Private Equity False Claims Act Liability: What a Whistleblower Needs to Connect

Private equity False Claims Act liability can reach an owner that takes an active role in its portfolio company’s illegal conduct. If you work inside the business, you may know who approved the testing policy, who received the billing warnings and who told staff to keep going. Those decisions can tie the owner to the bills the company sends the government.

Can Our Private Equity Owner Answer for the Company’s False Claims?

Yes. In a 2020 speech, the Justice Department said that a private equity firm taking an active role in an acquired company’s illegal conduct can expose itself to False Claims Act liability. The department pointed to its case against the private equity firm Riordan, Lewis & Haden, alleging involvement in a kickback scheme that generated prescriptions for expensive treatments regardless of patient need.

For an employee inside a portfolio company, the useful question is concrete: what did the owner know, what did it direct, and how did that conduct reach a government claim? The testing protocol, management instruction or response to an audit can make that connection visible. We examine the owner’s part alongside the laboratory’s billing and the decisions made inside the clinic.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What Connects the Owner to the Claim?

The connection runs from the owner’s decisions to the service billed and the public money sought. In a laboratory, that means following the order, the test selection, the company that performed the test and the company that submitted the claim.

Under Medicare’s ordering and documentation rules, the medical record supporting payment may sit in the physician’s office while the laboratory carries the claim. A laboratory employee and a clinic employee can therefore see different parts of the same billing practice.

A management agreement can show who had authority over operations. An instruction to continue testing can show how that authority was used. We put the report, the response and the later claims beside one another, with their dates intact.

The same approach applies to financing. We examine what an approval funded, who approved it and how the funded activity produced the claims. That is an inquiry into the owner’s conduct, built from the business’s own transactions and instructions.

What an Insider Can See Inside a Laboratory

An insider can see the policy that generates claims in the business’s everyday records. The laboratory cases show how that policy can appear in compensation agreements, referral instructions, electronic records and reports to a board.

A Testing Policy That Reaches Every Visit

In the Logan Laboratories and Tampa Pain Relief Centers case, the government alleged that the businesses automatically ordered both screening and definitive urine drug tests for all patients at every visit, without an individualized medical-necessity decision. According to the government’s allegations, Tampa Pain performed the screening tests, Logan performed the definitive testing, and each billed federal health care programs. Both were subsidiaries of Surgery Partners.

The whistleblower’s complaint connected the referral business to physician compensation:

The same complaint alleged that a medical director answered a physician’s objection to the referral relationship by comparing it to a family that owns a gas station and expects its children to use the family’s convenience store. That was the alleged answer to a question about where patients’ specimens should go. On the complaint’s account, keeping the business in the family had become the explanation for the referral. In the government’s account, patients got tests without an individual decision that they needed them, and taxpayers picked up the bill.

The complaint also alleged that Surgery Partners changed the electronic patient-risk classification tool to put more patients in the high-risk group and justify more frequent testing. That puts a specific management decision between the patient record and the laboratory bill. For someone working in a portfolio company, we examine who requested such a change, who approved it and which claims followed.

A Warning Reaches the Board

A board report can connect knowledge of a billing practice to the people overseeing the company. In the Boston Heart Diagnostics complaint, the whistleblower alleged that a letter warned the board about undisclosed physician ownership, excessive draw fees, specimen splitting to increase physician profits and waived patient deductibles or copayments.

The GlycoMark complaint went further on the response. It alleged that the board was repeatedly consulted about Medicare coverage prohibitions and instructed the company to keep marketing its test as reimbursable throughout the country.

What Happened to the Compliance Report?

The response to bad news deserves as much attention as the report itself. The Psychology and Sociology of Fraud: Integrating the Behavioral Sciences Component Into Fraud and Forensic Accounting Curricula, published in Issues in Accounting Education in 2008, explains how collusion and management override can defeat internal controls. It also describes how boards can discount dissent:

For a whistleblower, that analysis directs attention to what happened after the warning. We look at the company’s response and whether the testing or billing practice changed.

Laboratory compliance has long involved these operational details. Model Plan Helps Laboratories Fight Fraud, published in Laboratory Medicine in 1997, described the federal inspector general’s voluntary model plan. It called for monitoring standing orders, analyzing test-use data and assigning a compliance officer responsibility for maintaining and monitoring policies. Those activities produce a useful comparison for an insider: what the company monitored, what it learned and what management did with the information.

Who Agreed to Pay in These Cases?

Aero Turbine’s private equity owner was jointly responsible for the full settlement. Traditions Health’s former owner agreed to pay on its behalf. Their agreements show how the owner’s payment promise can differ from the operating company’s.

Logan Laboratories and Tampa Pain Relief Centers

In April 2020, Logan Laboratories, Tampa Pain Relief Centers and two former executives agreed to a total of $41 million to settle the unnecessary-testing allegations. The Justice Department described claims to Medicare, Medicaid, TRICARE and other federal health care programs.

Whistleblowers started the cases, and the government joined them. The department announced a whistleblower reward of $7.8 million from the settlement. The business policy that allegedly produced unnecessary tests became a case about the resulting claims for public money.

Aero Turbine and Gallant Capital Partners

The Aero Turbine and Gallant settlement agreement ties a private equity firm to a specific act inside a government contractor. Aero Turbine repaired and maintained jet engines for the Air Force. The government alleged that it submitted claims while failing to meet required cybersecurity controls.

One allegation reaches directly into the investment firm. A Gallant employee assisting Aero Turbine allegedly gave personnel in Egypt access to controlled unclassified information while a software company worked on the contractor’s information system. Those personnel were not authorized to receive the information under the contract. The government’s account identifies an employee of the owner, the work being done and the information that changed hands.

The agreement requires Aero Turbine and Gallant to pay $1,750,000, with each responsible for the full settlement obligation. Gallant is named in the payment promise alongside the contractor.

Traditions Health and Its Former Owner

The Traditions Health agreement uses a different payment arrangement. It requires GBHHC Holding Corporation, Traditions’ former owner, to pay $34,000,000 on Traditions’ behalf.

The government alleged that Traditions billed Medicare for home health services that were not medically necessary and paid physician medical directors for patient referrals. The agreement describes Traditions’ disclosures about missing eligibility documentation and medical director arrangements, including payments for services the physicians may not have performed.

The agreement names GBHHC as the payer. Its separate promise to resolve specified government claims also covers current and former corporate owners. Being covered by that promise and agreeing to pay are different commitments.

Ownership Dates and the Claim Trail

The alleged claims in the Gallant case started before the investment and continued during its ownership. The agreement records a controlling stake, held through funds Gallant advised, from January 2019 to August 2024. The government’s alleged false-claim period ran from January 2018 to February 2020.

We connect an owner’s instructions and knowledge to the period when that owner was involved. Acquisition records, management responsibilities and dated communications let us place the decision alongside the testing and billing it affected.

For an insider, the most useful connection may be between documents held by different departments: the clinic’s order, the laboratory’s result, the billing record and the instruction from management. We work through those connections with you, including who received the warning and what the business continued to bill afterward.

When the Decisions Came From the Owner

If you know how an owner’s instructions reached the company’s testing or billing, speak with our whistleblower experts about the owner behind those decisions. We connect management’s conduct to the government claims to build your strongest case, and bring in healthcare fraud whistleblower lawyers with the experience your ownership case needs. We stay beside you from that first conversation through the case.