Private Equity False Claims Act Exposure in Healthcare Deals

by Ana Barba and Matthew P. Suzor

When private equity firms acquire companies, they may expect that their cost will be limited to the money they’ve invested at the initial purchase. For example, in January 2026, the private equity firm, TriArtisan Capital Advisors, in partnership with Treville Capital Group and Yadav Enterprises, acquired Denny’s Corporation in a purchase valued at approximately $620 million, so the assumed cost of the transaction would largely be limited to the $620 million purchase price, with additional expenses arising from the ordinary costs of operating the acquired business. However, when private equity firms acquire healthcare companies, they may also assume significant risks arising from the target company’s pre-acquisition conduct. These risks can result in substantial liabilities that may not be immediately apparent at the time of the acquisition.

The First False Claims Act Case Against a Private Equity Firm

United States ex rel. Medrano and Lopez v. Diabetic Care Rx, LLC dba Patient Care America et al. marked the first time the government identified a private equity firm as a defendant in a False Claims Act (FCA) case. In a September 2019 United States Department of Justice (DOJ) press release, the DOJ announced a $21.36 million settlement resolving allegations against Riordan, Lewis & Haden Inc., a private equity firm, Patient Care America, the healthcare company the firm acquired, and Patient Care America’s executives. Though Patient Care America agreed to pay $21.05 million of the settlement, the case illustrates a private equity firm’s financial exposure when the acquired company is later accused of violating the FCA prior to the acquisition.

How Private Equity Owners Can Be Liable for a Healthcare Company’s Kickbacks and False Billing

In 2021, a Texas-based private equity firm and the healthcare company it acquired also entered into a settlement agreement to resolve the FCA claims asserted against the company. Alliance Family of Companies LLC (Alliance), a national electroencephalography testing company, allegedly submitted false claims to federal healthcare programs resulting from kickbacks to referring physicians and sought payments for services that were not performed. The allegations also extend to Ancol Holdings LP (Ancor), the private equity firm that owned Alliance. According to the settlement, the United States contended that Ancor caused false billings resulting from the alleged kickback scheme through its management of Alliance.

The settlement agreement further stated that the United States asserted civil claims against Ancor based in part on Ancor’s knowledge of the alleged conduct through its due diligence process during the sale of Alliance.  After the acquisition, Ancor entered into a Management Services Agreement with Alliance, received monthly management fees from Alliance, and held two seats on Alliance’s Board of Directors. The government thus alleged Ancor had an ongoing role in the management and oversight of Alliance during the period in which the alleged misconduct continued. Ancor ultimately agreed to pay $1.8 million to resolve the allegations. Quoting Acting U.S. Attorney Jennifer B. Lowery, who represented the government in the investigation, the DOJ’s press release warned that “[t]his settlement should put health care providers on notice that we will hold accountable those who seek to profit by pursuing kickbacks and other improper billing schemes.”

Voluntary Self-Disclosure and DOJ Cooperation Credit Under the False Claims Act

Companies that preemptively recognize, disclose, and remediate FCA-related misconduct can secure more favorable outcomes, as a 2025 action involving a defense contractor and a private equity firm demonstrates. In that case, Aero Turbine Inc. and its private equity owner, Gallant Capital Partners LLC (Gallant), agreed to pay $1.75 million to resolve their potential FCA liability relating to an Air Force contract. The DOJ alleged that, among other things, Aero Turbine Inc. and Gallant failed to properly control access to sensitive defense information and provided files containing such information to a software company with personnel that were not authorized to receive it. After learning of the issues, Aero Turbine and Galland made multiple written self-disclosures to the government, cooperated with the government’s investigation, and took remedial action. The DOJ credited their measures and expressly acknowledged that these steps entitled companies for credit for their cooperation.

That settlement illustrates an important difference/distinction between assuming potential liability and taking affirmative steps after discovering misconduct. This approach is consistent with the DOJ’s Justice Manual § 4-4.112, which identifies factors it considers in resolving FCA claims when entities voluntarily disclose misconduct, take remedial measures, or cooperate with FCA investigations. Such factors include the timeliness and volantariness of the assistance, the truthfulness and completeness of the information provided, the nature and significance of cooperation, identification of individuals involved in the misconduct, and remedial measures taken to prevent similar misconduct from recurring.

Under the DOJ’s guidelines, cooperation credit may take the form of a reduction in damages or civil penalties, although the amount and availability of any credit depends on the particular facts and circumstances of the case and there is no guarantee of a particular reduction or resolution.

The Role of Whistleblowers in False Claims Act and Anti-Kickback Cases

While entities that voluntarily self-disclose misconduct, like the example above, may resolve potential FCA liability through cooperation with the government, many FCA cases originate when an employee or other person within a company comes forward as a whistleblower. This can occur when an individual becomes aware of conduct that they believe could give rise to liability under the FCA and/or the Anti-Kickback Statute. These whistleblowers can play a substantial role in bringing potential misconduct to the government’s attention and initiating the process through which alleged wrongdoing is investigated and, in some cases, pursued in court. Under the FCA’s qui tam provisions, a whistleblower who brings an action on behalf of the United States is known as a qui tam relator and may be entitled to a share of the recovery. If the action is successful, a relator may receive up to 30% of the government’s award.

Miller Shah’s dedicated SEC whistleblower practice helps clients navigate the reporting process.   For those considering whether to come forward, the firm provides guidance on submitting information, understanding available whistleblower protections, and considering the potential for an enforcement action and an award.

If you have questions regarding whistleblower protections, the False Claims Act, or the Anti-Kickback Statute, contact the team at Miller Shah for guidance and support.