Massachusetts Law Imposes False Claims Act Liability on Healthcare Investors for Failures to Disclose

On January 8, 2025, the state of Massachusetts enacted House Bill 5159, marking a significant expansion in FCA liability for healthcare investors. This legislation dramatically expands the scope of liability under the Massachusetts False Claims Act (FCA), imposing stringent new requirements on private equity firms, real estate investment trusts (REITs), management services organizations (MSOs), and other investors who engage with healthcare entities in the state. (1)

The new law mandates that these investors must disclose any known FCA violations committed by their portfolio companies or face significant legal and financial repercussions themselves. Violations must be disclosed within 60 days, or investors face severe financial penalties under the False Claims Act.

House Bill 1519 and The Rationale Behind the Law: Targeting Non-Clinical Investors

The law targets non-clinical investors like private equity firms, REITs, and MSOs, whose presence in healthcare has increased. This has led to growing concerns that their involvement commercializes healthcare, creates potential conflicts of interest, and potentially interferes with clinical decision-making.

With previous instances of healthcare companies collapsing at the hands of non-healthcare-focused investors, the law was established to curtail and place responsibility on insiders aware of misconduct to report it. (5) One such instance of a collapse can be found with Steward Health care, a for-profit hospital system formed in 2010.(2)

Expanded FCA Liability: Who is Now Potentially Liable?

The law expands FCA liability to anyone with an ‘ownership or investment interest’ in a healthcare organization. (3)(4)

The law defines ‘ownership or investment interest’ as:

• Direct or Indirect Equity Ownership: Direct or indirect possession of equity in the capital, stock, or profits totaling more than 10% of an entity.
• Private Equity Firms and Investment Groups: Interests held by investors or groups involved in raising or returning capital, investing in, developing, or disposing of specified healthcare assets.
• Pooled Investment Funds: Funds managed or controlled by private limited partnerships that employ investment strategies to earn returns (hedge funds, private equity funds, venture capital funds).

The most critical requirement is that an investor, even if passive in terms of their operational involvement, must disclose a violation to the government within 60 days if one happens to be identified.

Massachusetts law surpasses federal FCA standards by holding investors liable for failing to report known misconduct. (1)

Heightened Reporting and Oversight Mechanisms

In addition to expanding FCA liability, the new law establishes increased regulatory oversight from the state’s Health Policy Commission (HPC) and Center for Health Information and Analysis (CHIA). (4)

Key provisions include:

• Mandated Reporting of Certain Transactions: HPC notification is now required for ‘material changes’ in ownership, including:
  • Acquisitions, sales, or transfers of healthcare assets.
  • Real estate sale-leaseback arrangements.
  • Conversion of healthcare providers from non-profit to for-profit status.
• These transactions may trigger a Cost and Market Impact Review (CMIR), allowing the HPC to demand:
  • Disclosure of a significant equity investor’s capital structure,
  • General financial condition,
  • Ownership and management structure, and
  • Audited financial statements. (3)
• Annual Public Hearings on Investor Impact
  • The HPC’s annual public hearing on healthcare costs in Massachusetts must now specifically address the impact of significant equity investors, REITs, and MSOs on costs, prices, and cost trends.
  • Investors may be required to testify on financial and operational matters, including staffing levels and prices charged to insurers and patients. (4)
• Annual Financial Reporting: Healthcare providers must now submit comprehensive financial data to CHIA which includes:
  • Information on significant equity investors, REITs, and MSOs
  • Details about parent entities, corporate affiliates, and real estate leaseback arrangements. (4)

Consequences of Non-Compliance

Non-compliance carries severe financial and legal consequences:

• False Claims Act Liability:
  • Investors who fail to disclose known FCA violations by their portfolio companies within 60 days are exposed to:
    • Civil penalties ranging between $5,500 and $11,000 per violation.
    • Treble (3x financial damages) and consequential damages. (4)
• Penalties for Reporting Violations:
  • Healthcare providers that fail to submit the required financial information to CHIA face penalties of up to $25,000 per week for each week of delay with no annual limit. (4)
• Civil Investigative Demands: The Attorney General’s Office has been granted the authority to issue civil investigative demands to healthcare investors, which allows the office to obtain documents and testimony related to healthcare costs and cost trends.
• Public Scrutiny: CMIR and hearing disclosures may be public, exposing investors to reputational risks and lawsuits. (4)

Whistleblower Protections & How to Report Healthcare Fraud

The new Massachusetts law dramatically expands FCA liability for non-clinical healthcare investors, which signals Massachusetts’s commitment to protecting its healthcare system and ensuring that investors are held responsible for their conduct. (5)

The Massachusetts FCA allows whistleblowers to file qui tam lawsuits, recover financial rewards, and receive protection from employer retaliation in relation to healthcare fraud they are reporting.

If you have insider knowledge of healthcare fraud, you may be eligible to file a whistleblower claim and would be entitled to whistleblower protections and financial rewards.

Contact us today for a confidential consultation with a whistleblower lawyer.

[1] National Law Review – Massachusetts FCA Liability Expanded to Private Equity Investors and Owners in Healthcare

[2] The Steward Healthcare Report – How Corporate Freed Hurt Patients, Health Workers, & Communities

[3] Congressional Record Vol. 170, No. 172

[4] JD Supra – Massachusetts Enacts Largest Health Care Transactions and Financial Oversight Legislation in Over a Decade

[5] Lexology – Massachusetts Law Imposes FCA Liability on Healthcare Investors for Failure to Disclose

[6] JD Supra – New Massachusetts Healthcare Law Targets Non-Clinical Investors in Expansion of State FCA