| At the end of June, a settlement between California’s attorney general and bankrupt clinic company Carbon Health put the digital health industry on notice. |
| The state’s Justice Department accused Carbon Health of violating its ban on what's known as the corporate practice of medicine, which prohibits anyone other than licensed doctors from making medical decisions, like choosing what tests are ordered or dictating prescriptions. It alleged that Carbon, not its medical groups, “effectively owned and controlled all aspects of the medical practice.” |
| By doing so, Carbon allegedly could make hiring decisions at the practices, while the doctors at the practice were more limited in making changes to the structure. |
| (In a statement, Carbon told Endpoints News that “we strongly refute any suggestion of wrongdoing and believe our actions were consistent with applicable requirements.”) |
| At issue is Carbon’s business structure: It uses a “friendly professional corporation,” or friendly PC, model, which is often seen as a workaround to corporate practice of medicine bans that exist in most states. Under the model, the corporate entity sets up a management services organization, or MSO. Affiliated medical groups owned by doctors, at least on paper, hire the MSO to handle the back office and other business operations. |
| Problems can arise if the MSO’s actions start to influence the medical side. According to the California DOJ, Carbon’s MSO had the power to replace the doctor who owned the clinics, and the doctor was prevented from firing the MSO without losing ownership of the medical practice. |
| “As a result, the MSO effectively ran these captive clinics, divided physician loyalties, subordinated patient wellbeing to its financial interests,” while allowing Carbon’s leadership to “direct staffing, advertising and insurance negotiations,” reads the DOJ’s news release. |
| The friendly PC model is ubiquitous in digital health, and it’s under fire in a growing number of states. Oregon and Vermont have also been cracking down on corporate interference in medicine. In June, the American Medical Association adopted policies opposing friendly PC arrangements and supporting federal legislation for a corporate practice of medicine ban. |
| Under the settlement, Carbon must make changes to its business structure and pay $4.4 million. But I suspect a bunch of other digital health companies are busy calling their lawyers to review their own arrangements. Have thoughts on what the crackdown on corporate practice means for digital health? Let me know. |
| - Shelby |
