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The settlement pertained specifically to H.I.G. Growth Partners and H.I.G. Capital.

In recent years there has been a proliferation of private equity firms taking oversight of healthcare entities. These firms have increased their exposure to False Claims Act (FCA) liability by playing active roles in the operation of the healthcare entities, and multiple high-profile settlements have been reached over the last two years. 

There was the U.S. Department of Justice’s (DOJ’s) 2019 settlement with private equity firm Riordan, Lewis & Haden for its role managing compounding pharmacy Diabetic Care Rx and its kickback scheme to generate referrals of TRICARE patients. You may also remember DOJ’s 2020 settlement with Therakos and its private equity firm, The Gores Group, for promoting two drug-device systems for unapproved uses on pediatric patients.  

Earlier this month, the Massachusetts Attorney General’s Office reached a historic $25 million settlement with private equity firms H.I.G. Growth Partners and H.I.G. Capital (collectively, HIG), and two executives of the healthcare facilities HIG had invested in: 1) former CEO of South Bay Mental Health Center (SBMHC) Peter Scanlon, and 2) CEO of Community Intervention Services (CIS) Kevin P. Sheehan. The settlement resolved allegations that SBMHC submitted fraudulent claims for mental health services to the Massachusetts Medicaid program known as MassHealth. SBMHC itself had already reached a settlement with the Massachusetts government for $4 million in February 2018.

The Alleged Fraudulent Claims Scheme

The allegations centered on SBMHC having a significant issue in the licensure and supervision of therapists at its mental health clinics. An investigation by the Massachusetts Attorney General revealed that SBMHC routinely employed unlicensed, unqualified, and unsupervised staff at its various mental health clinics across the commonwealth. SBMHC then submitted Medicaid claims to MassHealth for services rendered by the staff.

The original case was brought by whistleblower Christine Martino-Fleming, the former Coordinator of Staff Development and Training at SBMHC. The Commonwealth of Massachusetts intervened in the whistleblower’s case in January 2018, and settled with SBMHC for $4 million shortly thereafter.

The Recent Settlement with HIG and the Former Executives

This month’s settlement pertained specifically to H.I.G. Growth Partners and H.I.G. Capital, the private equity entities behind SBMHC, and the former executives of SBMHC and related entities. The settlement resolved allegations that HIG, Scanlon, and Sheehan had knowledge of SBMHC providing services and making claims on MassHealth while using unlicensed, unqualified, and unsupervised employees, and failed to follow recommendations that could have brought SBMHC into compliance. HIG, Scanlon, and Sheehan all allegedly played roles in the operation of SBMHC that justified liability under the Massachusetts False Claims Act.

HIG agreed to pay $19.95 million, and Mr. Scanlon and Mr. Sheehan will collectively pay $5.05 million. This $25 million settlement is historic in that it is the largest government healthcare fraud settlement involving private equity firms’ oversight or operation of a healthcare provider – and also the largest Medicaid fraud settlement ever for the Massachusetts Attorney General’s Office.

This settlement demonstrates the importance of whistleblowers in not only exposing fraud by healthcare entities, but in holding private equity operators of those healthcare entities accountable.

The proliferation of private equity in healthcare can and should mean that private equity firms that operate healthcare entities must be responsible for the actions of the entities they operate. This includes ensuring that such entities are compliant with licensure, qualification, and supervision requirements – and if not, that the private equity entities take action to correct the problems.

However, the pressure in private equity to quickly increase the value of the healthcare facilities they operate and sell them at a profit often causes them to improperly cut corners or overreach, at the expense of taxpayer-funded health insurance programs like MassHealth, Medicare, and TRICARE.

The recent spate of enforcement actions by both state and federal entities against private equity firms, aided by vital whistleblower insiders bringing these matters to light, sends a cautionary signal to private equity firms in the mental health space – and in healthcare more generally.

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