In a Press Release issued on October 14 2021 by the Office of Massachusetts Attorney General Maura Healy, a potentially groundbreaking settlement was announced. Below is an excerpt from the release, followed by our takeaways.
“In the largest settlement of its kind, a private equity (PE) firm and former executives of South Bay Mental Health Center, Inc. (SBMHC) have agreed to pay $25 million for allegedly causing fraudulent claims to be submitted to the state’s Medicaid Program, known as MassHealth, for mental health care services provided to patients by unlicensed, unqualified, and improperly supervised staff members at clinics across the state.
This settlement is the largest publicly disclosed government health care fraud settlement in the nation involving private equity oversight of health care providers, as well as the largest amount a private equity company itself has agreed to pay to resolve fraud allegations involving health care portfolio companies. It is also the biggest Massachusetts-only Medicaid Fraud settlement.
“It’s vital that people who need mental health services receive treatment from qualified individuals,” said AG Healey. “We took action against these defendants for leaving thousands of MassHealth patients with unlicensed and unsupervised care, while MassHealth paid millions of dollars for fraudulent services. We will go after bad actors who jeopardize people’s health and well-being to make a profit.”
In January 2018, the AG’s Office intervened in a lawsuit initially filed by a whistleblower and former SBMHC employee against SBMHC, Peter J. Scanlon (who founded, owned, and served as the CEO of the company until April 2012), H.I.G. Growth Partners, LLC and H.I.G. Capital, LLC (collectively, HIG, which created Community Intervention Services (CIS) to acquire SBMHC from Scanlon), and Kevin P. Sheehan (CEO of CIS).
SBMHC has operated mental health facilities across the state, including in Attleboro, Brockton, Cape Cod, Chelsea, Dorchester, Fall River, Lawrence, Leominster, Lowell, Lynn, Malden, Pittsfield, Plymouth, Salem, Springfield, Weymouth, and Worcester.
The AG’s Office alleged that the clinics named in the complaint suffered significant gaps in licensing and supervision of therapists during the relevant time period. The AG’s investigation revealed that SBMHC had a widespread pattern of employing unlicensed, unqualified, and unsupervised staff at its mental health facilities in violation of MassHealth regulations. According to the amended complaint filed by the AG’s Office and the whistleblower, by submitting fraudulent claims to MassHealth for mental health services provided by unlicensed, unqualified, and unsupervised personnel, SBMHC violated the Massachusetts False Claims Act.
MassHealth pays for mental health services provided to MassHealth members by qualified clinicians and counselors who are subject to certain licensure and supervision requirements. Mental health centers that employ those rendering mental health services must comply with certain core supervision requirements set out in applicable regulations.
This settlement resolves allegations that HIG, Scanlon, and Sheehan knew that SBMHC was providing unlicensed, unqualified, and unsupervised services in violation of regulatory requirements and caused fraudulent claims to continue to be submitted to MassHealth by failing to adopt recommendations to bring SMBHC into compliance. HIG held a majority of seats on the company’s board of directors and Scanlon and Sheehan each served as CEO of SBMHC. In May 2021, the Court denied attempts by HIG, Scanlon, and Sheehan to dismiss these allegations at the summary judgment stage. Under the terms of the settlement, HIG will pay $19.95 million, while Scanlon and Sheehan will pay the remaining $5.05 million.
In February 2018, SBMHC agreed to pay $4 million for its role in the scheme and entered into a five-year compliance program overseen by an independent monitor to ensure that its clinics came into full compliance with MassHealth regulations….”
In summary, this settlement demonstrates additional risks that PE investors must assess and the responsibilities that, in the view of government regulators, the investors may be assuming as a result of their investments and continuing roles in operations.
Foley is here to help you address the short- and long-term impacts in the wake of regulatory changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the authors, your Foley relationship partner, or to our Health Care Practice Group with any questions.