Private equity (PE) investment in the health care industry has grown significantly over the last decade. This past year was no exception. While total deal volume lagged behind 2021 record highs, PE health care deal activity nevertheless remained robust, with an estimated deal volume of about $29 billion in North America. By some accounts, nearly 400 hospitals are owned by private equity firms, representing approximately 9% of all private hospitals nationwide.

Predictably, the continued rise of PE investment in health care companies has attracted the attention of government regulators. For example, this past year, health care roll-ups were under antitrust scrutiny from the Federal Trade Commission, as previously discussed here. In November 2023, The Office of Inspector General for the United States Department of Health and Human Services (HHS-OIG) issued its “General Compliance Program Guidance” explaining that the “growing prominence of private equity” in health care “raises concerns about the impact of ownership incentives” on the efficient delivery of high-quality health care. More recently, in December 2023, the Senate Budget Committee, led by Chairman Sheldon Whitehouse and Ranking Member Chuck Grassley, opened a bipartisan investigation into the effects of PE ownership on hospitals around the country and, as part of that investigation, recently issued information requests to six different PE owners.

Despite the continued political and regulatory interest, qui tam FCA cases targeting PE investors are relatively small in number, and typically involve unique fact patterns. Cases against PE owners have generally alleged that ownership either exercised some degree of control over day-to-day operations or otherwise conspired to submit claims for payment to the government in violation of the FCA. Given that health care companies are highly regulated, investors should take steps to avoid becoming FCA defendants, including: (1) conducting pre-acquisition diligence with experienced regulatory consultants and counsel and taking steps to help ensure any discovered regulatory violations are corrected post-closing; (2) aligning incentive structures post-closing to comply with Federal fraud and abuse laws; (3) considering what role PE-owners will take in active management; and (4) investing in and maintaining a robust culture of compliance to mitigate future risk.