At the start of May, we warned that the California Attorney General’s Brief in Art Center Holdings vs. MCE was a warning for healthcare companies structured as an MSO/PC. At the end of May, we told you that California was moving from warning to enforcement.
For context on the MSO-PC model andits structural components, read our primer.
We hate to say we told you so, but.... the California Attorney General just announced another corporate practice of medicine enforcement action. This time the settlement is with Carbon Health for$4,400,000 which includes a $100,000 fine against the co-founder and former CEO.
Settlements like this are exactly why we keep writing about the MSO/PC model. Staying current on where the AG is drawing lines is the best way to avoid becoming the next cautionary tale. It’s a good thing you're reading!
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A reminder of where we’ve been
Taken together, the Art Center Holdings amicus brief, the Aspen Dental settlement, and now the Carbon Health settlement show where the AG is focusing its investigations and where it is drawing lines in the sand. Just in case you have not been following this closely, the last three months have seen the California AG move from argument to enforcement, and clearly signal that it intends to scrutinize the role private equity plays in healthcare.
In March, the California Attorney General filed an amicus brief in Art Center Holdings vs. MCE. You can read about the details here, but the short version is that the AG argued the mere existence of agreements that allowed the MSO to replace the physician owner of the PC violated California’s CPOM laws. It didn’t matter that the MSO never exercised those contractual rights, the AG argued that the agreements themselves meant the MSO controlled the PC. But since it was just an amicus brief, this was just an argument the court was free to accept or reject. There was still time for healthcare companies to react...right?
Wrong. Two months later, the AG announced a settlement and injunction against Aspen Dental. It included a $2 million dollar civil fine, $300,000 in restitution for patients, a 46-paragraph permanent injunction, and a 36-month independent compliance monitor. Aspen Dental operates under an MSO/PC model in the dental space rather than as a medical practice, but the same corporate practice doctrine applies to dentistry. So even though Aspen Dental is not a medical practice, the settlement was an extension of the legal position the AG took in its amicus brief and a clear signal that the AG was moving from warnings to enforcement.
One is an accident, two is a coincidence, three is a trend
That brings us to the AG’s June 24th settlement with Carbon Health Technologies. The settlement is shorter than Aspen's, but don't read brevity as a soft touch. Carbon Health agreed to $4.4 million — $375,000 of it for administrative costs, and $100,000 a personal fine against the co-founder and former CEO. Two things jump out. The total is more than double what Aspen paid. And the AG reached past the company to hit an individual.
The money isn't where the lessons live, though. The injunction is - and so is the speed. The AG is wielding the enforcement authority SB 351 handed it, a statute that took effect January 1, 2026. Barely six months on the books, and it's already driving settlements. That pace is the point: the AG is not easing into this.
The three CPOM lessons
The injunction zeroes in on three places where the AG concluded the MSO had crossed from supporting the friendly PCs into controlling them. Read these as a checklist against your own documents.
- Not new: The management services agreement (MSA) can't hand the MSO complete authority over core medical-practice decisions. That means advertising, payer negotiations, selection of medical equipment, and the hiring and firing of licensed professionals. Each is a long-standing CPOM flashpoint, and each is called out by the Medical Board of California as off-limits.
- New: The MSO can't hold an ownership interest in the PC, including a paper one. That includes assignable option agreements giving the MSO the right to acquire the PC for its own account. There's no indication Carbon Health's MSO ever exercised its option or took an interest. Doesn't matter. Just as the AG argued in the amicus brief: the action isn't the violation. The provision is.
- Newly clarified: The MSO can't be the PC's only lender on above-market terms. The injunction prohibits revolving credit arrangements that force the PC to borrow exclusively from the MSO at above-market rates, with the MSO taking a first-priority lien on PC assets and conventional lender restrictions attached. Loans, security agreements, promissory notes between MSO and PC are normal in these models. MSOs front expenses and, reasonably, want to be repaid. What's not normal is terms that only one party would ever agree to. They have to be fair, and they have to look arm's-length. When they're conspicuously sweet for the MSO, the AG sees aCPOM violation.
If your MSO/PC documents hand the MSO any of these three levers, understand the posture: the AG will not wait for you to pull them. On paper is enough.
Note, though, that the injunction does not prohibit the MSO from making recommendations or playing some other role short of complete authority in these areas.
Don’t forget about compliance beyond CPOM
Similar to Aspen Dental, the Carbon Health settlement is not limited to CPOM violations. The settlement includes violations of False Advertising Law (B&P § 17500), insurance billing laws (Health and Safety Code section 1379), and consumer protection laws (Civil Code section 1770). Specifically, the injunction prohibits Carbon Health from automatically charging credit and debit cards without providing patients notice, improperly charging patients copays, deductibles and other charges to patients on HMO plans, submitting incorrect billing codes and similar billing violations. In addition, the injunction prohibits Carbon Health from falsely advertising that its in-network status and telling out-of-network patients they will be charged in-network rates.
Whether the AG’s investigation started with a focus on CPOM violations, consumer complaints about improperly charged credit and debit cards or wrongly charged copays, both the Aspen Dental and Carbon Health settlement demonstrate that AG investigations will not be limited to one area of compliance. Veterans of healthcare law will tell you that once a regulator finds a reason to investigate a provider, the investigation quickly expands. A data breach turns into a False Claims Act case, a consumer complaint about a refund turns into an investigation about your marketing claims.
Now is the time to get your MSO/PC documents in order, but that doesn’t mean you should ignore your other compliance obligations.
The bottomline
In three months, the AG has gone from filing an amicus brief, to imposing more than $6 million of civil penalties on two different MSO/PCs. What started as a warning is now an enforcement trend.
If you were not sure before, the Carbon Health settlement should erase any doubt. Formation documents developed and implemented before this year need to be reviewed and updated. The cost of not doing so just went up again. And don’t forget, even if you’re not in California, states like Oregon and several others have announced a similar intent to scrutinize MSO/PC models, too.
These actions show which formation documents you should be reviewing and which provisions are likely to draw scrutiny. They also confirm the investigations will not stop at CPOM. Once the AG is in, your house better be fully in order.
If you'd like a structural review against the framework established by these settlements,reach out. We work with healthcare and digital health MSOs in California and around the country to update their formation documents and their compliance practices. Getting your documents in order is table stakes at this point. What happens after that is just as, if not more, important.