Category

Private Equity

15 October 2021

PE Investors – Even Minority – Exposed to False Claims Act Risk

As we have discussed in prior posts (here), private equity investors in the healthcare and life sciences industries increasingly face direct risk under the FCA where they actively manage portfolio companies accused of regulatory noncompliance leading to the submission of false claims.  In each of the cases discussed in these earlier actions the PE fund defendant was the sole or majority investor and DOJ and the courts relied on facts demonstrating that the funds were aware of and endorsed or otherwise participated directly in the underlying fraud. (more…)

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15 October 2021

Largest Settlement to Date Announced With a PE Investor to Resolve Claims that a Portfolio Company Healthcare Provider Violated the FCA

This week, in a case we previously reported on here, a PE fund and two executives agreed to pay $25M to resolve claims that they caused the submission by a portfolio company mental health center of false claims for services that were not rendered in compliance with various state law and contractual requirements. (more…)

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24 May 2021

Judge Saris Green Lights FCA Claims Against PE Fund Based on Regulatory Non-Compliance of its Portfolio Company Healthcare Provider for Trial

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.

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03 March 2021

Private Equity Settlement Highlights Risks for Investors in Life Sciences Industry

A recent settlement reinforces the potential liability facing private equity investors in the life sciences industry. As we previously reported, late last year The Gores Group (“Gores”) entered into a $1.5 million settlement agreement with the United States to resolve claims that the alleged off-label promotion by its portfolio company of combination drug-medical device systems for pediatric patients resulted in the submission of false claims to federal healthcare programs.  Last month, Gores entered into a separate $1.5 million settlement agreement with certain states to resolve claims that the same alleged conduct resulted in the submission of false claims to state Medicaid programs.  See U.S. ex rel. Johnson v. Therakos, Inc., Case No. 12-cv-1454 (E.D. Pa., filed Mar. 22, 2012).  The participating states in the more recent settlement have sixty days to agree to the terms of that agreement; thus far at least California has joined. The claims resolved in these settlements arose from a qui tam suit.

(more…)

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23 November 2020

DOJ Settles FCA Claims With Another Private Equity Investor in the Life Sciences Industry

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.

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02 December 2019

Healthcare Enforcement Trends to Watch in 2020

According to the statistics published by the Department of Justice (“DOJ”) in December of 2018, fraud recoveries, including under the False Claims Act, declined in 2018 for the third straight year.  While the majority of the dollars recovered by the government in these actions continues to come from the providers of healthcare services, technologies that enable those services, the manufacturers of the drugs, devices, and the private insurers who pay for healthcare, recoveries from the healthcare sector have also declined.  While we await the official 2019 statistics from DOJ, we know that this year has continued this Administration’s trend of decreasing enforcement recoveries.  That said, recoveries from the industry continue to be counted in the billions of dollars and outstrip levels seen a decade ago.  While this Administration’s enforcement priorities have shifted from those of the last, and while DOJ is taking steps to exercise discretion and preserve its enforcement resources in some matters, both DOJ and the U.S. Department of Health and Human Services (“HHS”) continue to devote substantial resources aggressively to pursuing high priority enforcement issues, particularly those that potentially impact patient safety and substantially increase costs to the federal healthcare programs.

(more…)

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11 March 2019

Court Dismisses DOJ’s Complaint against Pharmacy and Private Equity Fund, But Permits Re-Pleading

As we previously reported here and here, DOJ is pursuing a compounding pharmacy and its private equity fund owner alleging the pharmacy filed claims with Tricare that were rendered false by alleged kickbacks.

In November, the Magistrate Judge filed an opinion recommending the FCA claims be dismissed for DOJ’s failure adequately to plead its claims on either an implied or express certification theory of liability.  However, the Magistrate went on to hold that the allegations that the private equity fund and its principals knew of some of the alleged misconduct and caused the submission of false claims by the portfolio company were otherwise sufficient to state a claim against those defendants under the False Claims Act. (more…)

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04 December 2018

Court Recommends Dismissal of FCA Claims Against Pharmacy and Private Equity Fund, But Provides Insight Into When Funds May Be Held Responsible For Conduct of Portfolio Companies

As we previously reported, the government has intervened in a qui tam suit against a compounding pharmacy and its private equity fund owner alleging the pharmacy filed claims with Tricare that were rendered false by kickbacks allegedly paid to marketing companies in exchange for patient referrals and directly to patients in the form of co-pay waivers.  The government alleged the pharmacy executed a provider agreement with Tricare’s contracted pharmacy benefits manager in which it agreed to be bound by fraud waste and abuse laws and the provider manual, which also required compliance with the Anti-Kickback Statute and other laws.  Defendants moved to dismiss and on November 30, the Magistrate Judge filed an opinion recommending the FCA claims be dismissed.  U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, Case No. 15-62617-CIV-BLOOM, S.D.Fl.

(more…)

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29 October 2018

Private Equity Funds Face Increasing Risk of False Claims Act Liability

Evidence is mounting that DOJ is willing to pursue private equity funds in False Claims Act cases, particularly ones based on alleged violations of healthcare fraud and abuse laws.  Earlier this year, for the first time the Department intervened in one such False Claims Act case against a private equity sponsor, the fund’s portfolio pharmacy, and two pharmacy employees.  U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, Case No. 15-62617-CIV-BLOOM, S.D.Fl.

(more…)

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07 March 2018

DOJ Pursues Private Equity Firm for Portfolio Company FCA Violations

On February 16, 2018, the U.S. Department of Justice (“DOJ”) filed a complaint in intervention against a compounding pharmacy, Patient Care America (“PCA”), alleging that the pharmacy violated the False Claims Act (“FCA”) by, among other things, paying illegal kickbacks to induce prescriptions for drugs reimbursed by TRICARE, the federal healthcare program for active duty military personnel, retirees, and their families.  What is notable about this particular case, however, is that DOJ is also pursuing claims against a private equity firm that had a substantial ownership stake in the pharmacy, based on allegations that principals in the fund were actively involved in the management of the pharmacy and helped implement the purportedly illegal strategy at issue in the complaint. (more…)

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