As the U.S. Department of Justice (DOJ) continues to target violators of the False Claims Act, private equity (PE) firms investing in life sciences and healthcare companies should be on high alert. They must take steps to avoid being named in these potentially multi-million-dollar lawsuits.
Mergers and acquisitions in the healthcare and life sciences sector are back on the rise following a slight dip during the COVID-19 pandemic, with many PE firms taking a more significant role in managing their portfolio companies. However, while the prospect of PE diversifying its portfolio by acquiring a small-but-promising player in the life sciences and healthcare spaces–even with a reasonable risk profile–may seem appealing, proper due diligence to identify any violations of the False Claims Act is critical, as these companies will remain in the spotlight among regulators for years to come.
Earlier this year, the DOJ announced it had collected $2.2 billion in settlements and judgments for False Claims Act violations in 2022, the second-highest number since 1986. Of this figure, more than $1.7 billion was related to matters that involved the life sciences and healthcare industries, including drug and medical device manufacturers, durable medical equipment providers, home health and managed care providers, hospitals, pharmacies, hospice organizations, and physicians.
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