Potential Liability of Investors in the Healthcare Industry Heightens as Hospital Investors Enter into Novel Settlement
A recent False Claims Act settlement between the Department of Justice, a New Jersey hospital, and the hospital’s investors also included a novel Federal Debt Collection Practices Act (“FDCPA”) settlement with the investors, highlighting the government’s continued efforts to pursue investors in the healthcare industry.
The Department of Justice (“DOJ”), on behalf of the Department of Health and Human Services (“HHS”) and the Office of Inspector General (“OIG-HHS”), recently announced a settlement agreement with Columbus LTACH (doing business as Silver Lake Hospital) and its investors. Silver Lake owns and operates a healthcare facility that includes a long-term acute care hospital, whose conduct was at issue. The hospital agreed to pay over $18.6 million in a structured settlement over five years to resolve the government’s allegation that the hospital had claimed excessive cost outlier payments from the Medicare program in violation of the FCA.
A novel piece of this settlement agreement is that hospital’s investors agreed to pay an additional $12 million as restitution to resolve alleged FDCPA violations. The FDCPA prohibits debtors with obligations to the US government from committing fraudulent transfers in which they transfer value to another without receiving a reasonably equivalent value in exchange, seemingly to avoid paying their debt. The government may recover the amount transferred to satisfy the debt. Here, the government alleged that the hospital paid its investors millions of dollars in distributions when the hospital believed (or reasonably should have believed) it would incur debts to the Medicare program related to the allegedly excessive Medicare cost outlier payments that it would not be able to repay. The two investor owners paying the settlement include an individual doctor (the principal investor) and a vehicle for other hospital investors. This piece of the settlement is also a structured settlement over five years.
As discussed in prior posts (here and here), investors in the healthcare industry face increased scrutiny from the government and whistleblowers. The government continues to demonstrate interest in pursuing claims against investors in the healthcare and life sciences industries based on the conduct of the entities in which they invest. Here, the Department of Justice took a more direct approach, holding investors accountable through the FDCPA for distributions received.
A copy of the settlement agreement can be found here.
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