Late last week, Judge Patti Saris (D. Mass.) issued an opinion on cross-motions for summary judgment filed by a qui tam relator and Massachusetts and a group of defendants that includes South Bay Mental Health Center (“South Bay”) and its private equity fund owner, permitting the vast majority of plaintiffs’ claims to proceed to the jury. The opinion addresses important questions of law as to each of the elements of the FCA related to claims to Medicaid for services allegedly provided in violation of various state regulatory requirements. However, the opinion is most notable for being the first to hold at the dispositive motion stage that a private equity fund and its principals can act with the requisite scienter and cause the submission of false claims, and thus be exposed directly to the treble damages and statutory penalties of the FCA as a result of conduct by a healthcare provider portfolio company. As such, we may expect it to add momentum to DOJ’s stated intent to pursue FCA claims against PE investors in the industry, as we previously reported here.
The U.S. District Court for the District of Massachusetts recently dismissed a False Claims Act (“FCA”) lawsuit against Wal-Mart, Kmart, and Rite Aid pharmacies (collectively, “the defendants”), alleging, among other things, that the companies dispensed expired prescription drugs that were reimbursed by Medicare and Medicaid. In short, the court granted, in part, defendants’ motion to dismiss in U.S. ex. rel. Verrinder v. Wal-Mart Corp., Case No. 13-11147-PBS [here], holding that the relator’s allegations were not sufficiently connected to specific false claims for payment.