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Make Hay While the Sun Shines: Private Equity and the False Claims Act

Posted by on Tuesday, April 20, 2021 in Notes, Volume 74, Volume 74, Number 3.

For years, the federal government has used the False Claims Act to police fraud in the healthcare industry. Every year, the Department of Justice recovers billions of dollars from healthcare companies for their False Claims Act violations, both penalizing wrongdoers and providing incentives for whistleblowers to come forward. Over the past decade, however, private equity activity within the healthcare industry has increased significantly, presenting questions as to how the False Claims Act applies when a private equity firm’s portfolio company is accused of wrongdoing. This Note analyzes the ambiguity in how different courts have previously applied the False Claims Act to different corporate forms—focusing on the level of involvement required of a parent organization—to determine how the Act should apply to private equity firms going forward, concluding that any direct involvement by a private equity firm in fraud committed by its portfolio company should trigger False Claims Act liability for the private equity firm.

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Gregory F. Maczko