On July 9, 2024, McGuireWoods partners Brett Barnett, Mindy Sauter, Mike Elliott, and Michael Podberesky conducted a solution-oriented discussion of key enforcement and compliance developments that impact private equity (“PE”) funds in healthcare. They also highlighted relevant cases regarding the government’s increased interest in compliance diligence in the PE space.
Below are eight key takeaways from the discussion. To watch the full webinar, visit McGuireWoods’ website.
- Recent government actions demonstrate heightened scrutiny of PE firms investing in healthcare. Examples of recent settlements include: Patient Care America, two of its executives, and a PE firm agreed to pay $21 million to resolve a lawsuit alleging violations of the False Claims Act (“FCA”) through their involvement in a kickback scheme to generate referrals of prescriptions; PE firm pays $11.5 million to resolve FCA allegations of promotion of drug-device system for unapproved uses to pediatric patients despite having any involvement in the original problematic business practices; PE firm and healthcare executives pay $25 million over alleged FCA claims submitted for unlicensed and unsupervised patient care.
- The government looks out for strong facts and direct involvement in problematic conduct when pursuing PE participants. A PE firm may be held liable under the FCA for its portfolio company’s conduct even if the PE firm did not directly control or participate in the conduct.
- Liability may be based on knowledge of the business practice, and not necessarily on knowledge of the illegality of the practice.
- The government is increasingly aware of the role that PE plays in the decision-making processes of healthcare entities in which they invest; and increasingly willing to proceed despite culpability of the Relator and despite other facts that previously would have presented an obstacle for FCA cases.
- Due diligence is a common way of mitigating risk. While not all potential problems leave a paper trail, documented relationships give access points to identify potential compliance issues and it is critical to include individuals with in-depth healthcare experience who understand the regulatory issues that surround these relationships on your diligence team.
- Sales force activities are the number-one source of liability; therefore, training, oversight, and documentation of marketing activities is key.
- Companies that fail to put into place strong compliance officers that identify and address potential compliance issues, and that fail to control their marketing staff and monitor utilization leave themselves open to enforcement action.
- In October 2023, Deputy Attorney General Lisa Monaco announced a new Safe Harbor Policy stating that it “is intended to incentivize the acquiring company to timely disclose misconduct uncovered during the M&A process.”
McGuireWoods’ cross-functional team of healthcare attorneys routinely assists clients with compliance, regulatory, transactional, and litigation matters, and with navigating the ever-evolving landscape of healthcare laws and regulations. For assistance with healthcare and private equity issues, please contact one of the authors of this article.