False Claims and Private Equity: The Government's Increasing Focus on Private Equity Firms in False Claims Act Cases

Historically, the health care industry has been a prime target for FCA claims, in large part because of the ubiquitous nature of government payments through Medicare and Medicaid. In 2016, for example, over half of all federal recoveries in FCA cases came from entities and individuals in health care. Traditionally, the risk presented by compliance-challenged portfolio companies was contained at the portfolio company level. Those risks include the risk of civil claims or criminal charges brought by the government under the False Claims Act (FCA), 31 U.S.C. §3729 et seq. DOJ policy changes have expanded FCA enforcement against individuals — not just entities — and recent investigative activity suggests an increased focus on investment firms and individuals working for those PE firms.

Thus, as prosecutors and relators increasingly try to blur the distinction between investors and operating companies, comprehensive pre-acquisition diligence regarding possible FCA exposure must be even more of a priority when considering health care investments. In addition, any private equity firms, and their partners and employees who become involved with the actual operation of the portfolio company (such as serving on the boards or taking temporary management positions) are at increased risk and must be mindful of ways to limit potential liability.