Carbon Health, its affiliates and its former CEO have reached an agreement with the California Attorney General to resolve allegations of violations of multiple state laws.
The settlement, filed Wednesday in county court and disclosed Friday and under review by a judge, follows an investigation that intersects with the technology-powered primary care company’s Chapter 11 bankruptcy filing, which concluded in February. If approved, it would signal major changes in the corporate structure and practices of technology-enabled primary care companies.
This includes the corporate restructuring of Carbon Health’s 54 California clinics, which was mismanaged by the Attorney General’s Office. As a managed services organization, Carbon Health contracted with these companies under a so-called “friendly professional corporation” model, giving it effective control over physician-owned practices and influence over medical decisions and operations, including staffing, advertising and insurance negotiations, the office said.
California has long had restrictions on non-medical corporations controlling bookkeeping, but last year tightened those guardrails. Similar bills have been introduced in a handful of states and were at the center of an ED staffing dispute that unfolded in neighboring Oregon earlier this year.
“In California, health care decisions must be made by licensed health care professionals who have a duty to prioritize patient care, not profit-driven corporations,” Attorney General Rob Bonta said in a release Friday. “This settlement holds Carbon Health accountable for engaging in unlawful business practices in violation of California’s long-standing protections for corporate medical practices. It also sets an important precedent by demonstrating that health care operations can be restructured to protect patients, preserve physicians’ independent medical judgment, and comply with California law.”
The state’s complaint against Carbon Health and its co-founder and former CEO Ellen Bali also accuses the company of “spreading false and misleading advertising to consumers and engaging in unconscionable billing practices.”
Regarding the former, the state said Carbon Health had indicated to consumers “from day one” that its clinics accepted all types of insurance, which in some cases resulted in higher-than-expected out-of-network bills.
The company also allegedly included ambiguous or illegal provisions in patient agreements and contracts, such as automatic billing of credit or debit cards on file, a practice that “proved to be problematic for Defendants as patients discovered that Defendants sometimes overbilled or double-billed them, and that Defendants sometimes processed patient claims without going through their insurance or health plan.”
Versions of these practices were implemented at Carbon Health from 2022 to 2023, according to the complaint. The settlement agreement includes a requirement that the company take no further action.
The settlement also outlines a $4.4 million civil penalty against Carbon Health, a $100,000 civil penalty against Bali, and a $375,000 administrative fee against the company.
Carbon Health said in an emailed statement that it has fully cooperated with the investigation into Bonta since it began two years ago.
“While we strongly refute any suggestion of wrongdoing and believe our actions are consistent with applicable requirements, we have reached a settlement that fully resolves this matter, which we have addressed through the Chapter 11 process,” the statement reads. “Fulfilling our promise to our patients, teams, and partners is our top priority, and resolving this issue allows us to remain focused on the care we provide every day.”
Carbon Health emerged from bankruptcy in late May under a court-approved plan to transfer majority ownership to a group of lenders led by private investment fund Future Solutions Investments. The company currently operates more than 80 clinics in eight states.
