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Private equity investment could lead to better health care, but expect more oversight as money pours in


A former assistant U.S. attorney offers legal perspectives on federal and state regulations and compliance.

private equity investment tech concept: © Funtap - stock.adobe.com

© Funtap - stock.adobe.com

Private equity firms have been investing in health care practices, with at least one report positing that 2022 was the second-best year in recent history.

That level of activity is attracting attention of federal regulators overseeing medical care, billing, and business arrangements of physicians and investors, said Jolie Apicella, JD, a partner in the health care practice group at the New York-based law firm Wiggin and Dana.

Previously Apicella served as an assistant United States attorney in the Eastern District of New York, where she served as chief of health care fraud. Now she also represents entities and their executive leaders before the U.S. Department of Health and Human Services Office of Inspector General, the U.S. Department of Justice (DOJ), and other federal and state government regulatory and compliance officials.

Jolie Apicella, JD
Wiggin and Dana

Jolie Apicella, JD
Wiggin and Dana

Apicella spoke with Medical Economics to share her insights about what physicians and investors should know about federal and state regulations over medicine and private equity investment. The interview has been edited for length and clarity.

Medical Economics (ME): When private equity firms get involved in health care, do their leaders fully understand the regulations in the health care industry? Do they understand the laws affecting the practice?

Jolie Apicella: It definitely depends. When we speak about private equity, we can be talking about really large, sophisticated firms that really focus on health care industry and have their own health care industry department with experts and sophisticated players. Or we could be speaking about a private equity firm that's maybe family run, just two brothers working out of the basement who are investing in and moving money around. So I think it really depends on the kind of firm we're talking about and whether or not they're directed to understanding the regulatory requirements in the industry that they're investing in.

ME: Legally, can private equity firms invest in large scale health systems, or do they tend toward smaller to medium-sized practices?

Apicella: Legally, it can be either. What you want to be careful about is the state regulations there. There can't be a corporate practice of medicine in certain states. So New York and New Jersey do not allow the corporate practice of medicine as I'm sure many of your audience members know. So in those types of states, you need to comply with the restrictions. And what usually ends up happening is that there'll be a management-administrative services organization, or an MSO, and a management services agreement and that's how they'll sort of control or derive the profits from a professional practice and make sure that the individual physicians are the ones who are owning the practices and licensed to perform medicine, to some corporation that doesn’t have the accountability.

ME: Can you talk about the level of federal regulation that takes place involving private equity and investment in health care?

Apicella: One trend that we're seeing with private equity in health care is that there are private equity firms that have been named in False Claims Act actions by whistleblowers because the False Claims Act allows just regular people, regular citizens who might have some insider knowledge, to bring cases on behalf of the government. So, normally, like in Delaware law, you have piercing of the corporate veil, which is probably a legal concept that again, your audience members might be familiar with. It's hard to pierce that corporate veil and have liability on the corporation owner in general, it's a very difficult test, but the Federal False Claims Act in Section 3729 A has sort of broad language and there can be liability on any person who knowingly presents or causes to present a false claim to the government. So it's not just the biller who actually submits the claim, though the government will want to know how that was done, and that will be part of the investigation. And it's not just the person who provided care, because that person actually caused the claim to be submitted. But it could also be – and we've seen this in a few cases in the last three years – there can also be liability on those who advise on business decisions under a theory that they knew something about it, they could have stopped some wrongful conduct. And so that could be a broader application of causation that could become a trend that the government is viewing that corporations are involved in the wrongdoing in that they disregarded it, they legitimized it, they funded it, and they didn't do anything to correct it.

ME: Do physicians themselves then usually end up overseeing their own actions in that sense, or do they end up working with a manager or someone within the organization or the investment company that oversees that?

Apicella: It probably works best when physicians are working with their manager. But the idea is, the best practice is, to really spell that out in the beginning, who's going to be doing what, who's going to be controlling what, what sort of oversight that there will be, so that everybody's understanding that this is how compliance is going to work, this is the level of control. Will we have board members who are also owners of the private equity firm? Because that's going to increase liability for the private equity firm. But to have an understanding of that at the time of investment of purchase, is probably the best practice.

ME: Our main audience is primary care physicians. What would you like to say to them, or what would you like them to know?

Apicella: Patient care (is) really paramount. When I was an assistant United States attorney, that was the highest priority. If there were two cases that were on my desk but one had the potential for patient harm, and the other one was upcoding but it seemed like the patients were provided with perfect care, the one with a potential for patient harm was going to get my attention. These are tricky issues, but I think private equity is probably here to stay in this sector. I think it's going to stay active in this sector because it's such an attractive area of growth and it's so constant. Because of that there's going to be increased attention. There's going to be more known about the private equity firms, I think, in upcoming legislation, we may see that.

But I think there will be more attention. You know, whistleblowers can continue to name these private equity firms because that's where the deep pockets are. I think there are a lot of advantages for this relationship, and I don't necessarily think all private equity is just looking at the bottom line. In my personal experience, I've definitely seen private equity come in and really help providers understand regulations, get into compliance, be able to provide the capital for the best legal advice, which I think is important. But there's also going to be increased attention, increased risk, increased government scrutiny in this area. But I think that's nothing new in the health care industry, there was always a lot of attention, there's always a lot of attention on the health care industry by regulators. So if they're focused on just providing the highest level of care and staying in compliance and hiring lawyers to navigate those tricky waterways, I think they'll be OK.

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