While the Biden administration is targeting private equity firms that invest in nursing homes for reforms, two attorneys well-versed in fraud argue that existing mechanisms could deter private equity from “putting profits ahead of patients.”
Government investigators should rely on a beefed-up Securities and Exchange Commission and encourage broader use of the False Claims Act to weed out bad actors, attorneys Jeanne A. Markey and Raymond M. Sarola of Cohen Milstein Sellers and Toll argued in an opinion article published Thursday in STAT.
“The Securities and Exchange Commission can impose enhanced disclosure requirements on the investments and activities of private equity funds, a concept in which it has recently expressed interest,” the lawyers argued. “Stronger disclosure requirements would increase transparency and bring more wrongdoing to light.”
They also said the False Claims Act can be an effective tool in policing the actions of private equity firms in the cases of portfolio companies that submit false payment claims to Medicare and Medicaid.
In the article, they noted that company insiders are increasingly turning to the act to reveal misdeeds as whistleblowers. Since 2013, private equity-owned healthcare companies have paid more than $500 million to settle claims of overcharging government healthcare programs.
They encouraged those investigating false claims allegations to look for evidence beyond the healthcare entity itself and use the discovery process to unearth private equity investors’ files and business strategies.
“Plans revealing the firm’s strategies and timeline for enhancing the value of the portfolio company, for example, could all be immensely useful to understanding the nature and scope of the fraud alleged and the private equity firm’s role in perpetuating and profiting from that fraud,” they wrote.
While their article called out the increasing role of private equity in all sectors, the Biden administration this year has focused heavily on investors’ influence over the skilled nursing sector. Given the impact of the pandemic and studies tying ownership type to patient outcomes, the administration has said it wants to do more to make owners more transparent and accountable.
Markey and Sarola added that private equity’s healthcare funds typically last five to seven years before resale, adding pressure on them to recoup their investments from the moment they are “on the clock.”
“As private equity firms further encroach upon the healthcare industry, it is essential that their activity is closely monitored for fraud and patients’ best interests are protected and prioritized,” they wrote.
