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.

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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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