If you’re operating a management services organization (MSO) in California — or you’re a physician, dentist, or other licensed professional working under an MSO arrangement — there’s a new enforcement action worth paying close attention to.
On June 26, 2026, California Attorney General Rob Bonta announced a $4.5 million settlement with Carbon Health Technologies, its affiliated medical practices, and the company’s co-founder and former CEO. The case centered on Carbon Health’s “friendly PC” structure and alleged violations of California’s ban on the corporate practice of medicine (CPOM). Beyond the penalty itself, the settlement requires Carbon Health to actually restructure how its MSO and affiliated practices are set up, not just change its behavior going forward.
This is now the third major CPOM/CPOD enforcement move from the AG’s office in just a few months, following the AG weighing in on a related court case and a settlement with a dental support organization this past spring. Taken together, these actions signal that California regulators are actively building enforcement momentum around MSO-PC structures, which matters a great deal if you operate, invest in, or are considering a friendly PC arrangement in this state.
What Went Wrong, According to the AG
The complaint didn’t allege that MSO-PC structures are illegal across the board. Instead, it focused on specific contractual features that, together, gave the MSO effective ownership and control over practices that were supposed to be independently owned by licensed professionals. The features regulators flagged included:
- Sweeping operational authority. The MSO’s management agreement gave it control over nearly everything: advertising, billing, equipment purchases, and critically, the hiring, firing, and pay of licensed clinicians.
- Financial dependency. The practices needed MSO sign-off for routine expenses and were required to borrow money exclusively from the MSO, often at above-market rates, possibly leaving them financially unable to operate independently.
- Built-in ownership transfer rights. The MSO held option agreements letting it replace a practice owner at will and hand ownership to a physician of its own choosing, plus a security interest in the practice owner’s shares.
- Non-licensed decision-makers weighing in on clinical matters. Board members without medical licenses were reportedly involved in decisions that should sit with licensed physicians, like staffing and clinical incentive structures.
Individually, some of these features show up in plenty of legitimate MSO arrangements. It’s the combination and the degree of control that drew regulatory attention here.
Why This Matters Even If You’re Not in California
A few things stand out about this case that go beyond one company’s specific situation:
- This wasn’t a one-off. It’s the latest in a pattern of enforcement actions from the AG’s office over the past several months, targeting both medical and dental corporate practice structures. That suggests a sustained institutional effort, not an isolated case.
- Bankruptcy didn’t provide cover. Even though Carbon Health had filed for bankruptcy during the investigation, that didn’t stop the settlement from moving forward. Restructuring your business doesn’t make CPOM exposure disappear.
- Individual liability is on the table. The company’s former CEO was personally fined $100,000. Regulators are willing to look past the corporate entity and hold individual decision-makers accountable.
- Ordinary secured lending still seems fine. The settlement specifically preserved the MSO’s ability to hold a standard, market-rate lien on practice assets — the issue was exclusive, above-market financing that functioned as a control mechanism, not secured lending generally.
What This Means If You Operate Under an MSO-PC Structure
If you’re a physician, dentist, or other healthcare professional operating under a friendly PC arrangement, or you run an MSO that supports one, this is a good moment to take a fresh look at your documents rather than wait for a regulator to do it for you. Worth reviewing:
- Whether your MSO agreement gives the management company authority over hiring, firing, or compensation of licensed staff.
- Whether any provision lets the MSO force you out or replace you as owner without your real say in the matter.
- Whether the practice is required to borrow exclusively from the MSO, and at what rate
- Whether non-licensed personnel are involved in decisions that should sit with the licensed owner.
- Whether the practice can actually make its own hiring and equipment decisions day-to-day, or whether everything routes through the MSO; not just what the paperwork says, but how things really work.
None of this means MSO structures are off the table. They remain a common and legitimate way to support the business side of a practice while preserving licensed ownership and control where the law requires it. But the line between “legitimate management support” and “unlawful control” is exactly where regulators are now looking closely, and the cost of getting it wrong keeps going up.
Where We Can Help
Whether you’re structuring a new MSO relationship, buying into or selling a practice with an existing MSO in place, or simply want a compliance check on documents you already have, this is exactly the kind of regulatory landscape we help healthcare professionals navigate every day, across entity formation, MSO structuring, and ongoing regulatory compliance.
If you’d like a second look at your current arrangement, we’re happy to talk it through.
This article is for general informational purposes only and does not constitute legal or tax advice. Every practice’s situation is different, and the facts of your arrangement matter. Please contact our office to discuss your specific circumstances.