The Weekly Articles

Congrats to CSHA member, David A. Rawi, who has been named Partner at Lagerlof, LLP!

David’s practice focuses on representing healthcare providers and the business infrastructure supporting modern healthcare delivery. He advises medical groups, physician practices, Independent Physician Associations, Management Services Organizations, healthcare facilities, and healthcare technology companies on reimbursement disputes, ownership matters, compliance concerns, and business structuring.

David remains committed to serving the healthcare provider community and contributing to the continued strength of provider-side representation in California.

Have member news to share in the Weekly? Please email Andrea Frey if so! 

For California health care lawyers monitoring developments in Medi-Cal eligibility policy, California Senate Bill 1422 (SB 1422) represents a significant proposal in the ongoing debate over coverage expansion, state budget constraints, and access to care for low-income populations.

Introduced in late February 2026 by State Senators Maria Elena Durazo and Joaquin Arambula, the bill would amend provisions of the California Welfare and Institutions Code governing eligibility for Medi-Cal, the state’s Medicaid program. SB 1422 proposes restoring full-scope Medi-Cal eligibility for adults aged 19 and older who lack satisfactory immigration status but otherwise qualify financially for the program.

The proposal arises in response to a recent policy reversal tied to the state’s fiscal outlook. After several years of expanding Medi-Cal coverage regardless of immigration status, California imposed an enrollment freeze beginning January 1, 2026 for undocumented adults as part of budget measures addressing a multi-billion-dollar deficit. Under the current framework, newly applying adults without satisfactory immigration status may receive only limited benefits, such as pregnancy-related services and emergency care. SB 1422 seeks to reverse that freeze and restore access to full-scope benefits—potentially subject to modest premiums or other program conditions.

Supporters of the bill argue that restricting coverage for preventive and routine care may ultimately increase system costs by shifting care into emergency departments and uncompensated care settings. Proponents also note that undocumented workers make up a substantial portion of California’s workforce and contribute billions in state and local taxes annually. Critics, however, have focused on the fiscal implications of expanded eligibility, particularly given ongoing state budget pressures and the rising cost of Medi-Cal coverage for newly eligible populations.

While the debate over immigration policy remains unresolved, SB 1422 and its impact would extend well beyond. Changes to Medi-Cal eligibility directly affect enrollment levels, managed care plan participation, provider reimbursement streams, and county administrative responsibilities for eligibility determinations. If enacted, the bill could significantly alter Medi-Cal enrollment projections and increase demand for services across safety-net providers, hospitals, and managed care organizations. It could likely also result in further expectations and workload placed on counties, which are responsible for ground-level Medi-Cal eligibility determinations. In that respect, SB 1422 highlights the continued complex intersection of coverage expansion policy, fiscal constraints, operational realities within California’s Medicaid program, and state-local relations.

Assembly Member Tri Ta recently introduced AB 1727 prohibiting the unlawful use of DNA.  The bill would add Penal Code section 367, which would criminalize the following:

• Intentional and unconsented sale or transfer of a DNA sample or genetic data;
• Intentional and unconsented submission of DNA for genetic testing or disclosure of genetic data to a third party; or
• Collection or retention of a DNA sample with the intent to perform a DNA analysis.

In order to obtain proper consent, the party using the DNA must provide a clear and prominent disclosure regarding the manner in which the sample will be collected, used, retained, or disclosure of use for a specific purpose.

Exceptions to AB 1727 include:

• Use of DNA by law enforcement, a district attorney, or the Attorney General for law enforcement purposes;
• Use of DNA as evidence in a criminal investigation or court hearing, presented to a grand jury or in a criminal trial;
• Collected to comply with a subpoena, summons, other lawful court order, or federal law;
• Use by a direct-to-consumer genetic testing company in compliance with applicable law:
• Use by a covered entity or business associate;
• Use by a public or private institution of higher education.

Thus, the law would continue to permit law enforcement collection such as that resulting in the arrest of the man believed to be the Golden State Killer, while prohibiting the same type of collection outside of law enforcement purposes, and encourage genetic testing companies to implement stronger protection of DNA samples.

Senate Bill (“SB”) 903 (Padilla) would prohibit licensed mental health professionals from (a) allowing artificial intelligence (“AI”) to make independent therapeutic decisions, or (b) using AI to assist in providing “supplementary support” in therapy or psychotherapy when the client’s therapeutic session is recorded or transcribed, unless certain conditions are met.

Prohibition on Certain Uses of AI in Therapeutic Setting

SB 903 would prohibit a “licensed professional” from allowing AI to do any of the following:

• Make independent therapeutic decisions.
• Directly interact with clients in any form of therapeutic communication, unless they are using a product approved by the FDA and compliant with HIPAA.
• Generate therapeutic recommendations or treatment plans without review and approval by the licensed professional.
• Detect emotions or mental states.

For purposes of the bill, “licensed professional” is defined to include licensed clinical psychologists, licensed clinical social workers, licensed professional clinical counselors, licensed marriage and family therapists, registered or certified alcohol or other drug counselors, psychiatric mental health nurse practitioners, and any other professional authorized to provide therapy or psychotherapy services in California.

The bill also would prohibit an individual, corporation, or entity from providing, advertising, or otherwise offering therapy or psychotherapy—including through the use of internet-based AI—to the public, unless the therapy or psychotherapy services are conducted by an individual who is a “licensed professional.”

Limitations on Use of AI as Supplementary Support

SB 903 defines the term “supplementary support” to mean tasks performed to assist a “licensed professional” deliver therapy or psychotherapy services that do not involve therapeutic communication (i.e., a verbal, nonverbal, or written interaction conducted in a clinical/professional setting to diagnose, treat, or address mental, emotional, or behavioral health concerns) and that are not administrative support, including:

• Preparing and maintaining client records, including therapy notes.
• Analyzing anonymized data to track client progress or identify trends, subject to review by a licensed professional.
• Identifying and organizing external resources or referrals for client use

To use AI to assist in providing “supplementary support,” the bill would require the following conditions to be satisfied:

• The patient or their legally authorized representative must be informed in writing that AI will be used and the specific purpose for which the AI will be used; and,
• The patient or their legally authorized representative must consent to the use of AI.

Assemblymember Maggy Krell’s AB 348, signed by Governor Newsom last fall, establishes presumptive eligibility for county Full-Service Partnership (FSP) programs beginning January 1, 2027. The legislation is intended to facilitate access to intensive behavioral health services for individuals with serious mental illness who are experiencing homelessness, being released from incarceration, or transitioning from institutional care.

AB 348 amends Welfare and Institutions Code section 5887 to create a category of presumptive eligibility for individuals who meet at least one of the following criteria:

• Experiencing unsheltered homelessness;
• Transitioning to the community after six months or more in a secured treatment or institutional setting, state prison, or county jail;
• Two or more psychiatric-related emergency department visits within the prior six months; or
• Two or more arrests within the prior six months. 

County FSP programs provide intensive care coordination, service planning, and wraparound supports for individuals with significant behavioral health needs. The legislation intends to standardize eligibility criteria statewide, while preserving county discretion not to enroll individuals if enrollment exceeds available funding.

Additional guidance from the California Department of Health Care Services is anticipated in advance of the January 1, 2027 effective date, particularly with respect to implementation and funding parameters.

On February 2, 2026, the Centers for Medicare & Medicaid Services (“CMS”) published its final rule (“Final Rule”) revising how the agency evaluates state requests to waive the broad-based and uniformity requirements for health care-related taxes under 42 C.F.R. § 433.68.  The Final Rule implements section 71117 of H.R. 1 of 2025, which prohibits approval of health-related tax programs that satisfy existing statistical tests but nevertheless impose disparate tax rates based on Medicaid volume.  Specifically, the prohibition applies to tax structures that impose: 1) a lower rate on taxpayers explicitly defined as having a lower Medicaid volume than taxpayers that have a higher Medicaid volume, 2) a higher rate based upon Medicaid taxable units than upon non-Medicaid taxable units, or 3) a lower rate on taxpayers that has the same effect as the prohibitions described in (1) or (2) even if not explicitly defined as such. 

The Final Rule clarified that differential tax rate structures may remain permissible if tied to legitimate public policy goals, meaning lawful state objectives that reflect the state’s actual purpose.  Relevant considerations will include public health priorities, fiscal administration, and marketplace stability, such as lower tax rates for sole community or rural hospitals that state determine are necessary to preserve access.  By contrast, CMS will not approve waivers where proxies are used to target Medicaid utilization without a legitimate public policy justification. For example, a tax program that imposes higher rates on taxpayers in counties with average incomes below 230 percent of the Federal poverty level would likely be impermissible because income functions as a proxy for Medicaid eligibility.  CMS emphasized that waiver review will remain collaborative, with the agency evaluating tax structures holistically and likely accepting rational, well-documented state justifications.

CMS also established transition deadlines for compliance, with shorter timeframes applicable to taxes imposed on managed care organizations, and even shorter timeframes for MCO taxes approved within the past two years. Importantly for California, the Final Rule appears to authorize the current structure of the California MCO tax through December 31, 2026, and the Hospital Quality Assurance Fee through June 30, 2028. 

You can find Felicia and Kyle's related article, "Proposition 35 and the Managed Care Organization Tax: Future of Important Medi-Cal Funding Mechanism Murky" published in the Fall 2025 edition of California Health Law News, available here.

The California Department of Public Health issued All Facilities Letter 26-04 on January 27, 2026, providing general acute care hospitals guidance on the implementation of Senate Bill 596, a new law that increases enforcement exposure for nurse-to-patient ratio violations under Health and Safety Code section 1280.3. Most notably, the AFL confirms that violations occurring on separate calendar days will be cited as separate violations, even if they arise from a single staffing shortfall spanning multiple days (a “day” is a 24-hour period, running from midnight to midnight).

According to Section 1280.3, CDPH is required to assess escalating administrative penalties for violations by GACHs of nurse-to-patient staffing ratios: $15,000 for a first violation and $30,000 for a second violation. SB 596 made two significant changes to the statute, both of which took effect January 1, 2026.

The first change, emphasized in the AFL, requires CDPH to treat violations occurring on separate days as separate violations. For example, if a single nursing shift violates staffing ratio requirements across two calendar days, CDPH must issue two separate violations, significantly increasing potential penalties for extended or overnight staffing deficiencies. However, Section 1280.3 continues to provide a limited penalty exemption for GACHs if the facility can demonstrate all of the following: (1) any fluctuation in the required staffing was unpredictable and uncontrollable; (2) prompt efforts were made to maintain required staffing levels; and (3) the facility satisfied the “exhaustion requirement” by immediately using and exhausting its on-call list.

SB 596’s second change clarifies both what qualifies as an on-call list and what actions do not satisfy the exhaustion requirement. Under the amended statute, an on-call list must consist of nurses who are either scheduled to be on call for the specific shift and unit at issue or assigned to a regularly scheduled float pool shift covering one or more specific units. Importantly, the statute specifies that contacting nurses who are not scheduled to be on call or assigned to the applicable float pool does not satisfy the exhaustion requirement.

The California Department of Public Health announced it will delay adoption of its draft emergency regulations on acute psychiatric hospital staffing standards until June 1, 2026. The draft regulations, discussed in last week’s Watching article, sought to impose new nurse-to-patient ratios and other staffing standards for acute psychiatric hospitals effective January 31, 2026. On Monday, January 26, the department published All Facilities Letter 26-03 stating that it expects to adopt the emergency regulations under Health and Safety Code section 1276.4 on June 1, 2026. The AFL also noted, “APHs are advised to continue recruiting, hiring and training staff in anticipation of nurse-to-patient ratios being effective June 1, 2026. Such ratios are not expected to be less than those contained in proposed draft regulatory language already made public in AFL 25-37.” Section 1276.4(k)(2) directs the department to “adopt emergency regulations pursuant to this subdivision no later than January 31, 2026.”

The previous AFL, posted December 22, 2025, indicated that while the department would accept feedback on the draft, it did not intend to reflect any of that feedback in the emergency regulations and would instead consider making changes as part of the regular rulemaking process (required by no later July 31, 2027 under section 1276.4(a)). The new AFL signals a shift in that approach, acknowledging a “significant amount of feedback” that the department said it was evaluating.

The implementing regulations for California SB 184 (2022)—requiring prior notice to the State’s Office of Health Care Affordability (OHCA) for certain health care transactions—are complex and sometimes onerous. But, alas, at least they exist. (22 CCR § 97431 et seq.) Not so for AB 1415 (2025), the recently enacted legislation that extends OHCA notice requirements to management services organizations (MSOs) and private equity firms. The law went into effect on January 1, 2026, but OHCA has not issued implementing regulations and does not anticipate doing so until Spring 2026. (See California Department of Health Care Access and Information, AB 1415 Frequently Asked Questions (“AB 1415 FAQs”), available at https://hcai.ca.gov/affordability/ohca/assess-market-consolidation/mcn-cmir-faqs/ab-1415-frequently-asked-questions-faq/). The new law requires private equity firms, MSOs, and “[e]ntities that own, operate, or control a provider” to give OHCA prior notice of transactions through which the noticing entity acquires “a material amount” of the assets or control of a health care entity or MSO.

In the absence of implementing regulations, OHCA posted the AB 1415 FAQs on its website last month. Those FAQs provide some insight into how OHCA is interpreting the new law, but uncertainties remain. The FAQs confirm that MSOs and private equity firms must comply with AB 1415 even in the absence of implementing regulations, that OHCA “intends” to impose the same 90-day notice period under SB 184 to transactions triggering AB 1415, and that MSOs and PE firms must provide, at minimum, “written notice” of triggering transactions, though OHCA does not clarify the information the notice must contain. MSOs and PE firms will, it seems, need to wait until spring to learn the meaning of key phrases in AB 1415, namely “written notice” and a “material amount” of assets or control. OHCA notes, however, that providers and counsel can submit questions about the law to CMIR@hcai.ca.gov. Any forthcoming regulations would likely be noticed through the emergency rulemaking process, with truncated public comment periods, under OHCA’s existing emergency rulemaking authority, which is set to end January 1, 2027 (Health & Saf. Code § 127501.2).

On January 15, 2026, the Department of Managed Health Care issued new guidance in All-Plan Letter 26-002 clarifying the obligation of health care service plans, including Medi-Cal managed care plans, for dates of service prior to June 30, 2025, under Health and Safety Code sections 1342.2 and 1342.3, as added by SB 510 (Stats. 2021, ch. 729), to reimburse providers for COVID-19 testing and immunizations without delegating the financial risk to providers under preexisting delegation agreements. The guidance clarifies that the prohibition in SB 510 also extended to limited risk shifting arrangements, including single case and care rate agreements, among others. The APL also clarifies that Medi-Cal managed care plans must comply with the requirements of SB 510 (as amended by SB 1473 (Stats. 2022, ch. 545)), including the prohibition of delegation of financial risk, for dates of service prior to June 30, 2025.

The APL was issued in response to reports from providers that some health plans, including some Medi-Cal managed care plans, were still refusing to reimburse pandemic era COVID-19 testing based on the presence of a case rate agreement or other risk shifting arrangements, arguing such arrangements did not constitute delegation of financial risk for purposes of SB 510, as well as confusion among some Medi-Cal managed care plans about whether the newly added Medi-Cal exemption in Health and Safety Code section 1342.2(h)(6), added by AB 116 (2025), applied retroactively.