Carbon Health to revise California clinic contracts after settlement

Carbon Health, its affiliates and its former CEO have reached an agreement with California Attorney General Rob Bonta’s office to settle several alleged violations of state law. The deal was filed in county court on Wednesday, made public Friday and remains under judicial review. If it is approved, it would require major changes to the company’s corporate structure and business practices.

The settlement follows a California Department of Justice investigation that overlapped with Carbon Health’s Chapter 11 bankruptcy process, which the tech-enabled primary care company has now completed. According to the state, the agreement is meant to address concerns about the way Carbon Health operated its California clinics, how it presented its services to consumers, and how it handled billing.

A central part of the settlement is a corporate reorganization for Carbon Health’s 54 California clinics. The Office of the Attorney General said the company had improperly controlled those clinics. Carbon Health, acting as a management services organization, had used what the state described as a “friendly professional corporation” model. Under that arrangement, the company allegedly had de facto control over physician-owned clinics and influence over medical decisions and daily operations, including staffing, advertising and insurance negotiations.

California has long had limits on non-medical corporations controlling medical practices, and those restrictions were strengthened last year. Similar legislation has been introduced in several other states. The issue has also surfaced in an emergency department staffing dispute in neighboring Oregon earlier this year.

In a Friday statement, Attorney General Bonta said medical decisions in California must be made by licensed healthcare professionals whose duty is to prioritize patient care rather than profits. He said the settlement holds Carbon Health accountable for violating the state’s protections against the corporate practice of medicine and for engaging in unlawful business practices. Bonta also said the agreement sets an important precedent by showing that healthcare businesses can be restructured to protect patients, preserve physicians’ independent judgment and comply with state law.

The state’s complaint against Carbon Health and Eren Bali, the company’s co-founder and former CEO, also alleged false and misleading advertising and unconscionable billing practices. On the advertising side, California said Carbon Health had represented to consumers “from day one” that its clinics accepted all kinds of insurance. The state said those representations sometimes led to unexpected out-of-network bills.

The complaint also focused on the company’s patient consent forms and contracts. According to the state, those documents contained vague or unlawful provisions, including an automatic billing authorization for a credit or debit card on file. California said that practice became problematic when patients reported being overbilled or double billed, or when their claims were processed without going through their insurance plans or health plans.

The complaint said versions of those practices were in place at Carbon Health during 2022 and 2023. Under the settlement, the company is required to stop engaging in the practices identified by the state.

The agreement also calls for financial penalties. Carbon Health would pay a $4.4 million civil penalty, while Bali would pay a $100,000 civil penalty. In addition, the settlement includes a $375,000 administrative expense claim against the company.

Carbon Health said in an emailed statement that it had fully cooperated with Bonta’s investigation since it began two years ago. The company said it strongly rejects any suggestion of wrongdoing and believes its actions were consistent with applicable requirements. It added that the settlement fully resolves the matter and was addressed through the Chapter 11 process.

The company said that delivering on its commitments to patients, teams and partners remains its priority, and that resolving the matter allows it to stay focused on care.

Carbon Health emerged from bankruptcy in late May under a court-approved plan that shifted majority ownership to a lender group led by private investment fund Future Solution Investments. The company now operates more than 80 clinics across eight states.

The settlement marks the latest development in a case that has tied together California regulatory scrutiny, the company’s past clinic contracts and its recent restructuring. The attorney general’s office said the reorganization is intended to bring Carbon Health’s California operations into compliance with state restrictions on corporate influence over medical practice. If the court approves the deal, it would formalize changes to the company’s California clinic arrangements and impose the penalties outlined in the agreement.

The case also underscores the broader regulatory attention being paid to corporate control of medical practices and to billing and advertising practices in primary care. In California, the state said the agreement is meant to reinforce the principle that medical decisions belong to licensed clinicians and that healthcare companies must operate within the boundaries of state law.

Beyond those points, the source did not report additional terms of the settlement, further details about the corporate reorganization, or a timeline for final court approval. The filing is still under review by a judge.