Healthcare investors: Are you in compliance with the False Claims Act?

Since the early 2000s, healthcare has consistently been the largest area of enforcement and recovery under the United States False Claims Act (FCA). In 2023 alone, nearly $1.9 billion of the Department of Justice’s (DOJ) nearly $2.7 billion in False Claims Act recoveries were related to health care fraud schemes.

Private equity firms have paid fines exceeding $500 million in over 34 lawsuits filed under the FCA since 2014. And, the scrutiny over private equity investment is increasing pressure to monitor compliance with the FCA.

Healthcare private equity investors face unique clinical compliance challenges, particularly in navigating the stringent regulations under the FCA. Private equity companies who contract with or are reimbursed by the government are particularly vulnerable to FCA liability.

Given the high stakes involved, private equity investors need to consider effective due diligence pre-investment. For those who are currently invested in healthcare, it’s paramount their portfolio companies are in regulatory compliance — to not only ensure firms meet federal and state regulatory guidelines, but to also safeguard investment value.

There are solutions to help maintain compliance and steps your organization can take to navigate regulations.

Implications of noncompliance

Noncompliance can have costly consequences for organizations.

For example, a private equity company and former executives of a mental health center agreed to pay $25 million for allegedly causing fraudulent claims to be submitted to federal and Massachusetts health programs and for failure to stop pre-investment misconduct after investing.

It was alleged by the state’s Medicaid program, known as MassHealth, that mental healthcare services were provided to patients by unlicensed, unqualified, and improperly supervised staff members at clinics across the state.

This was a costly — and reputational — penalty to pay, which could have been avoided via enhanced pre-deal due diligence to confirm compliance with clinical, operational, and compliance best practices.