Table of Contents
Ready to See Results?
From strategy through execution, Atlantic Health Strategies integrates compliance, operations, and growth into durable, measurable results. Let’s put our expertise to work for your organization.
The Short Answer: Federal, State, and Successor Liability All Hit at Once
If you sponsor or operate a behavioral health platform in 2026, plan for three things running at the same time: coordinated federal scrutiny out of the FTC, DOJ Antitrust Division, and HHS; state pre-close notice regimes with real teeth in Massachusetts and now, since January 1, 2026, in California; and successor liability that follows the buyer post-close. That is the operating reality. Not a forecast.
The longer answer starts on March 5, 2024. On that date, the FTC, DOJ Antitrust Division, and HHS jointly launched a cross-government public inquiry into private-equity and other corporations’ increasing control over health care. The Request for Information named the transaction types in scope: deals conducted by health systems, private payers, private equity funds, and other alternative asset managers involving health care providers and facilities, including behavioral health providers. That inclusion was deliberate.
FTC Chair Lina Khan framed the intent at launch: “When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out.” Two months later, on May 9, 2024, Assistant Attorney General Jonathan Kanter announced the DOJ Antitrust Division’s Task Force on Health Care Monopolies and Collusion. The task force pulls together civil and criminal prosecutors, economists, industry experts, technologists, data scientists, investigators, and policy advisors. Its stated targets include payer-provider consolidation, serial acquisitions, labor and quality of care, medical billing, and health care IT services. Kanter said the group will “identify and root out monopolies and collusive practices that increase costs, decrease quality and create single points of failure in the health care industry.”
If your diligence file still assumes a quiet HSR filing and a routine change-of-ownership licensure application, you are working from a 2019 map.
The State Regimes Sponsors Actually Have to Clear
Massachusetts. Governor Maura Healey signed Chapter 343 of the Acts of 2024 on January 8, 2025. The statute defines a Significant Equity Investor as any private equity company with a financial interest in a provider, provider organization, or MSO, or any investor with direct or indirect equity ownership totaling more than 10 percent. That sweeps in most PE-backed behavioral health platforms operating in the Commonwealth.
Effective April 8, 2025, the HPC is authorized to request information from significant equity investors and other parties involved in a given transaction, including capital structure, general financial condition, ownership and management structure, and audited financial statements. Providers with more than $25 million in Net Patient Service Revenue in the preceding fiscal year must file a Notice of Material Change with the HPC, CHIA, and the Attorney General at least 60 days before closing, and the HPC can escalate to a Cost and Market Impact Review.
On February 5, 2026, the HPC proposed further amendments. The proposed regulations would allow the HPC to require submission of additional data for five years following the completion of a material change, creating burdensome additional reporting and compliance obligations. Read that again. Five years of post-close reporting.
California. Governor Newsom vetoed AB 3129 in 2024. He then signed AB 1415 into law on October 11, 2025, expanding the authority of the Office of Health Care Affordability (OHCA) to review transactions involving management services organizations and private equity funds beginning January 1, 2026. AB 1415 deems MSOs, private equity groups, hedge funds, business entities newly created to enter into transactions with healthcare entities, and entities that own, operate, or control a provider as “noticing entities” required to file written notices with OHCA at least 90 days before entering into certain agreements. Newsom also signed SB 351 on October 6, 2025, codifying corporate practice of medicine limits on how PE-owned MSOs contract with licensed clinicians. Any deal touching California has to plan for the 90-day window and a potential CMIR on top of it.
The rest. New York’s Article 45-A material transaction notification took effect August 1, 2023. Policymakers in multiple states have been busy on the same theme. Sponsors underwriting a multi-state platform have to map each one before signing an LOI, not after.
What Diligence Actually Has to Cover Now
A real behavioral health diligence file in 2026 looks different than it did three years ago. My team at AHS pulls UR denial trends by payer, SIU audit history, the last three state survey reports, every corrective action plan and its closure documentation, ASAM Criteria 4th Edition level of care assignments against the actual programming delivered, and the EMR audit logs. Not the policies. The logs.
Here is what kills deals at LOI. A target presents itself as a clinically managed high-intensity residential program under the ASAM Criteria 4th Edition, but the chart audit shows programming hours and clinical staffing that map to a lower residential level. That is not a documentation gap. That is billing exposure that follows the buyer post-close.
Payer readiness matters as much as the regulatory file. My team has reviewed targets in Florida and Texas carrying $4 million to $7 million in aged AR that the seller’s QofE deck treated as collectible. It was not. Timely filing had blown on most of it. Read the AR aging by payer, by date-of-service bucket, before you sign the LOI.
Sponsors should also read the enforcement signal in the data. The Private Equity Stakeholder Project found that private-equity-backed companies accounted for 56% of large corporate bankruptcies (those with liabilities over $500 million) in 2024, and 7 of the 8 largest healthcare bankruptcies in 2024. PE-backed companies accounted for 21% of all healthcare bankruptcies in 2024. Regulators read that report. So do their outside counsel.
Governance After Close Is Where Sponsors Get Burned
The corporate practice of medicine doctrine is not new. What state AGs are doing with it in 2026 is new. The Massachusetts AG, the Oregon AG, and Rhode Island AG Peter Neronha have all publicly scrutinized management services agreements that give the MSO control over clinical hiring, protocols, or scheduling.
Steward Health Care is the case study every state legislator now cites. On May 6, 2024, Steward filed for Chapter 11 bankruptcy, reporting over $9 billion in liabilities, including $290 million in unpaid employee wages and benefits, nearly $1 billion in unpaid bills to vendors and suppliers, and $6.6 billion in long-term rent obligations to its landlord, Medical Properties Trust. Cerberus Capital Management owned Steward from 2010 to 2020. That is the backdrop your MSA gets read against.
If your MSA reads like the MSO is running the clinic, you have a problem regardless of how the org chart is drawn. My team rewrites a lot of these. Usual friction points:
- Clinical leadership reporting lines. The clinical director answers to the licensed clinical entity, not the MSO.
- EMR access controls. MSO finance and billing staff get the access they need, nothing more.
- Level of care decisions. ASAM placement and discharge sit with licensed clinicians inside the professional entity. Full stop.
Sponsors who seat zero independent clinical voices on a portco board create a finding waiting to happen during the next AG inquiry or DOJ civil investigative demand. In Massachusetts, the definition of Significant Equity Investor is wide enough that many sponsors will trip the notice requirement without realizing it.
The Operating Model Has to Match the Thesis
Most behavioral health PE theses I read assume census growth, payer mix improvement, and margin expansion through shared services. Fine. But the operational backbone has to actually exist. I have walked into post-close situations where the platform ran three EMRs across five sites, no unified UM workflow, and one compliance officer splitting time with HR. The deck said 40% EBITDA by year three. The reality was a $1.2 million remediation spend before that platform could credential consistently across four states.
The macro picture reinforces the point. PESP reported that PE-related bankruptcies in 2024 resulted in at least 65,850 layoffs across the country. Since 2018, Steward alone closed six hospitals in the US, resulting in the layoffs of at least 2,650 workers and cuts to service lines including obstetrics, behavioral health, and cancer care. That is what underfunded operations look like at scale.
Multi-site behavioral health does not scale on willpower. Operators scale it by building:
- A unified intake and utilization management function
- Consistent ASAM Criteria 4th Edition application across every site in the network
- One source of truth for credentialing
- A compliance calendar that tracks every state survey window, every accreditation cycle, and every payer audit response deadline
What I tell sponsors before they sign the LOI. Three things.
First, do real regulatory diligence, not a checklist. Pull the actual survey reports from the state agency. In Florida that is AHCA and DCF. In Texas that is HHSC. Read the findings. Read the CAPs. Talk to the clinical leadership without the seller’s banker in the room when possible.
Second, model the compliance and operations spend honestly. A behavioral health platform doing $30 million in net revenue across four states needs a real compliance function, a real UM function, a real revenue integrity function, and an EMR strategy. Sponsors who underfund any of these to hit a model end up staring at a civil investigative demand 18 months post-close.
Third, decide before you close what you are building. Either you are building a clinically excellent platform that produces durable margin, or you are arbitraging reimbursement. Sponsors who choose the first survive the next enforcement wave. The second group does not.
If you want to talk through what the current enforcement environment means for a specific platform, Leah Kendall and Shalini Karapetian will be at WCSAD 2026 in San Diego May 28 to 30. AHS is also sponsoring the South Florida Behavioral Health Coffee Morning on May 20 at Harvest Patio in Boca Raton at 10 a.m. Come say hello.
Frequently asked questions
What triggers a Notice of Material Change filing in Massachusetts for a behavioral health acquisition?
Under Chapter 343 of the Acts of 2024, a provider or provider organization with more than $25 million in Net Patient Service Revenue in the preceding fiscal year must file a Notice of Material Change with the HPC, CHIA, and the Attorney General at least 60 days before any change of ownership or control involving a Significant Equity Investor. The statute defines a Significant Equity Investor as any private equity company with a financial interest in a provider, provider organization, or MSO, or any investor with more than 10% direct or indirect equity ownership. The HPC can escalate to a Cost and Market Impact Review, which extends the pre-close timeline.
Did California AB 3129 actually become law, and what applies to PE-backed behavioral health deals now?
No. Governor Newsom vetoed AB 3129 in 2024. Separately, he signed AB 1415 on October 11, 2025, effective January 1, 2026, which requires private equity groups, hedge funds, MSOs, and newly created business entities to file a 90-day pre-close notice with the Office of Health Care Affordability (OHCA) for material transactions with a healthcare entity or MSO. Governor Newsom also signed SB 351 on October 6, 2025, codifying corporate practice of medicine limits on how PE-owned MSOs contract with licensed physicians and dentists.
How big of a role did private equity actually play in 2024 healthcare bankruptcies?
According to the Private Equity Stakeholder Project, PE-backed companies accounted for 56% of large corporate bankruptcies (those with liabilities over $500 million) in 2024 across all sectors, and 7 of the 8 largest healthcare bankruptcies. In healthcare specifically, 21% of all bankruptcies involved PE-backed companies, and PE-related bankruptcies across the economy resulted in at least 65,850 layoffs.
What does the DOJ Task Force on Health Care Monopolies and Collusion actually target?
The task force, announced by Assistant Attorney General Jonathan Kanter on May 9, 2024, is staffed with civil and criminal prosecutors, economists, healthcare industry experts, technologists, data scientists, investigators, and policy advisors. Its stated priority areas include payer-provider consolidation, serial acquisitions (roll-ups), labor and quality of care, medical billing, healthcare IT services, and access to and misuse of healthcare data. Kanter said the task force will “identify and root out monopolies and collusive practices that increase costs, decrease quality and create single points of failure in the health care industry.”
References
- FTC, DOJ, and HHS Launch Cross-Government Inquiry on Impact of Corporate Greed in Health Care (March 5, 2024)
- Assistant Attorney General Jonathan Kanter Announces Task Force on Health Care Monopolies and Collusion (May 9, 2024)
- Massachusetts Session Law, Chapter 343 of the Acts of 2024, An Act Enhancing the Market Review Process
- Massachusetts HPC Bulletin HPC-2025-01: Advance Guidance for Providers on Material Change Notices (March 17, 2025)
- Epstein Becker Green, Massachusetts Expands Health Care Oversight: Key Takeaways from the HPC’s Proposed Regulations (February 2026)
- Goodwin, California Governor Signs AB 1415, Extending Healthcare Transaction Oversight to MSOs (October 2025)
- Davis Wright Tremaine, California Enacts New Laws to Strengthen Oversight of Private Equity and Hedge Fund Involvement in Healthcare
- Private Equity Stakeholder Project, Private Equity Industry Behind Over Half of Large US Bankruptcies in 2024
- Private Equity Stakeholder Project, The Pillaging of Steward Health Care (July 2024)