Private equity investment in healthcare has grown significantly in recent decades, garnering increased attention. Regulatory challenges have led healthcare providers to partner with private equity-backed platforms, which can offer administrative, financial, and clinical support, allowing physicians to focus on patient care.

The Department of Health and Human Services (HHS) Office of the Inspector General (OIG) emphasized in its November 2023 General Compliance Program Guidance the importance of healthcare entities, their investors, and governing bodies carefully examining their operations and incentive structures. Additionally, they stressed the significance of understanding the laws applicable to the healthcare industry and the role of an effective compliance program, particularly for investors providing management services or substantial operational oversight and control in a healthcare entity^{^[1]}

The HHS, DOJ, and FTC have launched an inquiry into the impact of private equity ownership in healthcare to gather information on transactions that may potentially affect patient health, worker safety, and the quality of care.^[2]Additionally, the DOJ, FTC, and HHS also launched an online portal for the public to report “potentially unfair and anticompetitive healthcare practices.”^{^[3]}

PE firms should conduct comprehensive due diligence using data analysis, benchmarking, and compliance program infrastructure reviews to uncover compliance risks. They should also be aware of the DOJ’s Mergers & Acquisitions Safe Harbor Policy,^[4] which encourages acquiring companies to voluntarily disclose any misconduct discovered during the acquisition process.

PEs need to stay informed about the latest False Claims Act (FCA) investigations as of June 2024. There has been a notable increase in FCA cases filed by the Department of Justice in recent years. These cases can lead to substantial financial liabilities due to the FCA’s provision for treble damages and penalties. Notably, the healthcare sector has been the primary target of FCA enforcement actions.^[5] DOJ emphasized in February that it will prioritize private equity’s role in the healthcare sector following a record year.^[6]

False claims submitted to the government, or knowing about their submission, are punishable under the FCA. When a defendant’s actions were a significant contributing factor to the submission of the false claim and the submission was reasonably foreseeable as a result of the conduct, courts have determined that the defendant “causes” the submission of the false claim.^{^[7]}

By this principle, private equity firms may be held liable under the FCA for their acts even when they are not presenting claims to the government directly. For instance, in one case settled in 2019, the DOJ filed FCA claims against the manager of the compounding pharmacy, the private equity firm, and two pharmacy executives. The rationale behind the claims was that the officers and the firm pushed the pharmacy to adopt a scheme intended to generate kickbacks and submit fraudulent claims to the government for reimbursement. ^[8]

Lawmakers in a few states are also taking steps to control private equity funding in the healthcare sector. A law was passed in New York last year mandating that eligible healthcare organizations give the New York Department of Health access to “material transactions” for evaluation and publication, along with an opportunity for public comment. ^[9]

^[1] https://oig.hhs.gov/documents/compliance-guidance/1135/HHS-OIG-GCPG-2023.pdf.

^[2] https://www.hhs.gov/about/news/2024/03/05/issue-request-for-public-input-as-part-of-inquiry-into-impacts-of-corporate-ownership-trend-in-health-care.html.

^[3] https://www.justice.gov/opa/pr/federal-agencies-launch-portal-public-reporting-anticompetitive-practices-health-care-sector.

^[4] https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self.

^[5] https://www.justice.gov/opa/pr/national-health-care-fraud-enforcement-action-results-193-defendants-charged-and-over-275-0.

^[6] https://www.justice.gov/opa/speech/principal-deputy-assistant-attorney-general-brian-m-boynton-delivers-remarks-2024.

^[7] See, e.g., United States v. Marder, 208 F. Supp. 3d 1296 (S.D. Fla. 2016); 31 U.S.C.A. § 3729(a)(1)(A), (B).

^[8] United States ex rel. Medrano and Lopez v. Diabetic Care Rx, LLC dba Patient Care America et al., No. 15-CV-62617 (S.D. Fla.).

^[9]https://www.health.ny.gov/facilities/material_transactions/#:~:text=New%20York%20State%20Public%20Health,the%20closing%20of%20the%20transaction.