Private Equity Facing New Liabilities in the New Year | Regulatory Oversight
Private equity firms and health care companies in Massachusetts will now be facing more stringent regulations and increased liability risks with the new law that has recently been passed and enacted. This legislation expands the authority of the Massachusetts attorney general (AG) 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:
The new law significantly increases the liability risks for private equity investors under the Massachusetts False Claims Act (FCA). This means that private equity funds, other investors, and owners could potentially be liable for alleged FCA violations, even if they did not directly cause the violation. The law applies not just to private equity funds, but also to individuals and entities with an ownership or investment interest in a health care entity. The broad definition of “ownership or investment interest” in the law leaves room for further details to be clarified through corresponding regulations in the near future. To mitigate these risks, private equity firms should conduct thorough due diligence before acquisitions and establish strong compliance programs to address any potential FCA issues promptly.
In addition to the expanded FCA authority, the new law empowers the Massachusetts AG to investigate health care investments more extensively. This includes issuing Civil Investigative Demands (CIDs) to private equity funds, significant equity investors, health care REITs, and MSOs. With the additional information provided by the expanded scope of annual reports required from providers, the AG now has more tools to investigate potential violations involving private equity. The rulemaking process that will follow in the coming months will determine specific requirements and compliance expectations, providing more clarity for stakeholders. It will be crucial for private equity-backed health care companies to actively monitor these developments and engage in the rulemaking process to address their concerns adequately.
The new law marks a significant change in how Massachusetts regulates private equity involvement in health care, introducing new layers of scrutiny and risk for private equity firms and health care companies. For private equity firms, this means being diligent in due diligence, reviewing investment structures for risks, remediating any problems, ensuring compliance with reporting requirements, and actively engaging with the regulatory rulemaking process. Health care companies should focus on governance and ownership transparency, cooperating with private equity investors on compliance strategies, and preparing for evolving compliance obligations as regulatory requirements change.
The State Attorneys General team at Troutman Pepper Locke is well-equipped to provide guidance on navigating these new regulations and potential liabilities. The team includes leaders like Ashley Taylor, Clayton Friedman, Stephen Piepgrass, and Michael Yaghi, who offer expertise in regulatory investigations, enforcement actions, and litigation related to state attorneys general and other governmental bodies. Their experience can help clients understand and address the complexities of regulatory changes in the health care and private equity sectors.
