Carbon Health, its affiliates and its former CEO have struck a deal with California’s attorney general to settle several alleged violations of state law.
The settlement—filed in a county court on Wednesday, unveiled Friday and under review by a judge—follows an investigation that intersected with the tech-enabled primary care company’s now-concluded Chapter 11 bankruptcy filing back in February. If approved, it would bring substantial changes to the tech-enabled primary care company’s corporate structure and practices.
That includes a corporate reorganization for Carbon Health’s 54 California clinics, which the Office of the Attorney General said it has improperly controlled. Carbon Health, as a management services organization, had contracted with these under a so-called “friendly professional corporation” model that gives the company de facto control over the physician-owned clinics and influence over their medical decisions and operations, including staffing, advertising and insurance negotiations, the office said.
California has had restrictions against non-medical corporations controlling practices on the books for years, but strengthened those guardrails last year. Similar legislation has been introduced in a handful of states, and was at the center of an ED staffing dispute that played out earlier this year in neighboring Oregon.
“In California, medical decisions must be made by licensed healthcare professionals whose duty is to prioritize patient care, not by companies focused on profits,” Attorney General Rob Bonta said in a Friday release. “This settlement holds Carbon Health accountable for violating California's longstanding protections against the corporate practice of medicine and for engaging in unlawful business practices. It also sets a significant precedent by showing that healthcare businesses can be restructured to protect patients, preserve physicians’ independent medical judgment, and comply with California’s laws.”
The state’s complaint against Carbon Health and Eren Bali, its co-founder and former CEO, also accused the company of “promulgating false and misleading advertising to consumers, and engaging in unconscionable billing practices.”
On the former, the state said Carbon Health had “from day one” represented to consumers that its clinics accepted all kinds of insurance, leading in some cases to out-of-network bills that were higher than expected.
The company also allegedly included vague or unlawful terms in its patient consent forms and contracts such as automatic billing of a credit or debit card on file, a practice that “proved to be problematic for Defendants as patients that discovered that Defendants would sometimes overbill or double bill them, or Defendants would process patients’ claims without going through the patients’ insurance or health plans.”
Versions of these practices were in place at Carbon Health through 2022 and 2023, according to the complaint. The settlement agreement includes requirements that the company no longer engage in any of the practices.
The settlement also outlines a $4.4 million civil penalty on Carbon Health and a $100,000 civil penalty against Bali, as well as a $375,000 administrative expense claim against the company.
Carbon Health, in an emailed statement, said it fully cooperated with Bonta’s investigation since the probe launched two years ago.
“While we strongly refute any suggestion of wrongdoing and believe our actions were consistent with applicable requirements, we have reached a settlement that fully resolves the matter and addressed it through the Chapter 11 process,” the statement reads. “Delivering on our commitments to our patients, teams, and partners remains our priority, and resolving this matter allows us to stay focused on the care we deliver every day."
Carbon Health emerged from its bankruptcy in late May under a court-approved plan that transferred majority ownership to a lender group headed by private investment fund Future Solution Investments. The company today operates more than 80 clinics across eight states