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.

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Recently Unsealed Complaint Reinforces Potential Liability of Private Equity Investors in the Healthcare Industry

Recently, a court in the Central District of California unsealed a qui tam complaint against several specialty pharmacies and their private equity fund owners. See United States ex rel. Webster v. BioMatrix Holdings, LLC, 2:18-cv-09333-PSG-PLA (C.D. Cal. Oct. 31, 2018). Relator, a former Vice President for Managed Care at BioMatrix Specialty Pharmacy, alleged that the specialty pharmacy defendants (collectively “BioMatrix”), with the knowledge of their private equity owners, employed a kickback scheme to increase the number and value of prescriptions for hemophilia medications filled through their pharmacies. (more…)

Recent Settlement Illustrates Enforcement Risks Associated With Physician Roll-Ups

On December 2, 2021, the Department of Justice (“DOJ”) issued a press release announcing that Flower Mound Hospital Partners (“Flower Mound”), a partially physician-owned hospital, agreed to pay just over $18 million to resolve allegations that it had violated the False Claims Act by submitting claims that violated the Stark Law and the Anti-Kickback Statute. (more…)

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…)

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…)

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.

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