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 False Claims Act reaches anyone who "knowingly presents, or causes to be presented" a false claim, 31 U.S.C. § 3729(a)(1)(A), and the Justice Department has said publicly that the third parties it will pursue "can include private equity firms." Courts have let several of these cases proceed past the pleading stage, one has survived summary judgment against the sponsor, and one has now gone to a jury against a corporate parent. But no controlling appellate decision holds that a sponsor is liable for a portfolio company's fraud simply because it owns the company. This article explains where the line runs, what each of the leading cases actually decided about the investor's role, and what a board or investment team can usefully do.
How an investor can cause a false claim
Liability under the False Claims Act attaches to one who "knowingly presents, or causes to be presented," a false claim, so it exists "either where the defendant directly submits false claims, or where the defendant causes another to submit the false claim." United States ex rel. Medrano v. Diabetic Care Rx, LLC, 2018 U.S. Dist. LEXIS 204225 (S.D. Fla. Nov. 30, 2018). For an investor, the courts have drawn the operative line at conduct. A standard "requiring more than mere passive acquiescence," as the court put it in the Patient Care America matter, "strikes the appropriate balance between shielding from liability parties who merely fail to prevent the fraudulent acts of others, and ensuring that liability attaches for affirmative acts that do cause or assist the presentation of a fraudulent claim." A sponsor that holds a board seat, receives financial reporting, and exercises ordinary governance is not, without more, causing anything. 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. Two more ideas run through the cases. The scienter the statute requires is not narrow: "knowingly" reaches actual knowledge, deliberate ignorance, and reckless disregard, with no need to show a specific intent to defraud. 31 U.S.C. § 3729(b)(1). And a controlling owner's knowledge is not always its own to keep, because the knowledge of officers and directors with substantial control of a company can be imputed to it.
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, 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. 2018 U.S. Dist. LEXIS 204225 (S.D. Fla. Nov. 30, 2018), adopted in part, 2019 U.S. Dist. LEXIS 35385 (S.D. Fla. Mar. 5, 2019).
The sponsor's alleged role. The complaint did not rest on ownership. It alleged that the private equity firm made a controlling investment in the pharmacy in 2012, planned to raise its value and sell within five years, "initiated" the pharmacy's entry into the business of compounding topical creams, and "contemplated from the outset" that the company would bill the federal government for those creams. It further alleged that the firm knew of, and financed, the marketing arrangement that paid outside marketers to drive the prescriptions.
The sponsor's defense. The firm argued, as investors typically do, that it did not itself submit any claims, that its role was that of a passive investor behind the corporate form, and that it neither knew of nor caused the specific fraudulent schemes.
Why part of the case survived, and part did not. The court sorted the theories. It held that the complaint adequately alleged the firm's knowledge and its causation of the marketing-kickback scheme, so the False Claims Act claim proceeded against the firm on that theory, precisely because the firm had done more than passively acquiesce; it had initiated the compounding line and financed the marketing operation. The court dismissed the theories tied to a separate copayment-waiver scheme and to the absence of a valid prescriber-patient relationship, because the complaint did not adequately plead the firm's knowledge of those distinct schemes. The lesson is that knowledge is measured scheme by scheme, and the investor's exposure follows its actual, pleaded conduct. The defendants later agreed to pay about $21.36 million to resolve the allegations, a settlement rather than an adjudicated finding of liability.
What the other cases decided
The cases after Medrano map the same line, and reading them for the investor's role, its defense, and the court's reasoning is more useful than counting outcomes.
Summary judgment did not end the sponsor's exposure. United States ex rel. Martino-Fleming v. South Bay Mental Health Centers, Inc. is the leading sponsor case. The private equity firm had formed and controlled the corporate chain that owned the provider, whose clinics billed Medicaid for services by unlicensed and unsupervised clinicians, a deficiency the relator had raised internally as early as 2012. The court denied the private equity defendants' motion to dismiss, 334 F. Supp. 3d 394 (D. Mass. 2018), and then denied them summary judgment, 540 F. Supp. 3d 103 (D. Mass. 2021). The sponsor's defense was the familiar one: no knowledge of the false claims, no causation, and separateness from the entity that billed. The court sent the case to a jury because the record would let a reasonable jury find that "the officers, directors, and other employees at South Bay and the other corporate entities recklessly disregarded the regulations," and that one of the individual owners "at least recklessly disregarded evidence of noncompliance" after being told of it. Martino-Fleming, 540 F. Supp. 3d at 129, 132. The bridge to the entities was agency law: the knowledge of officers and directors with substantial control of a company is imputed to it. That is how an owner's knowledge, held through its controlling people, reaches the company that submitted the claims. The provider later paid about $4 million to resolve the case.
A jury has now found a corporate parent liable for "causing." In United States ex rel. Bassan v. Omnicare, Inc., No. 1:15-cv-4179 (S.D.N.Y.), the theory reached trial against the corporate parent. The parent's alleged role was oversight and inaction rather than direction: it had assumed compliance-oversight duties over the subsidiary's billing, was aware of the compliance problem and of proposed fixes, and chose not to compel them. The parent's defenses were materiality, that the practice was widely accepted and so any noncompliance was not material, and causation, that its own conduct caused no separate loss. In 2025 the jury found the parent had caused the subsidiary's false claims, while finding that its conduct caused no separate damages, and the court apportioned a share of the penalties to the parent. The ruling reflects a middle ground between mere ownership and express direction, in which control plus knowledge plus a failure to remediate can support "causing" liability. The result is on appeal, so it is a district-court outcome rather than settled appellate law.
Corporate separateness is not a shield. In United States ex rel. Ebu-Isaac v. Insys Therapeutics, Inc., 2021 WL 3619958 (C.D. Cal. 2021), the court denied a private equity firm's motion to dismiss. The firm's role was alleged as a joint business venture with its portfolio pharmacy, providing management and strategic direction and steering the pharmacy toward dispensing a fentanyl product for off-label use. Its defense was entity separateness and the fact that it did not submit the claims. The court held that separateness and non-submission do not defeat "causing" liability where an entity uses its control or influence over another to bring about the false claims, and it pointed to overlapping officers, communications that spoke of the businesses as one, and an integrated public posture.
Threshold rules still end cases. In United States ex rel. Cho v. H.I.G. Capital, LLC, 2020 U.S. Dist. LEXIS 155373 (M.D. Fla. Aug. 26, 2020), aff'd, No. 20-14109 (11th Cir. Apr. 1, 2022), the sponsor owned the network accused of pushing unnecessary laboratory tests, but the case never reached that question. The court dismissed on the first-to-file bar, because an earlier qui tam on the same facts was pending when the relator filed, and it held that amending the complaint could not cure the defect. It expressly declined to reach the sponsor's other grounds, including Rule 9(b). This is the closest the theory has come to Eleventh Circuit treatment, and the affirmance rested on the procedural bar, not on investor liability.
The theory recurs, and it is recent. In United States ex rel. Virginia v. Century Park Capital Partners, LLC, 2025 U.S. Dist. LEXIS 135600 (W.D. Va. July 15, 2025), a complaint names a private equity firm alongside a youth behavioral-health provider, an allegation-stage matter.
Read together, the cases describe a spectrum, not a rule. At one end sits passive ownership, which is not enough. In the contested middle sits control plus knowledge plus a failure to fix a known problem, which took the parent in Omnicare to a jury and kept the sponsor in Martino-Fleming past summary judgment. At the other end sits the affirmative initiation and financing of the scheme, as alleged of the sponsor in Medrano. Neither non-submission nor corporate separateness has defeated liability where the investor exercised control or influence over the conduct and had the requisite knowledge. The one case that ended early, Cho, ended on a procedural bar, not on the merits of investor liability.
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 the Federal Bar Association's Qui Tam Conference on February 22, 2024, Principal Deputy Assistant Attorney General Brian M. Boynton said the department is committed to holding accountable "third parties that cause the submission of false claims," and that those third parties "can include private equity firms." He framed the investor question the way the cases do. An investor may face liability, he explained, where it "knowingly engages in conduct that causes the submission of false claims," including by "providing revenue targets or other indirect benchmarks intended to prioritize reimbursement." Separately, in March 2024 the Federal Trade Commission, the Justice Department's Antitrust Division, and the Department of Health and Human Services issued a joint request for information on 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.
Practical steps a sponsor can take to reduce risk
None of these guarantees immunity, and none substitutes for advice on a specific investment. Each maps to a fact pattern the cases treat as decisive.
- Diligence the reimbursement model before closing, then remediate what you find. Test the target's billing and coding against payor conditions of payment, and identify billing outliers before the government does. The catch is that diligence which surfaces a problem also creates knowledge, and knowledge of a defect paired with a decision not to fix it is the Omnicare fact pattern. Diligence should come with a documented remediation plan, not a filed report.
- Resource the compliance function and keep it independent. A real compliance officer with a direct line to the board, annual risk assessments, and quality of care treated as a compliance issue are what OIG's guidance expects of an owner. A nominal compliance function invites the inference of reckless disregard.
- Do not let growth targets read as billing instructions. DOJ has singled out investors who, through "revenue targets or other indirect benchmarks intended to prioritize reimbursement," knowingly cause providers to submit false claims. Investment theses and management incentives should be structured so a growth target is not, in effect, a direction to upcode or over-utilize.
- Be deliberate about the sponsor's operational role and its communications. The more a sponsor directs clinical or billing operations, staffs overlapping officers, and speaks of the business as an integrated "we," the easier it is to plead control and causation, as Ebu-Isaac shows. Where genuine separateness is intended, observe corporate formalities and leave operational decisions at the portfolio level.
- Document board oversight. Keep a record that the board received compliance reporting, questioned it, and acted on it. Oversight that is exercised and documented is the opposite of the failure-to-remediate that drove the Omnicare causation finding.
- Structure marketer and sales compensation to fit an Anti-Kickback safe harbor. The marketing-kickback theory in Medrano survived precisely because the sponsor initiated and financed the marketing arrangement. Pay bona fide employees, or use fixed, fair-market-value compensation set in advance that does not vary with the volume or value of federal referrals, and paper it. 42 C.F.R. § 1001.952.
- Act on what monitoring surfaces. Because scienter includes deliberate ignorance and reckless disregard, the safest posture after a problem is found is to fix it, self-disclose where appropriate, and document the remediation. Inaction was the common thread in the cases that reached a jury.
A compliance program does not immunize a sponsor, and a checklist does not resolve a fact-intensive causation question. What good governance can do is keep the sponsor on the oversight side of the line the cases draw, and create a real record that it stayed there. The firm's Federal Health Care Fraud Defense Report develops the private equity and compliance-risk analysis in its special-topics section.
Our health care fraud experience. Fridman Fels & Soto defends providers, executives, and investors in health care fraud matters, from False Claims Act investigations and litigation to parallel criminal cases. Before entering private practice, Daniel Fridman served at the U.S. Department of Justice as Senior Counsel to the Deputy Attorney General and as Special Counsel for Health Care Fraud, coordinating health care fraud enforcement across the Department. That experience includes the Patient Care America matter discussed above: the firm served as counsel to the chief executive of the portfolio company in both the civil False Claims Act case and the related criminal case. 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.
Frequently Asked Questions
Can a private equity firm be liable for a portfolio company's False Claims Act violations?
Not for ownership alone, but yes where the firm's own conduct caused the false claims. The False Claims Act reaches anyone who "knowingly presents, or causes to be presented" a false claim (31 U.S.C. section 3729(a)(1)(A)), and courts require "more than mere passive acquiescence" (United States ex rel. Medrano v. Diabetic Care Rx, LLC, 2018 U.S. Dist. LEXIS 204225 (S.D. Fla. 2018)). Liability turns on the sponsor's conduct and knowledge, not on the fact of ownership.
Does simply owning a healthcare company create False Claims Act liability?
No. Holding a board seat, receiving financial reports, and exercising ordinary governance are not, without more, enough. What changes the analysis is directing the portfolio company into a reimbursement-driven line of business, funding the arrangements that generate the claims, and knowing how they work.
Has a private equity firm ever been held liable under the False Claims Act?
The theory has advanced past the pleading stage, survived summary judgment against the sponsor, and reached a jury. In United States ex rel. Martino-Fleming v. South Bay Mental Health Centers, Inc., 540 F. Supp. 3d 103 (D. Mass. 2021), the court let the "causing" theory reach a jury against the private equity owners, and in the Omnicare litigation a jury found a corporate parent liable for causing its subsidiary's false claims. No controlling appellate decision yet holds that ownership alone equals liability.
Is the government targeting private equity in health care?
It has flagged the sector at the policy level. In February 2024 a senior Justice Department official said the department is committed to holding accountable third parties that cause false claims and that those parties "can include private equity firms," and a separate 2024 FTC, DOJ, and HHS inquiry examined private equity ownership of providers. These are stated priorities and context, not new law; investor liability still turns on conduct and knowledge under the existing False Claims Act standard.
What can a private equity sponsor do to reduce False Claims Act risk?
Keep the sponsor's role on the oversight side of the line, run genuine pre-acquisition diligence on the reimbursement model, give the compliance function real independence, and create a record of how the sponsor responded to compliance concerns. A compliance program does not immunize a sponsor, but good governance helps show it did not cross into causing the conduct. Because it is fact-intensive, involve counsel early.
