Recent enforcement actions against management services organizations (MSOs) in California could shape how MSOs operate across the country in the years ahead.
On June 26, 2026, California Attorney General Rob Bonta announced a $4.4 million settlement with Carbon Health Technologies, Inc. (“Carbon Health MSO”), an MSO that provided non-clinical services to a national provider of primary, urgent, and virtual care with more than 80 clinics across eight states. Carbon Health MSO used a “friendly professional corporation” model in which Carbon Health MSO, provided turnkey management services to a “friendly” medical practice. In the California Attorney General’s view, the contractual agreements unlawfully gave Carbon Health MSO the power to replace the physician-owner of the clinics with a physician of its choosing, while preventing the physician-owner from replacing the MSO without risking the loss of ownership of the medical practice. Under the settlement, Carbon Health MSO was required to revise its corporate structure so that it no longer maintained control over ownership interests in physician-owned medical practices.
The action came weeks after a $2.3 million settlement with Aspen Dental Management, Inc., one of the nation’s largest dental MSOs, in which the Attorney General alleged that the company’s conduct extended beyond administrative support into unlawful control over clinical practices.
Less than three months after the Carbon Health settlement, on September 16, 2026, members of Congress introduced the Stop Corporate Takeovers of Physicians Act of 2026. If enacted, the proposed legislation would establish the first federal prohibition on the corporate practice of medicine (CPOM) and restrict many of the same medical practice-MSO arrangements at issue in California and across the country.[1]
For MSOs, investors, and healthcare professional corporation (PC) owners, the settlements and the proposed federal legislation highlight longstanding industry practices that may present heightened compliance risks.
The Federal Proposal
The Stop Corporate Takeovers of Physicians Act of 2026 is modeled on Oregon’s Senate Bill 951, a 2025 law that strengthened that state’s prohibition on the corporate practice of medicine and restricted MSO control over physician practices. The proposed federal bill would extend similar restrictions nationwide by establishing a federal CPOM standard applicable regardless of whether a state has its own prohibition or how strictly that state enforces it.
Several of the bill’s core prohibitions address the conduct at issue in the California settlements. As drafted, the bill would bar an MSO from controlling or restricting the sale or transfer of a medical practice’s shares, interests, or assets, a mechanism central to the California Attorney General’s findings against Carbon Health MSO. It would also bar MSOs from exercising ultimate authority over the disbursement of practice revenue or setting revenue targets for licensed healthcare professionals and would require MSO compensation to reflect fair market value as determined by the Federal Trade Commission. The article, “Proposed Federal Legislation Targeting Corporate Ownership and Control of Physician Practices,” provides a detailed analysis of its proposed restrictions on MSOs: [INSERT LINK]
Carbon Health: The “Friendly Practice” Structure
The California settlement and the Attorney General’s inquiry centered on the friendly professional corporation model. Under this structure, a physician owns a professional corporation that provides medical care, while Carbon Health MSO manages the practice’s business operations under a management services agreement.
Under a series of contracts, Carbon Health MSO held the power to replace the physician-owner with a physician of its choosing, while preventing the physician-owner from replacing the MSO without risking the loss of ownership of the medical practice. Based on these arrangements, the Attorney General concluded that a corporate entity not licensed to provide medical care effectively owned and controlled all aspects of the medical practice. The Attorney General treated these contractual provisions as evidence that the physician’s ownership was nominal rather than reflecting genuine independence and control.
Aspen Dental: Operational Control Beyond Contract Language
In the Aspen Dental matter, the California Attorney General’s complaint described a system in which dentist-owners had limited operational independence from the MSO. According to the complaint, Aspen Dental selected locations, signed leases, designed offices, and installed equipment before any dentist-owner assumed control over the practice. Additionally, the dentist-owner identified in the complaint was licensed in California but did not practice or reside in the state. The MSO also allegedly integrated itself into clinical operations by setting fee schedules, providing billing guidance, establishing default office hours, creating patient flow protocols, selecting vendors, and conducting clinical training.
The stipulated judgment in the Aspen case, which remains subject to court approval, would impose permanent restrictions designed to return independence to the practice owner. Under the judgment, Aspen would be prohibited from owning the property for any practice. It would also be prohibited from basing management fees on revenue, sales, or profits. Similar to the Carbon Health matter, the MSO would also be barred from replacing practice owners, enforcing non-compete agreements against clinicians, or controlling clinical hiring. In addition, Aspen would be required to renegotiate services and fees in writing with each practice owner annually and would be prohibited from requiring practice owners to relinquish ownership of their practices if they terminate the relationship with the MSO.
Key Takeaways for “Friendly Practices” and MSOs
The California settlements and the proposed federal legislation, if enacted, could significantly affect thousands of MSO relationships throughout the country. The settlements do not prohibit the MSO model altogether, nor would the proposed federal legislation necessarily eliminate compliant MSO arrangements.
Revenue-based management fees face increased scrutiny. In the Aspen Dental settlement, the California Attorney General sought restrictions on management fees based on revenue, sales, or profits, reflecting concerns that fee structures tied to collections or production may give the MSO a financial stake in clinical volume. The proposed federal bill would require MSO compensation to reflect fair market value as determined by the Federal Trade Commission and would bar MSOs from exercising ultimate authority over the disbursement of practice revenue or setting revenue targets for licensed healthcare professionals.
Contractual provisions that allow an MSO to replace the licensed owner may create significant compliance risks. The California Attorney General took the position that the mere existence of such rights in an agreement can be viewed as prohibited conduct, regardless of whether they are ever exercised. The Attorney General also examined replacement rights, termination rights, and ownership transfer provisions together rather than in isolation. An agreement that allows the MSO to replace the owner or terminate the relationship at will, while giving the owner no equivalent right, may draw scrutiny even if each provision appears defensible on its own. If enacted, the proposed federal legislation would render any agreement that allows an MSO to take a prohibited action, including controlling or restricting the transfer of practice ownership, void, unenforceable, and against public policy.
MSO Compliance Recommendations
While California has been at the forefront of enforcement involving these issues, MSOs throughout the country should begin by conducting a review of their existing agreements and day-to-day operations. Several areas warrant particular attention:
- Clinical decision-making authority should remain with the professional medical practice entity and be reflected in both contractual agreements and the actual operations of the medical practice and MSO;
- Management fees should reflect fair market value and be commercially reasonable;
- Continuity planning documents should be carefully reviewed and tailored to each jurisdiction in which the MSO and friendly practice operate;
- Termination rights should be reviewed to ensure they do not improperly restrict the professional practice’s independence or ownership rights; and
- Marketing materials should accurately identify the practice owner, present the practice under its own name, and avoid any implication that the MSO itself provides clinical care.
How Frier Levitt Can Help
Frier Levitt is a national boutique law firm serving clients across the healthcare, life sciences, and pharmacy industries. Our attorneys have advised PCs and MSOs on structuring compliant PC-MSO relationships across the country, including in New York, New Jersey, California, and other states with strict regulatory frameworks. We assist MSOs and PCs with governance design, management services agreement drafting, operational compliance reviews, and strategic planning in response to evolving CPOM laws and enforcement priorities.
Organizations reviewing existing MSO arrangements, planning for growth, or assessing compliance risks can contact Frier Levitt for guidance on structuring and maintaining compliant management relationships.
[1] Note that, as currently written, the proposed bill would apply to medical practices but not to dental practices.
