity agreements. Even Oregon, which arguably passed one of the most aggressive CPOM bills last year, permits continuity agreements as long as the triggers are limited to common elements enumerated by statute.

Federal and Congressional Context

While the issues raised in Bonta's brief are grounded in state law, they are unfolding against a broader backdrop of increasing federal scrutiny of corporate involvement in healthcare delivery. Congressional committees, particularly the U.S. House Committee on Energy and Commerce and U.S. Senate Committee on Health, Education, Labor, and Pensions (HELP), have continued to examine private equity investment in physician practices with a focus on governance structures, clinical autonomy and potential impacts on cost and quality.

Although there is no immediate path to federal legislation codifying a national CPOM standard, these oversight efforts are contributing to a policy environment in which state-level developments, such as California's evolving CPOM framework, may serve as reference points for future federal inquiry. In parallel, federal agencies, including the Federal Trade Commission and U.S. Department of Justice, are increasingly focused on healthcare transactions and organizational structures, which may indirectly intersect with CPOM-related concerns, particularly where governance or control arrangements raise competition or consumer protection issues.

Conclusion and Path Forward

There are some real questions as to the reasonableness of Bonta's position in the brief, such as whether there will be subsequent regulatory guidance implementing SB 351, whether the California legislature and/or courts will adopt Bonta's position, and how the upcoming state elections in November 2026 may affect the policy landscape. However, as explained in a previous Holland & Knight alert, what is clear is that states considering new healthcare transaction reporting and CPOM proposals in 2026 have not been successful.

Though the filing may signal Bonta's potential enforcement posture, stakeholders should recognize that 1) the appeal remains pending and the court is not obligated to adopt the AG's reasoning, 2) there has been no public enforcement activity under SB 351 to date and 3) the brief's focus is on "continuity agreements," which can be adjusted and/or replaced with other mechanisms to ensure continuity of operations in the event of triggering events.

Ultimately, the amicus brief should be understood for what it is: an advocacy document representing a view of how existing law should be interpreted, not formal guidance, nor an enforcement action or a statement with any precedential effect. The Court of Appeals will independently make a decision, and Holland & Knight will continue to monitor the case and any future guidance from Bonta on SB 351.

Notes

¹ Continuity agreements are called different things in the industry but are agreements between an MSO, a supported healthcare practice and practice owner to ensure that there is a transition plan in place in the event of certain occurrences involving the business or owner (death, disability, etc.).