Bass, Berry & Sims attorney Taylor Chenery authored an article for the American Bar Association (ABA) Health Law Section detailing the growing need for private equity firms to consider the increased risk of False Claims Act (FCA) liability.
“Private Equity (PE) deals in the healthcare industry have skyrocketed in the last decade,” Taylor said. “In 2021, PE invested approximately $151 billion of capital into healthcare globally, more than double the year prior. The number of healthcare PE deals soared 36 percent to 515.”
However, this unprecedented capital and the pace at which deals are closing are presenting PE firms with heightened exposure to the uniquely treacherous legal and regulatory landscape in which they are investing.
PE investment can fuel growth and support innovation into providers; help small healthcare companies scale up quickly; and further help with growth through business advice, hiring, contacts, diagnostics, systems development and more. Many would argue PE ownership can also improve management, compliance and insurance reimbursement rates. “With respect to the healthcare industry specifically, PE firms are infusing capital to address consolidation and care coordination concerns while also providing management and business resources that allow physicians greater autonomy and fewer conflicts as compared to a relationship with a health system or larger independent physician practice,” Taylor said. “All of these effects can and do contribute to significant, positive advancements and improved patient outcomes in healthcare.”
Despite these benefits, others believe PE’s role in healthcare may be misplaced because of concerns that profit-driven healthcare threatens patients’ trust in doctors or the quality of healthcare.
Regardless of the viewpoint, the healthcare industry is built on a complex web of laws and regulations designed to protect patients. The FCA is a tool to do so that is being used with greater force than ever against PE firms’ portfolio companies and the PE firms themselves.
In the article, Taylor details the interaction of the FCA and PE firms in healthcare with data and recent examples of high cost settlements in FCA enforcement actions. He also lays out best practices for PE firms and portfolio companies to mitigate risk with guidance on implementing effective diligence, compliance and management.
The full article, “Recalibrating Priorities: The Growing Need for Private Equity Firms to Consider the Increased Risk of False Claims Act Liability,” was published in the July issue of the ABA Health eSource, published by the ABA Health Law Section.