After Millions in Settlements, H.I.G. Capital Faces Multiple Health Care Fraud Suits

As the private equity industry comes under increasing scrutiny for health care fraud, private equity firm H.I.G. Capital stands out as a repeat offender. H.I.G. has owned multiple health care companies that have paid out multimillion dollar settlements for allegedly defrauding Medicare and other government health programs during the firm’s ownership. In addition, H.I.G. itself is a defendant in multiple ongoing health care fraud suits brought by the US government.

In 2018, H.I.G.’s Massachusetts-based mental health company South Bay Mental Health Center paid $4 million to settle allegations of fraudulently billing the state’s Medicaid program. In 2020, H.I.G.’s Surgery Partners paid $41 million to settle allegations of Medicare fraud for “indiscriminate” urine drug testing. In both cases, H.I.G. was named a defendant for its alleged role in the fraudulent activity and litigation against the firm is ongoing.

H.I.G. owns numerous other health care companies including Wellpath, a prison and detention healthcare company that has made headlines for the numerous lawsuits, complaints, and federal enforcement actions against it related to patient care.[i] H.I.G.’s track record raises questions about what the firm is doing to ensure that its profit-seeking tactics at health care companies do not run afoul of the law.

Surgery Partners

In April 2020, subsidiaries of H.I.G.’s portfolio company Surgery Partners Inc. paid $41 million to settle allegations of defrauding federal health programs through claims for medically unnecessary urine drug testing services.[ii]

Surgery Partners is surgical services provider, primarily operating facilities that provide non-emergency surgeries. Its subsidiaries in Tampa, Logan Laboratories and Tampa Pain Relief Centers, allegedly used “indiscriminate and unnecessary testing” that “increased medical costs to the government without serving patients’ real medical needs,” according to U.S. Attorney William McSwain.[iii]

The alleged fraud took place between 2010 and 2017 – entirely under H.I.G.’s ownership.[iv] H.I.G. acquired Surgery Partners in December 2009, took it through an IPO in 2015 and sold its majority equity stake in 2017.[v]

In announcing the settlement, the U.S. Attorney wrote: “A laboratory that promotes and knowingly conducts medically unnecessary drug testing – prioritizing profits over objective medical decision-making – operates unlawfully and wastes limited federal health care resources.”[vi]

Three H.I.G. employees served on Surgery Partners’ board of directors: Christopher Laitala, Matthew Lozow, and Fraser Preston. Laitala, a Managing Partner at H.I.G., became Chairman for the company in 2015 and was appointed president of Surgery Center Holdings, Inc., Surgery Partners’ parent company.[vii] H.I.G. also executed a management agreement with Surgery Partners whereby H.I.G. became expressly involved in “any and all aspects of the operations, planning, financing and budgeting of [Surgery Center Holdings, Inc.] and its subsidiaries…” Under the agreement, Surgery Partners paid H.I.G. at least $38.7 million.[viii]

The whistleblowers who filed suit against Surgery Partners subsidiaries later filed an amended complaint alleging H.I.G.’s liability for the fraud by its company, noting that it occurred “under the management, control and direction of the H.I.G. Defendants.” Until recently, private equity owners of health care companies were rarely implicated in False Claims Act actions. The case against H.I.G. was dismissed on procedural grounds, though the plaintiffs have appealed the decision. The appeal is currently being heard in the US Court of Appeals, 11^th Circuit.[ix]

Community Intervention Services

A Massachusetts-based mental health company owned by H.I.G. paid $4 million in 2018 to settle allegations that it fraudulently billed the Massachusetts’ Medicaid Program for mental health care services provided to patients by unlicensed, unqualified, and unsupervised staff members at 17 clinics across the state. An ongoing case against H.I.G. by the US Department of Justice and the Massachusetts Attorney General is set to go to trial later this year.[x]

In 2012 H.I.G. created mental health company Community Intervention Services (CIS), which it used to buy up mental health providers and addiction treatment centers. It subsequently acquired Massachusetts-based South Bay Mental Health (SBMHC).[xi]

A whistleblower lawsuit, joined by Massachusetts Attorney General Maura Healey, alleged that SBMHC and H.I.G. knowingly hired employees without appropriate licenses to perform mental health services. In a statement, Healey’s office wrote that the company “provided substandard care to many vulnerable patients and fraudulently billed the state for its inadequate services.”[xii]

In a rare move, the lawsuit also named H.I.G. Capital as a defendant. Attorney General Healey alleged that H.I.G. “knew that SBMHC was providing services in violation of regulatory requirements and did not bring SMBHC operations into compliance or make any attempts to repay the money owed to MassHealth, as required by law.” HIG allegedly cited the large profit margins as a reason to acquire the company.[xiii]

Though H.I.G.’s portfolio company settled, the case against H.I.G. is ongoing. H.I.G. has failed in multiple attempts to have the case against it dismissed. “Because it is alleged that H.I.G. members and principals formed a majority of the C.I.S. and South Bay Boards, and were directly involved in the operations of South Bay, the motion to dismiss the H.I.G. entities is also denied. A parent may be liable for the submission of false claims by a subsidiary where the parent had direct involvement in the claims process,” the court noted in 2018.[xiv]

Beginning in October 2020, H.I.G. began quietly winding down operations at CIS. It sold three of its subsidiaries to another private equity-owned mental health company: Access Family Services (AFS), Family Behavioral Resources (FBR) and Autism Education and Research Institute (AERI).[xv]

Then on January 5, 2021, CIS filed for bankruptcy. It sold its remaining mental health providers, SBMHC and Futures Behavioral Health to a different private equity-owned mental health company.

H.I.G. Capital Health Care Investments

[i] Marsha McLeod, “The Private Option,” The Atlantic, September 12, 2019. https://www.theatlantic.com/politics/archive/2019/09/private-equitys-grip-on-jail-health-care/597871/

[ii]https://www.justice.gov/usao-edpa/pr/florida-based-laboratory-pain-clinic-and-two-former-executives-agree-pay-41-million

[iii]https://www.justice.gov/opa/pr/reference-laboratory-pain-clinic-and-two-individuals-agree-pay-41-million-resolve-allegations

[iv]https://www.justice.gov/opa/pr/reference-laboratory-pain-clinic-and-two-individuals-agree-pay-41-million-resolve-allegations

[v]https://www.businesswire.com/news/home/20170515006556/en/H.I.G.-Capital-Announces-the-Sale-of-its-Equity-Stake-in-Surgery-Partners

[vi]https://www.justice.gov/opa/pr/reference-laboratory-pain-clinic-and-two-individuals-agree-pay-41-million-resolve-allegations

[vii]https://ecf.flmd.uscourts.gov/cgi-bin/show_public_doc?2017-00983-102-8-cv

[viii] Sheldon Cho, et al., Relators-Appellants/Cross-Appellees, v. H.I.G. Capital, LLC, et al., Defendants-Appellees/Cross-Appellants. On Appeal from the United States District Court for the Middle District of Florida, Tampa Division. No. 8:17-cv-983-T-33AEP. Pg. 22.

[ix] Sheldon Cho, et al., Relators-Appellants/Cross-Appellees, v. H.I.G. Capital, LLC, et al., Defendants-Appellees/Cross-Appellants. On Appeal from the United States District Court for the Middle District of Florida, Tampa Division. No. 8:17-cv-983-T-33AEP.

[x] 1:15cv13065, Christine Martino-Fleming V South Bay Mental Health Centers, Et Al

[xi] “H.I.G. Growth Partners Announces the Formation of Community Intervention Services and Completes the Acquisition of South Bay Mental Health,” HIG Capital press release, April 17, 2012. https://www.businesswire.com/news/home/20120417005989/en/H.I.G.-Growth-Partners-Announces-the-Formation-of-Community-Intervention-Services-and-Completes-the-Acquisition-of-South-Bay-Mental-Health

[xii]https://dlbjbjzgnk95t.cloudfront.net/0999000/999329/https-ecf-mad-uscourts-gov-doc1-09518463625.pdf Office of Attorney General Maura Healey, “AG Healey Sues Mental Health Center for Illegally Billing MassHealth for Unlicensed and Unsupervised Patient Care,” Press release, January 9, 2018. https://www.mass.gov/news/ag-healey-sues-mental-health-center-for-illegally-billing-masshealth-for-unlicensed-and

[xiii] Office of Attorney General Maura Healey, “AG Healey Sues Mental Health Center for Illegally Billing MassHealth for Unlicensed and Unsupervised Patient Care,” Press release, January 9, 2018. https://www.mass.gov/news/ag-healey-sues-mental-health-center-for-illegally-billing-masshealth-for-unlicensed-and

[xiv] Massachusetts ex rel. Martino-Fleming v. S. Bay Mental Health Ctr., Inc., Civil Action No. 15-13065-PBS. https://casetext.com/case/united-states-ex-rel-martino-fleming-v-s-bay-mental-health-ctr-inc

[xv] “Pathways Acquires Three Subsidiaries of Community Intervention Services, Inc. (CIS),” Press release, October 6, 2020. https://www.businesswire.com/news/home/20201006005812/en/Pathways-Acquires-Three-Subsidiaries-of-Community-Intervention-Services-Inc.-CIS