Profits Over People: Whistleblowers Expose Healthcare Fraud

Private equity firms are on a healthcare spending and acquisition spree. From dental practices and urgent care, to hospice, nursing homes, and specialty practices, investment groups are buying up and consolidating broad areas of the healthcare sector.

The trend comes with very real concerns. Single-minded pursuit of profit by many of these new owners comes at the expense of higher prices, fewer choices, and diminished care. It also creates an environment for fraudulent billing and other illegal practices impacting taxpayer-funded programs like Medicare, Medicaid, and TRICARE. Patients in private equity-owned nursing homes have mortality rates that are 10 percent higher and costs that are 11 percent higher, while patients in these facilities have more infections and fall more frequently, separate studies have found.

These concerns are already playing out in a growing number of lawsuits filed by whistleblowers under the federal False Claims Act (FCA), a Civil War-era law designed to protect the government from fraud.

Whistleblowers Expose Healthcare Fraud

Whistleblower, or “qui tam,” lawsuits are shining a light on illegal practices that include overcharging government-funded programs and charging for unnecessary procedures and medications. Whistleblowers are also exposing pharmaceutical companies and device makers that provide kickbacks in exchange for prescribing medication or using specific medical devices. Healthcare providers owned by private equity groups have paid out more than $500 million in FCA settlements since 2014, according to a Kaiser Health News analysis.

“The profit potential creates perverse incentives in our healthcare system,” said Waters Kraus Paul & Siegel partner Caitlyn Silhan, who devotes most of her Dallas-based law practice to helping whistleblowers. “When private equity gets involved in the healthcare industry for the explicit purpose of turning a profit, there’s a tremendous potential for fraud, waste, and abuse. It’s often at the expense of patient care, and in many cases, it can’t be uncovered without a whistleblower providing inside information under the False Claims Act.”

There is no typical whistleblower. They can be anyone with direct knowledge about fraud, including:

• Medical practitioners or therapists who are concerned that they are being told to commit fraud.
• Executive or management-level individuals with direct knowledge of fraud and other illegal practices.
• Competitors who may learn that another company has an unfair advantage and is profiting from fraud.

Whistleblowers filed more than 710 qui tam suits in 2023, while more than $2.68 billion in settlements and judgments were recovered, according to the U.S. Department of Justice. By law, whistleblowers are entitled to a share of the recoveries, usually between 15 and 30 percent. In 2023, whistleblowers were paid more than $349 million in awards.

Private Equity Doubles Down

Private equity firms pool money from investors, ranging from wealthy individuals to college endowments and pension funds. Their strategy relies on leveraging debt to buy into businesses they hope to sell at a sizable profit, often within three to seven years.

With nearly $2 trillion in taxpayer funding going to government health programs in a hyper-regulated market, the potential for abuse is enormous. Private capital has invested nearly $1 trillion into nearly 8,000 health care transactions during the past decade, according to PitchBook.

“Private equity is uniquely problematic,” Silhan said. “They buy companies using borrowed money. They invest for a fixed timeframe. There’s a ticking clock that creates an incentive to make money quickly.”

Silhan represented Christine Martino-Fleming, a former employee of South Bay Community Services, who came forward as a whistleblower in a lawsuit against the chain of mental health centers and its private equity owner, H.I.G. Capital. She alleged in her complaint that the company used unlicensed, unqualified, and unsupervised personnel in its 17 facilities but submitted bills for mental health services to MassHealth—the state’s Medicaid program—as if they were provided by properly credentialed and supervised staff.

The lawsuit resulted in a record settlement in which H.I.G. Capital paid $19.95 million, the mental health centers paid $4 million, and two executives paid $5.05 million.

Most recently, Silhan and Waters Kraus Paul & Siegel partner Charles Siegel helped a whistleblower secure an $84.5 million FCA settlement with Illinois-based Cardiac Imaging, Inc. over illegal kickbacks to cardiologists. The outcome was a record settlement in the Southern District of Texas.

Help for Whistleblowers

There are potential risks for whistleblowers, and individuals with information about fraud, waste, and abuse of government programs should not do anything before consulting with an experienced False Claims Act attorney. The law requires that individuals have legal counsel before bringing a whistleblower complaint.

“A good whistleblower lawyer will be able to both protect their client and provide sufficient evidence for the government to pursue and succeed in a case,” Silhan said. “We are very careful to advise clients still employed with companies to proceed carefully while still providing the government with sufficient evidence to prosecute.”