Carbon Health and California Attorney General Reach Settlement Over Alleged Violations
Carbon Health, alongside its subsidiaries and former CEO, has reached a significant settlement with the California Attorney General to resolve multiple alleged violations of state law. This agreement, filed in district court on Wednesday and revealed on Friday, is currently under judicial review. The settlement follows an investigation that coincided with the technology-enabled primary care company’s Chapter 11 bankruptcy filing in February. Pending approval, the settlement would necessitate substantial changes to Carbon Health’s corporate structure and operational practices.
Restructuring of California Clinics
A pivotal aspect of the settlement involves the restructuring of Carbon Health’s 54 California clinics. The Attorney General’s office highlighted concerns that these clinics were improperly controlled under the “friendly professional corporation” model. This model allowed Carbon Health, as a management services company, to exert de facto control over the clinics, influencing medical decisions, operations, staffing, advertising, and insurance negotiations.
California has longstanding restrictions against non-medical companies exerting influence over medical practices. These restrictions were further tightened last year. Similar legislation has been introduced in several states and was notably central to a recent emergency room staffing dispute in neighboring Oregon.
Attorney General Rob Bonta emphasized the importance of medical decisions being made by licensed healthcare professionals rather than profit-driven companies. In a news release, he stated, “This settlement holds Carbon Health responsible for violating California’s long-standing protections against corporate medical practice and engaging in unlawful business practices. It also sets a significant precedent by demonstrating that healthcare companies can be restructured to protect patients, preserve physicians’ independent medical judgment, and comply with California law.”
Allegations of Misleading Advertising and Billing Practices
The state’s lawsuit against Carbon Health and Eren Bali, its co-founder and former CEO, also accused the company of distributing false and misleading advertising to consumers and engaging in unreasonable billing practices. The complaint detailed that Carbon Health advertised its clinics as accepting all types of insurance, leading to unexpected out-of-network bills for some consumers.
Furthermore, the company allegedly included vague or illegal terms in patient consent forms and contracts, such as automatically billing a stored credit or debit card. This practice led to issues when patients discovered instances of overcharging, double-billing, or claims being processed without utilizing patients’ insurance or health plans.
The settlement agreement mandates that Carbon Health will cease these practices, which persisted through 2022 and 2023, according to the complaint.
Penalties and Financial Implications
As part of the settlement, Carbon Health faces a $4.4 million civil penalty, while Bali is subject to a $100,000 civil penalty. Additionally, the company faces a $375,000 administrative costs claim.
In a statement, Carbon Health expressed its full cooperation with the investigation led by Bonta over the past two years. The statement read, “While we vigorously deny any suggestion of wrongdoing and believe our actions were consistent with applicable requirements, we have reached an agreement that fully resolves the matter and resolved it through the Chapter 11 process. Fulfilling our commitments to our patients, teams, and partners remains our priority, and resolving this matter allows us to remain focused on the care we provide every day.”
The Road Ahead for Carbon Health
Emerging from bankruptcy in late May under a court-approved plan, Carbon Health has transitioned majority ownership to a lender group led by the private investment fund Future Solution Investments. The company now operates more than 80 clinics across eight states, continuing its mission to provide primary healthcare services.
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