California’s DSO Crackdown: What SB 351 and the Aspen Settlement Mean for Sellers in 2026

A California owner called me in January holding a printout of a news story and one question. Does this mean I don’t have to sign a non-compete?

He was three weeks from a letter of intent. He had read that a new state law wiped out non-competes for dentists working under private equity ownership, and he had drawn the obvious conclusion.

He had it exactly backwards. Not through carelessness.

The headlines really do say non-competes are void, and the part that matters to a seller sits several pages into the statute.

That conversation has repeated often enough this year to be worth writing down properly.

What do SB 351 and the Aspen Dental settlement mean for a California seller? SB 351 took effect on 1 January 2026 and bars investor-controlled management companies from making a defined list of clinical and operational decisions. It voids non-competes in those contracts.

It expressly preserves sale-of-business covenants, so the restriction a seller signs still binds.

None of what follows is legal advice. It is general information about public statutes and a public settlement, and any California transaction needs review by a California-licensed attorney who does dental deals.

Key takeaways

• SB 351 took effect 1 January 2026 and codifies a list of decisions a private equity group or hedge fund may not make for a dental practice, from diagnostic testing to coding and billing.
• The non-compete headline is the trap. The statute voids non-competes and non-disparagement clauses in covered contracts, then expressly leaves an otherwise enforceable sale-of-business covenant alone.
• The Aspen Dental settlement is not binding precedent. It resolves allegations against one management company and remains subject to court approval, but it is the most detailed public account of how the Attorney General reads the doctrine.
• AB 1415 can put your buyer on a clock. From 1 January 2026 management companies and their investors became noticing entities, and a covered transaction requires notice at least 90 days before closing.
• None of this stops California deals. California recorded more DSO activity than any other state in 2025. What changed is the paperwork and the diligence, not the ability to sell.

Two definitions before anything else, because both acronyms get used loosely.

A DSO is a dental support organization. It owns the non-clinical side of a practice and runs everything outside the operatory, while a licensed dentist keeps ownership of the clinical entity.

The vehicle it uses is an MSO, a management services organization: the entity that holds the non-clinical assets and contracts with the practice, because most states bar non-dentists from owning the clinical side.

What actually changed in California, and when

Three separate things landed, and owners keep collapsing them into one event.

SB 351 was signed on 6 October 2025 and took effect on 1 January 2026. It added Division 1.7 to the California Health and Safety Code, Sections 1190 through 1192.

AB 1415 was signed five days later and also took effect on 1 January 2026. It has nothing to do with clinical control.

It expands who has to tell the state before a transaction closes.

The Aspen Dental settlement came later and is a different kind of animal entirely. The Attorney General announced it on 7 May 2026, and it resolves an enforcement action against one company rather than creating a rule for everyone.

Two statutes and one settlement. They point the same direction, but they bind different people and they do different work.

Why California acted: the corporate practice of dentistry

The doctrine underneath all of this is old, and it is not a California invention.

Corporate practice of dentistry refers to state laws restricting who may own or control a dental practice. The premise is that a clinical decision belongs to the licensed clinician, and that ownership by someone no dental board can discipline weakens that.

A 2012 congressional survey counted 22 states plus the District of Columbia barring non-dentist ownership outright, with the rest split across partial restrictions and permissive regimes.

That patchwork is exactly why the DSO structure exists, and I have laid out the mechanics of it in how DSOs legally own dental practices.

The structure is lawful. What California legislated in 2025 was the boundary of it.

The Dental Board of California has long held that a practice location must be wholly owned and entirely controlled by the licensed applicant. SB 351 did not overturn that.

It wrote a list.

What SB 351 actually prohibits

The statute applies to a private equity group or a hedge fund that is involved with a physician or dental practice. Both terms are defined broadly, and both carry exclusions.

A private equity group is an investor or group of investors who primarily engage in raising or returning capital and who invest, develop or dispose of specified assets.

A hedge fund is a pool of funds managed by investors to earn a return, whatever the strategy used.

Excluded: passive investors, debt financiers, hospital systems and their affiliates, and public agencies with their associated clinics and facilities.

So a lender is not captured. A private equity sponsor sitting behind a DSO platform generally is.

The prohibitions split into two lists. The first is interference with professional judgment.

The second is exercise of control.

Decision	Where it must sit under SB 351
Which diagnostic tests are appropriate for a condition	The licensed dentist
Whether a patient needs a referral or consultation	The licensed dentist
Overall responsibility for patient care and treatment options	The licensed dentist
How many patients are seen in a period, and hours worked	The licensed dentist
Ownership and content of the patient record	The practice, not the investor
Selecting, hiring or firing dentists, allied health staff and dental assistants	The practice, not the investor
Parameters of third-party payer contracts	The practice, not the investor
Coding and billing decisions for patient care services	The practice, not the investor
Approving the selection of dental equipment and supplies	The practice, not the investor
Clinical competency standards governing referral relationships	The practice, not the investor

The one owners react to hardest is the schedule. A management company may no longer set how many patients you see in a given period, and it may no longer set your hours.

Enforcement runs through the Attorney General, who is entitled to injunctive relief and other equitable remedies and may recover attorney’s fees and costs in remedying a violation. The statute does not create a private right of action.

Which matters more than it sounds. This is not a law you sue your buyer under.

It is a law the state enforces against your buyer.

The non-compete provisions, and the carve-out that catches sellers

Now the section that started this article.

SB 351 bars non-compete and non-disparagement clauses in management services contracts, and in real estate or other asset purchase agreements, between a practice and a restricted investor.

The non-disparagement half is the genuinely new part. A contract may not stop a provider from commenting on that practice as to quality of care, utilization of care, ethical or professional challenges, or revenue-increasing strategies.

That is a real change and a useful one. A dentist who signs a management agreement in 2026 cannot be contractually silenced about clinical quality.

Then comes the sentence that reverses the headline. The statute does not prohibit an otherwise enforceable sale of business noncompete agreement, though such a provision may not operate as an employee non-compete.

Sit with the mechanics of that for a second.

California already voids employee non-competes generally, under Business and Professions Code Section 16600.

The long-standing exception is Section 16601. It lets a person who sells the goodwill of a practice, or an owner disposing of an entire ownership interest, agree not to compete within the geographic area where the practice was carried on.

So when you sell, you are not signing as an employee. You are signing as a seller of goodwill.

And the seller’s covenant is the one category the legislature deliberately left standing.

The practical result is uncomfortable.

A dentist reads that non-competes are dead in California, signs a purchase agreement carrying the one restriction the statute deliberately spared, and finds out what it means years afterwards, on the morning they decide to open again three miles down the road.

I have covered how that covenant sits inside a broader offer in how to evaluate a DSO offer you already have, and how it interacts with staying on to practise in selling and continuing to work.

What belongs here is the narrower point. The exemption is deliberate, it is textual, and it applies to you specifically because you are the seller.

Negotiate radius and duration while you still have leverage, which is before signature and ideally while more than one party is interested.

The Aspen Dental settlement: what was alleged, what was agreed

On 7 May 2026 the California Attorney General announced a settlement with Aspen Dental Management Inc., a management company that supports offices operating under the Aspen Dental name.

Precision matters here, so I am going to stay close to the record and attribute everything.

What was alleged. The Attorney General alleged that the company exceeded its administrative support role by interfering with and unlawfully directing the practice, ownership and management of dentistry in California. The complaint also alleged false and misleading advertising.

Per the Attorney General’s own announcement, the specifics included selecting, purchasing, staffing and advertising offices without clearly identifying independent dentist-owners; selecting and installing dental equipment; making detailed operational decisions; and incentive payments to clinical staff tied to product sales.

On the advertising side, the announcement cites misleading testimonials, ambiguity, misleading cost claims and inexact pricing language.

What was agreed. The settlement, which remains subject to court approval, provides for $2 million in penalties and $300,000 in restitution for certain patients, together with injunctive terms and a 36-month independent compliance monitorship.

Those injunctive terms include not replacing a practice owner with a dentist of the company’s choosing, and not requiring an owner to give up ownership on terminating the relationship.

Also: not owning the property used by a practice, and not basing service fees on revenue, sales or profits.

The company further agreed to stop enforcing non-compete provisions against licensed clinicians, to register with the Dental Board of California as a dental group advertising and referral service, and to identify practice owners clearly in advertising.

These are allegations resolved by agreement. The announcement uses the language of allegation throughout, and I have seen nothing in the public record indicating an admission of wrongdoing.

What the settlement is, and what it is not

This is the part most coverage gets wrong, in both directions.

Hinshaw & Culbertson describes it as the most significant corporate practice of dentistry guidance in a very long time, and the most detailed compliance framework yet for DSOs and MSOs in California. Their alert adds that it is not binding precedent.

Holland & Knight goes further and argues parts of the settlement appear to exceed the bounds of California law.

They single out the flat prohibition on revenue-based fees, the limits on how the management company pays its own employees, and the bar on owning property used by a practice, noting current law has no analog to that last one.

In their reading, no single activity the Attorney General cited would, in isolation, independently qualify as a violation.

Nixon Peabody reads the enforcement signal as aimed at contractual architecture rather than any single clause, since it was replacement rights, continuity agreements, discretionary fee formulas and sales-linked incentives taken together, not any one alone, that the Attorney General treated as indicia of lay control.

So the honest summary for a seller is short. One company settled one action, and nothing in it binds your buyer.

But every well-advised DSO in California is now reading its own documents against it. That is why your diligence file has questions in it that were not there in 2024.

AB 1415, and the clock it can put on your closing

AB 1415 is the quiet one, and it is the one most likely to move your timetable.

Since 1 January 2026 the noticing entities under the Office of Health Care Affordability include management services organizations, private equity groups and hedge fund managers.

They also include newly formed entities created to transact with a health care entity, and entities that own, operate or control a provider.

An MSO for this purpose is an entity providing management and administrative support to a provider, where those services include provider rate negotiation, revenue cycle management, or both.

Where notice is required, it must go to the agency at least 90 days before closing. The agency then has 45 days to confirm no further analysis is needed, or 60 days to determine that a cost and market impact review is warranted.

If that review is triggered, it runs up to 90 days and can be extended by a further 30. Add it up and a captured transaction can carry six months of regulatory calendar before anyone signs anything final.

Is your particular deal captured? That turns on entity definitions and dollar thresholds, and it is the one piece here I would not let anybody hand-wave for you.

The thresholds key off California-derived revenue and deal size. A party averaging at least $25 million in annual California health care revenue is generally in scope, as is a $10 million party transacting with a $25 million one.

Notice also bites where fair market value reaches $25 million. Or where the deal is more likely than not to lift annual revenue by $10 million or 20%.

Implementing regulations were still moving during 2026, with proposed rules released in the spring. Ask your counsel where they stood the week your letter of intent was signed.

One practical note. Goodwin’s summary of the California regime observes that the statute carries no enumerated penalties for failing to file.

That does not make the notice optional, because the buyer’s counsel treats it as a closing condition regardless.

	SB 351	AB 1415	The Aspen Dental settlement
What it is	Statute, Health and Safety Code Division 1.7	Statute expanding transaction notice to the state	Settlement of an enforcement action, subject to court approval
In force	1 January 2026	1 January 2026	Announced 7 May 2026
Who it binds	Private equity groups and hedge funds involved with a dental practice	Noticing entities, including MSOs and their investors	Aspen Dental Management Inc.
Core effect	Lists decisions the investor may not make; voids covered non-competes	Notice at least 90 days before closing	Money, injunctive terms, 36-month monitorship
What it changes for you	What your management agreement may say	How long your buyer’s timetable runs	Nothing directly; it shapes what buyers now ask in diligence

What a California seller should actually check

Here is where I would spend an hour with the documents, and what I would want answered in writing.

Read the management services agreement before you read the price. The purchase agreement gets the attention. The management agreement is the one you live inside afterwards, and the one SB 351 rewrites.

Find the fee formula. Ask whether the management fee is fixed, cost-plus, or a percentage of collections or profit. Then ask what happens if that structure has to change.

Find the schedule clause. If anyone other than the treating dentist may set patient volume or working hours, that language is now on the wrong side of the statute.

Find the ownership succession mechanics. Replacement rights, transfer restrictions on your clinical shares, and any option that lets somebody else designate the next owner of the professional entity are precisely the provisions the Attorney General examined, which is why they now draw questions nobody was asking two years ago.

Read your restrictive covenant as a seller’s covenant. Radius, duration, what counts as competing, whether a later termination shortens it. Assume it is enforceable and negotiate accordingly.

Ask whether the buyer expects to file an AB 1415 notice, and when. That answer sets your realistic closing date more than anything in the letter of intent.

Ask what the buyer changed after May 2026. Any buyer active in California has reviewed its documents against the settlement. A buyer who cannot describe what they looked at is telling you something.

Plainly again: every item above is a question to bring to a California-licensed attorney who does dental transactions, not a substitute for one.

Are other states following?

Yes, though more unevenly than the coverage suggests, and mostly on the medical side first.

Oregon is the clearest case. SB 951, signed in June 2025, codifies the corporate practice of medicine doctrine and restricts management company control and dual ownership.

New arrangements had to comply by 1 January 2026; pre-existing ones have until 1 January 2029.

One detail matters for dentists specifically. Per Holland & Knight’s implementation update, Oregon’s law applies to physicians, nurse practitioners, physician associates and naturopathic practitioners, and does not extend to dental practices.

Elsewhere the pattern is transaction review rather than clinical control: Washington expanded pre-notification to its own Attorney General in March 2026, and Rhode Island adopted a premerger notification rule in January 2026 covering medical practice group transactions that involve private equity.

Vermont’s framework passed its House in March 2026, codifying the doctrine and requiring physician majority ownership of management companies. Pennsylvania’s HB 2115 would require pre-closing notice on a 120-day runway.

Plenty has failed, too. New Mexico’s corporate practice bill did not advance, several Maine proposals were voted down, and Colorado’s expansion was postponed indefinitely in March 2026.

Arizona is the one to watch on the dental side, where HB 2308 would bar dental insurers and their holding companies from owning dental service providers.

Two caveats. Most of these are proposals, and most proposals die.

And almost none are drafted with dentistry primarily in mind, so dental coverage often turns on definitional language rather than intent.

Check your own state as it stands the month you sign, not as it stood when somebody blogged about it.

What this does not change

Now the part the alarmist version of this story leaves out.

California did not restrict the sale of dental practices. Nothing in SB 351, AB 1415 or the Aspen settlement stops a California dentist from selling to a DSO, to a private equity backed group, or to another dentist.

The market is the evidence. Becker’s Dental Review counted more than 200 DSO affiliations across the country in 2025, and California saw more activity than any other state.

Affiliation is a long-run trend, not a 2026 event. ADA research shows DSO affiliation among dentists rising from 8.8% in 2017 to 16.1% in 2024.

What changed is compliance and documentation. Your buyer has more homework.

Your management agreement has to say different things. Your closing may carry a notice period it did not carry in 2024.

None of that changes what your practice earns, and none of it changes adjusted EBITDA, which is what the practice makes in pure operating profit after paying a market-rate dentist to do the work you currently do yourself.

If anything, the regulatory layer argues for a wider process rather than a narrower one. Buyers differ enormously in how ready they are, and readiness shows up as timing risk in your deal.

That gap is one of the things we screen for.

It is why the Elite Selling System exists, which means we vet every buyer before any is allowed to bid, the way a good venue keeps a rope across the door and decides who gets past it.

Then we run a private competitive window inside that group. An owner who answers only the group that called them never learns which buyers were ready and which were not.

Where that leaves you

If you own a California practice and you are within a couple of years of selling, the sequence is simple.

Get the management services agreement and the draft covenant in front of a California-licensed attorney experienced in dental transactions, before the letter of intent rather than after. Assume the seller’s non-compete is enforceable.

Ask the buyer directly about notice obligations and timing.

Then decide whether you want one bidder’s version of all of this, or several.

We read the actual documents with owners and tell them what the terms convert to in practice. Sometimes the answer is that the offer in front of them is already a good one.

Start with a free, confidential practice value estimate and we will walk you through what we see.

Our fee varies depending on the value of the practice and is entirely success-based. If we do not get you a result, we do not get paid.

And once more, because this is legal territory and the stakes are real: this article is general information, not legal advice. A California transaction must be reviewed by a California-licensed attorney experienced in dental transactions.

---

Frequently asked questions

What is California SB 351 and when did it take effect?

SB 351 was signed on 6 October 2025 and took effect on 1 January 2026. It added Division 1.7, Sections 1190 through 1192, to the California Health and Safety Code, and it lists decisions a private equity group or hedge fund may not make for a physician or dental practice.

Does SB 351 stop a DSO from buying my California dental practice?

No. SB 351 regulates what an investor-controlled management company may decide once it is involved with a practice.

It does not restrict the sale of a dental practice, and California recorded more DSO activity than any other state in 2025.

Does SB 351 mean my non-compete is unenforceable?

Not the one you sign as a seller. The statute voids non-compete and non-disparagement clauses in covered management and asset purchase contracts, then expressly preserves an otherwise enforceable sale-of-business noncompete.

That is the covenant a selling dentist typically signs.

What did the California Attorney General allege against Aspen Dental?

The Attorney General alleged that Aspen Dental Management Inc. exceeded its administrative support role by interfering with and unlawfully directing the practice, ownership and management of dentistry in California, and separately alleged false and misleading advertising. The settlement remains subject to court approval.

What did the Aspen Dental settlement require?

Per the Attorney General’s announcement, $2 million in penalties, $300,000 in restitution for certain patients, injunctive terms and a 36-month independent compliance monitorship. Terms include not owning practice property, not basing service fees on revenue, sales or profits, and registering as a dental group advertising and referral service.

Is the Aspen Dental settlement binding on other DSOs?

No. It resolves an action against one company and is not binding precedent.

Law firms analysing it describe it as a detailed roadmap of how the Attorney General interprets the corporate practice of dentistry doctrine, and at least one has argued parts of it appear to exceed California law.

How does AB 1415 affect the timing of my dental practice sale?

From 1 January 2026 management services organizations, private equity groups and hedge funds became noticing entities. Where a transaction is covered, notice must be filed at least 90 days before closing, and a cost and market impact review can add roughly 90 to 120 days more.

Are other states passing laws like SB 351?

Several are moving, mostly on the medical side first. Oregon’s SB 951 codified the corporate practice of medicine doctrine but does not extend to dental practices.

Washington, Rhode Island and Vermont have advanced transaction-review or ownership measures, while proposals in New Mexico, Maine and Colorado failed or stalled.

---

Sources

California SB 351 and the underlying statutes

1. California Legislative Information. “SB 351 — Health care: private equity group or hedge fund.” leginfo.legislature.ca.gov
2. California Health and Safety Code, Division 1.7, Sections 1190–1192. leginfo.legislature.ca.gov
3. California Business and Professions Code, Section 16601 (sale-of-business exception). leginfo.legislature.ca.gov
4. Goodwin. “California Governor Signs Bill Codifying Existing Corporate Practice Restrictions and Imposing Certain New Limitations on Noncompetition Restrictions.” goodwinlaw.com
5. Benesch, Friedlander, Coplan & Aronoff LLP. “California Enacts SB 351: New Restrictions on Private Equity and Hedge Fund Involvement in Physician and Dental Practices.” beneschlaw.com

The Aspen Dental settlement and California enforcement

6. California Attorney General. “Attorney General Bonta Announces Settlement with Aspen Dental Over Corporate Practice of Dentistry Violations.” oag.ca.gov
7. Holland & Knight. “The Recent California AG Settlement Is a Wake-Up Call, But Not What You Think.” hklaw.com
8. Nixon Peabody. “California Attorney General Signals Increased Corporate Practice Enforcement.” nixonpeabody.com
9. Hinshaw & Culbertson LLP. “A New Era of Compliance Standards for California DSOs and MSOs After the Aspen Dental Settlement.” hinshawlaw.com
10. ADA News. “California Attorney General Reaches Settlement with Aspen Dental Over Corporate Practice Claims.” adanews.ada.org
11. Dental Board of California. “Laws and Regulations.” dbc.ca.gov

AB 1415 and transaction notice

12. Goodwin. “California Governor Signs AB 1415, Extending Healthcare Transaction Oversight to MSOs.” goodwinlaw.com
13. Goodwin. “State Healthcare Transaction Notification Laws — California.” goodwinlaw.com
14. Nixon Peabody. “California Expands Health Care Oversight.” nixonpeabody.com
15. Nixon Peabody. “OHCA’s Proposed Emergency Regulations Clarify AB 1415 Notice Requirements.” nixonpeabody.com

Other states and the wider regulatory picture

16. Holland & Knight. “Q1 Recap on Proposed Legislation Affecting Healthcare Consolidation.” hklaw.com
17. Holland & Knight. “An Update on the Implementation and Implications of Oregon’s New CPOM Laws.” hklaw.com
18. Nixon Peabody. “Oregon SB 951: Corporate Practice of Medicine Law Explained.” nixonpeabody.com
19. U.S. House Committee on Oversight. “Survey of State Laws Governing the Corporate Practice of Dentistry.” oversight.house.gov

The California dental market

20. Becker’s Dental Review. “200+ DSO Affiliations in 2025: State-by-State Breakdown.” beckersdental.com
21. ADA Health Policy Institute. “Dental Practice Research.” ada.org