Private Equity Healthcare Fraud Exposure

Owning a healthcare company does not, by itself, expose a private equity sponsor to False Claims Act liability. Directing or funding the arrangements that generate improper claims can. That is the line that matters, and it is a line about conduct and knowledge, not about the fact of ownership. The Justice Department has said publicly that it will pursue "third parties that cause the submission of false claims," and that those third parties "can include private equity firms." Courts have let several of those cases proceed past the pleading stage. The investor’s own alleged role must be examined separately from the portfolio company’s conduct. This article explains where the line runs, what the Patient Care America matter illustrates, and what a board or investment team can usefully ask.

How an investor can cause a false claim

The False Claims Act reaches anyone who knowingly causes a false claim to be presented, not only the entity that submits it. In the Patient Care America district-court proceedings discussed below, the court examined whether the investor’s alleged involvement went beyond passive acquiescence. Board membership, reporting and governance must be evaluated in context; they are not categorical safe harbors. A sponsor that steers a portfolio company into a reimbursement-driven line of business, funds the marketing or referral arrangements that generate the claims, and understands how those arrangements work is in a different position. The reported decisions turn on which side of that line the pleaded facts fall.

It helps to separate three things that often get blurred:

Allegations are what a complaint asserts. A case surviving a motion to dismiss means the allegations, taken as true, state a claim. It does not mean they are proven.
Settlements resolve specified claims on negotiated terms. Whether a party admits liability depends on the agreement; a settlement figure alone is not an adjudicated finding.
Adjudicated holdings are what a court actually decided. The court, procedural stage and proposition decided matter when assessing a case’s significance.

Keeping those distinct is the difference between an accurate read of the risk and an overstated one.

The Patient Care America example

The anchor case comes out of South Florida. In United States ex rel. Medrano v. Diabetic Care Rx, LLC, the Patient Care America matter (S.D. Fla. 2018), the government intervened against a compounding pharmacy, two of its executives, and the pharmacy's private equity owner over a TRICARE compounded-cream kickback scheme. The court allowed the case to go forward against the private equity firm, adopting the standard that a rule "requiring more than mere passive acquiescence is most consistent with the purposes of the FCA." The defendants later agreed to pay about $21.36 million to resolve the allegations, a settlement rather than an adjudicated finding of liability.

The government alleged that the investor knew of and agreed to the marketing arrangement and financed payments to the marketers. Those were allegations about involvement in the conduct, beyond the ownership relationship. DOJ’s September 2019 announcement described the resolution as a settlement of allegations, with no determination of liability. DOJ settlement announcement

The example gives investment teams a concrete set of records to examine: what the board approved, what the sponsor funded, what compliance concerns were reported and how decision makers responded. It does not establish that a particular governance structure either creates liability or prevents it.

Policy signals, kept in their place

The government has flagged private equity at the policy level, and those signals are context rather than law. At a 2024 qui tam conference, a senior Civil Division official said the department is committed to holding accountable third parties that cause false claims, and named private equity firms among them. Separately, a 2024 request for information from federal antitrust and health agencies asked about private equity and corporate ownership of healthcare providers. That inquiry is about competition and consolidation, not the False Claims Act, and should not be read as an enforcement action. Both are stated priorities. Neither is an adjudicated holding.

Questions for investment and compliance teams

These are diligence prompts, not legal advice, and no set of answers guarantees immunity. Each maps to the "passive acquiescence" line the cases draw.

Does the sponsor's involvement extend to directing the portfolio company into reimbursement-driven lines of business, or is it limited to ordinary governance and financial oversight?
Did the sponsor fund or structure the specific arrangements that generate referrals, such as marketing spend, referral networks, telehealth ordering, or chart-review vendors?
What did the sponsor know, and when, from board seats and financial and compliance reporting, about how referrals are generated?
Are the portfolio company's Anti-Kickback safe harbors actually satisfied, or only approximated? Falling outside a safe harbor is not itself a violation, but it removes the certainty the safe harbor provides.
Was pre-acquisition diligence genuine on the reimbursement model, and does the compliance function have real independence rather than a nominal officer?
If a qui tam complaint has been filed, which statutory and pleading defenses apply alongside the investor-specific merits defenses?

A compliance program does not immunize a sponsor, and a checklist does not resolve a fact-intensive causation question. Governance and compliance records can help establish what decision makers knew, what they directed and how they responded to concerns. Their significance depends on the conduct and the applicable legal standard.

The firm's Federal Health Care Fraud Defense Report develops the private equity and compliance-risk analysis in its special-topics section. If you are a sponsor, board member, or portfolio-company executive weighing these questions for a specific investment, we are available to discuss your circumstances.