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Private Equity Firms Buying Healthcare Companies May Increase Risks to Patients and Lead to More Whistleblower Actions

Posted  January 8, 2024

Private equity (PE) firms are in the hot seat, particularly when it comes to acquiring and investing in healthcare companies.  According to a recent CNN article, a research study published in JAMA found that “[h]ealth care became more hazardous for patients at hospitals purchased by private equity firms.”  This not only should concern patients and Government enforcers.  It also could be a harbinger of more whistleblower actions to come.

PE firms invest in companies, often acquiring a controlling or substantial position in those companies.  The basic idea is that a PE firm invests in a company; it tries to maximize the company’s value, usually by decreasing costs or increasing revenues; and then it makes money if the company does well, goes public through an IPO, or is a target of an acquisition.  To try to maximize the company’s efficiency, profitability, and value, the PE firm often seeks to slash costs, including the company’s workforce.  But these cost-cutting measures can also lead to overworked staff, which can then lead to cutting corners or reducing the quality of products and services provided.

PE firms are increasingly buying healthcare companies.  According to the CNN article, PE firms recently have been “acquiring large chunks of the US healthcare delivery system,”  including “hospitals,” “nursing homes, behavioral health systems, and private physician practices.”  It’s happening all across the country.  And it has caught the attention of Government antitrust enforcers.  For example, the FTC recently brought an antitrust lawsuit against US Anesthesia Partners, Inc. and PE firm Welsh, Carson, Anderson & Stowe, alleging the defendants “executed a multi-year anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits.”  That case remains pending.

Recent research on PE firms buying healthcare companies has raised some troubling findings.  According to the CNN article cited above, a “study found that rates of hospital-acquired complications for patients increased by 25% at hospitals after they were purchased by private equity firms.”  The article also cites research showing that “private equity ownership is associated with higher death rates for patients in nursing homes and increased costs to taxpayers.”  This coincides with recent reports of healthcare staffing shortages.

Cutting costs and slashing a healthcare company’s workforce can lead to overworked staff.  If it gets bad enough, the staff may not – or sometimes cannot – maintain the standards and perform all the work that payors like Medicare and Medicaid require when providing healthcare services to patients.  This is how cost-cutting measures can ultimately lead to whistleblower complaints, Government investigations, and potentially False Claims Act lawsuits being filed against the company and the PE firm itself.

False Claims Act cases have been brought against PE firms before.  For example, in 2019, the DOJ settled a False Claims Act lawsuit for $21.36 million against a compounding pharmacy, two executives, and private equity firm Riordan, Lewis & Haden Inc., alleging that they “violated the False Claims Act through their involvement in a kickback scheme to generate referrals of prescriptions for expensive pain creams, scar creams, and vitamins, regardless of patient need . . . .”  The DOJ alleged that the PE firm “managed [the pharmacy] on behalf of its investors, allegedly knew of and agreed to the plan to pay outside marketers to generate the prescriptions and financed the kickback payments to the marketers.”  Notably, this case was originally filed by two whistleblowers who were former employees of the pharmacy.

Another example comes from Massachusetts.  In 2021, the Massachusetts Attorney General’s office settled a False Claims Act lawsuit for $25 million against a PE firm and former executives of a mental health center, alleging that the center “had a widespread pattern of employing unlicensed, unqualified, and unsupervised staff at its mental health facilities in violation of MassHealth [Medicaid] regulations.”  This was another case initially filed by a whistleblower.

As PE firms continue to acquire and invest in healthcare companies across the country, they must be careful when performing their due diligence, and they must be sure not to put profits above patients.  And whistleblowers and Government enforcers must remain vigilant and hold them accountable if they do.  Healthcare employees who are privy to conversations or emails that may suggest fraud is occurring are often in the best position to uncover the claimed misconduct and bring a False Claims Act case.  Successful whistleblowers can be awarded up to 30% of the Government’s recovery.

If you would like more information on what it means to be a whistleblower or think you may have information relating to healthcare or pharmaceutical fraud, fraud involving kickbacks, or any other kind of fraud or misconduct involving a government program, please feel free to contact us so we can connect you with a member of the Constantine Cannon whistleblower lawyer team for a free and confidential consultation.

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Tagged in: Healthcare Antitrust, Healthcare Fraud, Whistleblower Eligibility,