The health care industry generates more False Claims Act (FCA) exposure than any other sector of the American economy – and the significant investment of private equity (PE) in health care creates exposure for PE firms that own and operate health care businesses.

As context, the Department of Justice (DOJ) reported over $6.8 billion in FCA recoveries for fiscal year 2025, with health care fraud accounting for the lion’s share. Whistleblowers filed qui tam lawsuits at record-breaking rates in 2025, and growth in enforcement actions shows no sign of abating. Further, under the current administration, the government has made significant investment in technology, including AI, with the purpose of pursuing cases independently that are not based on whistleblower filings. 

As covered in a recent Reed Smith webinar, “Fraud and Abuse Enforcement in Health Care: Evolving Government Priorities and High Risk Areas,” the federal government established in March 2025 the Fraud Defense Operations Center, launched in June 2025 its Data Fusion Center, held in August 2025 a “Crushing Fraud Chili Cook-off” AI competition, with the winner being Milliman and its AI technology – selected for its “glass-box” AI using actuarial algorithms to detect anomalies – and released in December 2025 an HHS AI strategy. Moreover, the Centers for Medicare & Medicaid Services Fraud Prevention System can analyze anywhere between 11 million and 15 million Medicare claims every day. 

The causation theory of PE liability

The FCA imposes liability on those who knowingly “cause” the submission of false claims – not merely those who submit the claims directly. The DOJ has made clear it is no defense that individuals or entities did not sign or transmit the specific claim at issue if their conduct played a significant and foreseeable role in advancing the scheme. PE firms, at times, exercise moderate to significant operational control through board seats, management agreements, and financial benchmarks – precisely the mechanisms the DOJ has identified as creating exposure. Moreover, the FCA provides for joint and several liability.

Public pronouncements targeting PE

The government has made explicit its intent to target PE. At the February 2024 Federal Bar Association Qui Tam Conference, then-Principal Deputy Assistant Attorney General Brian Boynton declared that PE and venture capital firms can “influence patient care by providing express direction for how a provider should conduct their business, or more indirectly by providing revenue targets or other indirect benchmarks intended to prioritize reimbursement.” He warned that the DOJ will not hesitate to pursue third-party actors who undermine medical judgment, inappropriately influence the doctor-patient relationship, and cause the submission of false claims to federal health care programs.

At the legislative level, Massachusetts enacted a 2025 amendment to its state FCA to explicitly target PE owners and investors – a development several other states have since moved to replicate.

Enforcement actions involving PE firms

Concrete cases illustrate the risks. In October 2021, a $25 million settlement resolved allegations in the case U.S. ex rel. Martino-Fleming v. South Bay Mental Health Centers that PE entities knew of and profited from unlicensed staffing and supervision practices, with liability premised on their role in shaping operational decisions at the portfolio company.

In September 2019, PE firm Riordan, Lewis & Haden and its portfolio company, Patient Care America, settled for over $21 million to resolve allegations in the case U.S. ex rel. Medrano v. Diabetic Care Rx, LLC d/b/a Patient Care America that they financed and had knowledge of a kickback scheme involving compounded prescription drugs billed to TRICARE. The DOJ alleged that firm partners on the portfolio company’s board approved key operational decisions that drove the alleged fraud. 

More recently, in July 2025, a PE firm and its portfolio company agreed to pay $1.75 million to resolve allegations of cybersecurity failures in the case U.S. v. Gallant Capital Partners / Aero Turbine – a relatively rare instance of a settlement naming the PE firm alongside the contracting entity.

What PE firms should do

Active involvement in portfolio companies’ operations post-transaction can further open the door to FCA liability. The DOJ and whistleblowers have also taken the position that an investor can be liable for failing to identify or remediate illegal conduct during due diligence, thereby raising the prospect of liability for pre-acquisition conduct. 

Practical risk mitigation that PE firms can take to limit their FCA exposure includes: understanding your portfolio companies’ billing data and identifying statistical outliers before the government does; being strategic in what role PE sponsors play in direct oversight and management of your investment assets; monitoring enforcement trends, particularly in areas such as the Anti-Kickback Statute and Stark Law compliance and Medicare billing; and ensuring you have well-laid-out legal and compliance protocols in place.

PE firms should also make sure that qualified counsel is there to manage the first steps after learning of a government inquiry. Early and strategic engagement with the government – whether it be a civil investigative demand, subpoena, or informal outreach – can mean the difference between a declination and a nine-figure settlement. 

The message from the DOJ is unambiguous: PE ownership of health care businesses is not a shield from FCA liability. And improper operational leadership over the portfolio company or inattention to compliance can further drag a PE owner into the regulatory crosshairs.