In line with an emerging trend of False Claims Act enforcement against private equity funds for the activities of their portfolio companies, the government and a private equity fund that formerly owned a medical device and pharmaceutical manufacturer recently settled a qui tam suit alleging violations of the False Claims Act. U.S. ex rel. Johnson v. Therakos, Inc., Case No. 12-cv-1454, E.D. Pa. The suit resolves allegations that from 2006 to 2015 the manufacturer promoted a cancer treatment for use in pediatric patients—a use that had not been approved by the Food and Drug Administration. As a result, the government contended, the private equity fund former owner caused the manufacturer to submit false claims to Medicaid, the Federal Employee Health Benefits Program, and Tricare. The case remains under seal; as a result, it is not yet apparent whether the government has alleged that the private equity fund took an active role in the management of the portfolio company or other facts that would support FCA liability attaching to the investor. In settlement of the claims, but without admitting liability, the private equity fund agreed to pay the United States and participating states $1.5 million. The settlement agreements are available here.
We will continue to monitor the docket for this case and for further action by DOJ against private equity investors in the healthcare and life sciences industries.