$25 Million Settlement Reached with Private Equity Firm for Alleged Involvement in False Claims Act Scheme

In mid-October 2021, the Massachusetts Attorney General’s Office announced the largest healthcare fraud settlement against a private equity firm based on the firm’s oversight of its healthcare portfolio company. The $25 million settlement stemmed from a qui tam suit filed under the Massachusetts False Claims Act by a former employee of South Bay Mental Health Center, Inc., which operates mental health facilities around the state of Massachusetts.

The original whistleblower suit was filed by the former Coordinator of Staff Development and Training at South Bay. While the whistleblower worked with South Bay, she repeatedly shared her concerns with management that South Bay was submitting bills to Massachusetts Medicaid program and its contractors for services provided by therapists and others who either did not meet licensing requirements themselves or were not properly supervised.

The suit was filed against South Bay and its former and current CEOs, along with the facilities’ private equity backer, H.I.G. Growth Partners, LLC and H.I.G. Capital, LLC (collectively, “HIG”).

The government further alleged that the clinics named in the complaint suffered significant gaps in licensing and supervision of therapists during the relevant time period. An investigation conducted by the Massachusetts Attorney General found that South Bay had a widespread pattern of employing unlicensed, unqualified, and unsupervised staff at its mental health facilities in violation of MassHealth regulations.

This settlement follows the $4 million February 2018 settlement between South Bay and the State of Massachusetts, which also included a 5-year compliance program requirement, including oversight by an independent monitor to ensure future compliance with Massachusetts Medicaid regulations.

After the 2018 settlement with South Bay, Massachusetts continued to pursue HIG and the South Bay executives, again alleging that the parties knew that South Bay was employing unlicensed therapists and counselors and that those unlicensed therapists and counselors were providing mental health services without supervision as required under Massachusetts Medicaid regulations.

“The environment was ripe for fraud. For years, South Bay made its money by prioritizing profits over people. The company endangered the health and safety of its clients. I had hoped that things would change when H.I.G. acquired South Bay, but the predatory behavior just got worse,” said the whistleblower.

In addition to being the largest publicly disclosed government health care fraud settlement in the country involving private equity oversight of health care providers, this settlement is also the biggest Massachusetts-only Medicaid Fraud settlement.