[co-authors: Stephanie Kozol*, Nick Gouverneur**]
Newly Signed Massachusetts Law Ramps up Regulation and AG Liability for Private Equity Investments in Health Care
Private equity firms and health care companies operating in Massachusetts will now face enhanced liability risks following the recent passage and enactment of legislation regulating private equity investment in Massachusetts health care. This new law greatly expands the authority of the Massachusetts attorney general (AG) and other state health care regulators to examine the involvement of private equity funds and other “significant investors” in the state’s health care sector. Here’s what you need to know:
Expanded Oversight and Reporting Requirements
The new law significantly increases the liability risks for private equity investors under the Massachusetts False Claims Act (FCA). Under its provisions, private equity funds, other investors, and owners could face liability for alleged FCA violations that they are accused of failing to address in a timely manner, regardless of whether they caused the violation. In addition to private equity funds, the new law applies to individuals and entities with an “ownership or investment interest” in a health care entity. The term “ownership or investment interest” is broadly defined in the law, allowing the details of who may be subject to these new risks to be resolved by corresponding regulations in the coming months. For private equity firms, this potential heightened liability underscores the importance of rigorous pre-acquisition due diligence and compliance programs to ensure timely responses to potential FCA issues.
In addition to the expanded FCA authority, this new law provides the Massachusetts AG with expanded authority to investigate health care investments. Its provisions explicitly permit the AG to issue Civil Investigative Demands (CIDs) to private equity funds, other significant equity investors, health care REITs, and MSOs. To that end, the AG’s office (AGO) will now have additional information to rely upon in determining whether an investigation or enforcement action is necessary, because the new law expands the scope of annual reports that providers must file with the Massachusetts Center for Health Information and Analysis (CHIA) to include information regarding any relationships that these providers may have with private equity funds and other investors. Further, the AGO is now explicitly authorized to analyze these annual reports and then request further information, including documents, interrogatories, and testimony in furtherance of an investigation.
While this new law establishes a broad framework of new standards, many of the details regarding implementation, qualifying entities, reporting formats, and compliance expectations will be determined during the regulatory rulemaking process which will begin during the next few months. This process will provide additional clarity, but it may also introduce further requirements for private equity-backed health care companies. Stakeholders should actively monitor developments and participate in the rulemaking process to ensure their concerns are considered.
What This Means for Private Equity Firms and Health Care Companies
This new law represents a fundamental shift in how Massachusetts regulates private equity involvement in health care. For private equity firms, it introduces new layers of scrutiny and risk, from heightened reporting obligations to expanded FCA liability. For health care companies that rely on private equity investment, the law increases the stakes of ensuring compliance across both operational and financial activities.
Key Takeaways for Private Equity Firms:
- Pre-Transaction Due Diligence: Perform comprehensive due diligence, address compliance yellow and red flags, and prepare to walk away from problematic deals. You may be held liable for conduct that started or continued during your ownership.
- Review Investment Structures: Evaluate current and future investments to identify exposure to CID and FCA risks.
- Remediate Any Concerns: Fix any potential problems internally and externally, and consider whether to self-disclose to HHS-OIG or DOJ.
- Ensure Compliance with Reporting Requirements: Collaborate with portfolio companies to ensure timely and accurate submissions to CHIA. Implement robust compliance program and training and remain diligent about potential compliance issues.
- Monitor Regulatory Rulemaking: Engage with the rulemaking process to understand and influence the development of specific requirements.
Key Takeaways for Health Care Companies:
- Assess Governance and Ownership Transparency: Ensure organizational structures align with the law’s disclosure requirements.
- Coordinate with Private Equity Investors: Work with investment partners to align compliance strategies and manage potential risks.
- Prepare for Evolving Compliance Obligations: Stay informed about regulatory developments to anticipate new compliance requirements and responsibilities.
*Senior Government Relations Manager
**Associate
