Recently, Governor Maura Healey of Massachusetts signed House Bill 5159 (HB 5159) into law, which expands the state's False Claims Act (Massachusetts FCA) to hold liable anyone with an "ownership or investment interest" in an entity that "knows about" that entity's violation of the Massachusetts FCA but fails to disclose that violation "within 60 days of identifying" it. This change significantly broadens the scope of the Massachusetts FCA, which had not previously imposed liability on investors who merely knew of a violation. Previously, we have observed liability only for those investors with a degree of control over a health care entity's operations.
The Massachusetts FCA defines the term "ownership or investment interest" broadly to cover any:
- Direct or indirect possession of equity in the capital, stock, or profits totaling more than 10% of an entity
- Interest held by an investor or group of investors who engage in the raising or returning of capital and who invest, develop, or dispose of specified assets
- Interest held by a pool of funds by investors, including a pool of funds managed or controlled by private limited partnerships, if those investors or the management of that pool or private limited partnership employ investment strategies of any kind to earn a return on that pool of funds
Notably, the Massachusetts FCA does not define what it means for an investor to "identify[]" a violation. That term may be defined in subsequent regulation and through case law. HB 5159 amended the FCA's definition section to clarify that the definition that applies to "knowing or knowingly" also applies to the term "knows" as it is used in HB 5159. But the amendment otherwise left the statute's scienter standards the same, such that an individual or entity faces liability when acting with deliberate ignorance or reckless disregard of the truth or falsity of the information provided as part of the false claim. Actual knowledge is not required.
Violators will be liable for treble damages, civil penalties between $5,500 and $11,000 per false claim (which are adjusted for inflation), as well as attorneys' costs and fees.
As amended, the Massachusetts FCA now imposes liability on a broader range of conduct than the federal FCA, which imposes liability only on parties who submit or "cause" the submission of a false claim, or who fail to return an overpayment. But the Massachusetts amendments are consistent with the focus demonstrated by both the Massachusetts Attorney General's Office and the U.S. Department of Justice (DOJ) on pursuing FCA and related claims against private equity firms and other investors in health care companies. As then-Principal Deputy Assistant Attorney General Brian Boynton remarked in January 2024, DOJ is "commit[ed] to holding accountable third parties," "includ[ing] private equity firms," "that cause the submission of false claims." And that commitment has yielded several notable settlements: in 2024, investors in a New Jersey hospital agreed to pay $12 million, as part of an FCA investigation into the hospital system, to resolve allegations that the hospital fraudulently transferred money to its investors and in 2019, another private equity firm, along with a compounding pharmacy and two executives, agreed to pay $21 million to resolve allegations that the parties engaged in an illegal kickback scheme.
Stay tuned as we monitor additional developments in the enforcement of the new provisions of the Massachusetts FCA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
