November 6, 2020
Private Equity
Corporate, Finance, and Investments

DOJ Increasing False Claims Scrutiny on Healthcare Private Equity

DOJ Increasing False Claims Scrutiny on Healthcare Private Equity

DOJ Increasing False Claims Scrutiny on Healthcare Private Equity

Capital investment into healthcare has been steadily growing in recent years, and it will continue over the next decade. Investors targeting healthcare investments face added compliance requirements than other business targets, turning otherwise sound business decisions into significant liabilities, both civil and criminal.

The crossroads in healthcare and private equity comes between providing the best patient care and maximizing profit. To prevent interest in profits from superseding the focus on patient care, there is a growing trend by the Department of Justice to name healthcare private equity firms as defendants in False Claims Act and Anti-Kickback actions, with the most recent judgement of note was a $21.36 million won by the Department of Justice.

Similarly, in 2015, sixteen hospitals in Arkansas were fined $15 million for prescribing unnecessary treatment, violating the FCA. The hospitals falsely submitted Medicare claims for Intensive Outpatient Psychotherapy. Though Medicare does cover IOP, the subject patients’ conditions did not meet the requirements for IOP.

The Fair Credit Act is a federal law that criminalizes false reports and false claims submitted by individuals and organizations in relation to federal healthcare programs. An action can arise out of a knowingly false statement or reckless disregard of compliance.

The Act also includes a whistleblower protection for employees who report violations to the government. Any retaliation against such employee will result in monetary penalty to the company and/or its representatives.

Likewise, that whistleblower is incentivized to bring a potential violation forward. The government will pay the individual, a “qui tam plaintiff”, up to 30% of the fine. For instance, in the case referenced above, that reward of $6.4 million is more than enough reason for an employee to report even a suspicious feeling of an FCA violation to the DOJ.  

You can avoid FCA claims by ensuring your compliance with billing practices. Diligence applied to the accuracy and sufficiency of your claims will protect you from the two levels of culpability that lead to FCA claims: knowing dishonesty and reckless disregard.

FCA lawsuits against private equity will continue to grow as the healthcare industry grows and private equity’s footprint grows along with it. Compliance with industry-specific regulations and an understanding of the peculiarities of healthcare as opposed to other industries is necessary to ensure investor satisfaction and patient safety.

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