Private Equity Healthcare Fraud: Reaching the Owners, Not Just the Company
Private equity owners are not automatically shielded when a portfolio company defrauds federal healthcare programs. Where the fund and its principals direct or knowingly cause the conduct, they can be named defendants. Our attorneys obtained a 9 million dollar settlement that reached the firm and its principals personally.
$9 million settlement in a non-intervened fentanyl qui tam case
Why ownership structure stopped being a shield
Private equity has moved heavily into healthcare, buying pharmacies, treatment centers, physician practices, laboratories, and home health agencies. The investment thesis usually involves increasing revenue per unit of care, which is precisely where billing fraud risk sits.
The Department of Justice has made owner accountability a stated priority. The theory is straightforward: the False Claims Act reaches anyone who knowingly causes the submission of false claims, and an owner who sets the targets, installs the management, and directs the strategy can be that person.
What makes an owner a defendant rather than a bystander
Passive ownership is not liability. The facts that convert an investor into a defendant are about control and knowledge.
- Fund principals sitting on the portfolio company board and directing operational decisions
- Revenue targets set by the sponsor that are only achievable through the conduct at issue
- Diligence findings that identified the compliance problem before or after acquisition
- Compliance concerns escalated to the sponsor and not acted on
- Management installed by the sponsor to execute the strategy
- Sponsor involvement in the specific billing or dispensing practices at issue
The case our attorneys brought
Our attorneys obtained a 9 million dollar settlement against private equity firm Belhealth Investment Partners, its principals Harold Blue, Inder Tallur, and Dennis Drislane, and its pharmacy portfolio companies Linden Care and Quick Care.
As Edward Kang described it at the time, the case represented the need to hold private equity firms and their principals liable when they implement profit schemes that trade patient safety for investor returns. The government did not intervene. The case was carried and settled anyway.
Who sees these cases
Portfolio company executives, compliance officers, and finance staff see the pressure from the sponsor directly. Diligence consultants and interim managers placed by the fund often see the gap between what diligence found and what happened afterward.
Frequently asked questions
Can a fund be liable for conduct that started before it acquired the company?
Potentially, where the fund learned of the conduct through diligence or afterward and allowed it to continue while claims were still being submitted. Continuing conduct with knowledge is the key fact.
What about the individual partners?
Individuals who directed or knowingly caused the submission of false claims can be named. In our matter the principals were defendants alongside the fund and the operating companies.
Are these cases harder than ordinary healthcare fraud cases?
Usually yes, because you must prove the owner knew and acted rather than merely held equity. That is also why many firms will not bring them.
The attorneys who handle these cases
Related reading
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