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A freshly inked settlement involving Carbon Health Technologies—a primary care and telehealth provider—is getting attention because it represents a new era in enforcement of stricter corporate-practice-of-medicine rules in California enacted last year. At issue was Carbon Health’s operational approach, which the state attorney general alleged violated the law because the company acted as an unlicensed corporate entity effectively owning and controlling medical practices. In other words, the state believed the corporation itself directed practical medical decision making—rather than the physician-owned medical groups it contracted with. The settlement remains subject to court approval, but it requires that Carbon Health must reorganize the management structure of its 54 clinics in California to allow for physician independence, must revise its advertising practices, and must change certain operational protocols. Additionally, Carbon Health has agreed to pay $4.4 million in penalties, and co-founder and former CEO Eren Bali has also agreed to pay an additional $100,000. Carbon Health has historically been a venture capital-backed private company with numerous institutional investors. Following a Chapter 11 bankruptcy filing in February 2026, ownership began a court-approved restructuring.
Look out: Like many digital health companies, Carbon Health used a management services organization (MSO) model in California because only licensed physicians can legally own medical practices there. The state has generally allowed the MSO model—but only if the physicians could remain truly independent. Corporations cross the line when they begin, for example, directing clinical policies, influencing treatment, or structuring contracts that limit physician independence. Any urgent care organization with MSO agreements may need to review their contracts to ensure they comply with state laws. Across the nation, more legislators are taking a hard look at MSOs and creating new rules to reinforce clinical autonomy. The Carbon Health settlement may be viewed as a shot across the bow for private equity owners of healthcare delivery organizations that leverage the MSO structure.
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