Senate testimony focusing on the impact of the rising presence of private equity (PE) firms’ control of major healthcare providers touched on the “substantial overlap between the risks associated with private equity ownership of healthcare companies and the activities targeted by the False Claims Act (FCA), a federal law that establishes liability for individuals or companies that defraud governmental programs.” See O’Grady Statement.pdf (senate.gov).
Whistleblowers initiated the first FCA cases against PE firms. A case filed in 2012 eventually settled in February 2020, with PE firm, The Gores Group, contributing $1.5 million for its part in continuing fraudulent activity after its acquisition of a device manufacturer (Therakos) which for several years had been promoting a medical device for unapproved uses in pediatric patients. That same year, the Department of Justice (DOJ) had publicly stated that “enforcement efforts may include, in appropriate cases, private equity firms” and that when a PE firm “takes an active role in illegal conduct…it can expose itself to False Claims Act liability.” See more here.
Another PE firm, Ancor Holdings LP, was named as a defendant in a 2017 FCA case filed by a whistleblower alleging that before and after the PE firm took over, the company, Alliance, had been paying kickbacks to doctors in exchange for EEG testing referrals, and that the PE firm had uncovered the fraudulent activity during due diligence. The case settled in 2021, with the PE firm contributing $1.8 million to the government. See more here.
While the DOJ may decline to pursue cases against PE firms filed by whistleblowers, significant settlements against PE firms have emerged in cases where state prosecutors carry the torch. One of the largest FCA settlements against a PE firm was secured in late 2021 by a state attorney general who did intervene and, with the whistleblower’s support, actively pursued the PE firm, H.I.G., and its managers to obtain a groundbreaking settlement of $19.95 million for H.I.G.’s role in submitting claims to a state agency for mental health services provided by unlicensed, unqualified, and unsupervised personnel. PE firms and their managers may be liable under the FCA for either having direct involvement in the fraudulent activity or for knowingly ratifying prior fraudulent conduct. Whistleblowers who have filed FCA cases naming PE firms and their managers as defendants has been on the rise. Potential FCA cases involving PE firms as defendants may run the gamut of healthcare services where PE has taken an active role such as: hospital systems; nursing homes; high-margin physician practices such as dermatology, urology, gastroenterology, dentistry, and cardiology, medical devices; diagnostic testing; drug screening and genetic testing; and, notably, emergency services.
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