Private equity firms continue to grow their presence within the healthcare industry. We have a number of posts discussing this trend, touching on how to navigate these transactions as well as potential benefits and risks. A recent case explores the risk, looking into allegations that one of the incentives for the private equity deal was a violation of federal law.
What was the alleged violation?
The issue involves allegations incentive stock gifted to non-employee physicians who completed procedures for the surgical center were tantamount to illegal kickbacks. It is not uncommon for these deals to include incentive stock. In cases like this, physicians could redeem the stock for compensation when the owners sold the surgical center.
The worth of the stock is generally determined by the surgical center’s profitability – a factor that increases with the number of patients. As a result, these non-employee physicians were incentivized to increase patient referrals and thus could be considered an illegal kickback. As a result, government officials appeared to have a strong argument that those involved were in violation of the False Claims Act (FCA).
When facing this evidence, the group chose to settle the case.
What does this mean for other healthcare providers that are dealing with private equity firms?
This case focused specifically on the impact of incentive stock and non-employee physicians. The benefit of the stock allegedly led to increased referrals and unnecessary tests. The case provides an opportunity to discuss how different transactions could result in allegations of federal regulation violations. As a result, it is important to carefully review the details of the deal to make sure it is in-line with applicable regulations.