Health Care Investors Targeted as DOJ Sues Private Equity Firm in False Claims Act Case

Friday, April 6, 2018
By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law

On March 20, 2018, the U.S. Attorney for the Southern District of Florida intervened in a False Claims Act (FCA) lawsuit initiated by a whistleblower. The U.S. Attorney's Office filed a complaint in intervention against a compounding pharmacy located in Florida and against a private equity firm involved in the matter.  The pharmacy, Patient Care America, allegedly paid illegal kickbacks to induce prescriptions for compounded drugs reimbursed by TRICARE, the Department of Justice (DOJ) announced.

The Significance of This Case.

A major event in this case is the fact that the federal government also named a private equity firm (Reardon, Lewis & Haden, Inc., or RLH) as a defendant. This case is an indication of new enforcement activity against the investors and backers behind such false claims cases. According to the complaint, the private equity firm took various actions that enhanced its risk of being targeted for FCA enforcement. This case should serve as a warning for lenders, investors and financial institutions to do their due diligence and be sure of the legality of the types of businesses with which they deal.

The U.S. Attorney alleges that the defendants billed over $68 million in false claims to the TRICARE program for compounded drugs prescribed to active or retired military personnel or their dependents.  It is alleged that from September 1, 2014 to April 29, 2015, the compound formulas were manipulated by the defendants and the marketers to ensure the highest possible reimbursement from TRICARE, according to the complaint. The scheme generated over $68 million in reimbursements in a matter of months, according to the DOJ.  Click here to read the DOJ’s press release

Risks to Investors in the Health Care Field.

The attempted extension of False Claims Act (FCA) liability to the private equity firm should serve as a cautionary tale concerning the possible risks to all investors in the field of health care. This case shows that fraud and abuse laws may also be used to prosecute based on management decisions and business operations of the investors.

All investors should review their practices surrounding investments in any business in the health care industry.  This case also stresses that portfolio companies need to have adequate compliance programs in place to avoid FCA allegations.  Conducting due diligence and obtaining legal opinion letters can also help to protect investors.

To read the U.S. Attorney’s complaint-in-intervention, click here.

To read the original qui tam complaint in this case, click here.

The Health Law Firm’s Attorneys Represent Physicians, Health Professionals and Health Care Facilities as Plaintiffs, as Defendants and as Independent Personal Counsel.

The attorneys of The Health Law Firm have experience representing investors and health providers in business ventures, mergers, acquisitions and contract matters.  The Health Law Firm can also prepare legal opinion letters on complex medical business transactions for proposed business ventures and investments.  Consulting with board certified health lawyers, before closing on the transaction can save time, money and stress later.  If litigation arises, The Health Law Firm can also provide legal representation. Whether the litigation involves a corporate break up, unfair and deceptive trade practices, contract issues, covenants not to compete, partnership disputes, termination of employment, actions by Medicare, Medicaid or other state and federal agencies, whistleblower actions, wage disputes, disputes with insurers and other payers, HIPAA violations, EMTALA litigation, or others, we are able to represent you.

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Cadwalader, Wickersham & Taft LLP. “HealthCare Investors Beware: U.S. Attorney Sues Private Equity Firm For Portfolio Company’s Alleged Billing Fraud.” The National Law Review. (March 20, 2018). Web.

Frank Harris Shriver & Jacobson LLP. “Recent Justice Department False Claims Act Case Against Private Equity Firm Based on Portfolio Company Activities Serves as a Reminder for Private Equity Firms to Exercise Best Practices with Respect to Portfolio Company Management.” Lexology. (March 6, 2018). Web.

About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law.  He is the President and Managing Partner of The Health Law Firm, which has a national practice.  Its main office is in the Orlando, Florida, area.  The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone:  (407) 331-6620.

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