Newly Signed Massachusetts Law Ramps up Regulation and AG Liability for Private Equity Investments in Health Care

Private equity firms and health care companies operating in Massachusetts will now face enhanced liability risks following the recent passage and enactment of legislation regulating private equity investment in Massachusetts health care. This new law greatly expands the authority of the Massachusetts attorney general (AG) and other state health care regulators to examine the involvement of private equity funds and other “significant investors” in the state’s health care sector. Here’s what you need to know:

Expanded Oversight and Reporting Requirements

The new law significantly increases the liability risks for private equity investors under the Massachusetts False Claims Act (FCA). Under its provisions, private equity funds, other investors, and owners could face liability for alleged FCA violations that they are accused of failing to address in a timely manner, regardless of whether they caused the violation. In addition to private equity funds, the new law applies to individuals and entities with an “ownership or investment interest” in a health care entity. The term “ownership or investment interest” is broadly defined in the law, allowing the details of who may be subject to these new risks to be resolved by corresponding regulations in the coming months. For private equity firms, this potential heightened liability underscores the importance of rigorous pre-acquisition due diligence and compliance programs to ensure timely responses to potential FCA issues.

In addition to the expanded FCA authority, this new law provides the Massachusetts AG with expanded authority to investigate health care investments. Its provisions explicitly permit the AG to issue Civil Investigative Demands (CIDs) to private equity funds, other significant equity investors, health care REITs, and MSOs. To that end, the AG’s office (AGO) will now have additional information to rely upon in determining whether an investigation or enforcement action is necessary, because the new law expands the scope of annual reports that providers must file with the Massachusetts Center for Health Information and Analysis (CHIA) to include information regarding any relationships that these providers may have with private equity funds and other investors. Further, the AGO is now explicitly authorized to analyze these annual reports and then request further information, including documents, interrogatories, and testimony in furtherance of an investigation.

While this new law establishes a broad framework of new standards, many of the details regarding implementation, qualifying entities, reporting formats, and compliance expectations will be determined during the regulatory rulemaking process which will begin during the next few months. This process will provide additional clarity, but it may also introduce further requirements for private equity-backed health care companies. Stakeholders should actively monitor developments and participate in the rulemaking process to ensure their concerns are considered.

What This Means for Private Equity Firms and Health Care Companies

This new law represents a fundamental shift in how Massachusetts regulates private equity involvement in health care. For private equity firms, it introduces new layers of scrutiny and risk, from heightened reporting obligations to expanded FCA liability. For health care companies that rely on private equity investment, the law increases the stakes of ensuring compliance across both operational and financial activities.

Key Takeaways for Private Equity Firms:

1. Pre-Transaction Due Diligence: Perform comprehensive due diligence, address compliance yellow and red flags, and prepare to walk away from problematic deals. You may be held liable for conduct that started or continued during your ownership.
2. Review Investment Structures: Evaluate current and future investments to identify exposure to CID and FCA risks.
3. Remediate Any Concerns: Fix any potential problems internally and externally, and consider whether to self-disclose to HHS-OIG or DOJ.
4. Ensure Compliance with Reporting Requirements: Collaborate with portfolio companies to ensure timely and accurate submissions to CHIA. Implement robust compliance program and training and remain diligent about potential compliance issues.
5. Monitor Regulatory Rulemaking: Engage with the rulemaking process to understand and influence the development of specific requirements.

Key Takeaways for Health Care Companies:

1. Assess Governance and Ownership Transparency: Ensure organizational structures align with the law’s disclosure requirements.
2. Coordinate with Private Equity Investors: Work with investment partners to align compliance strategies and manage potential risks.
3. Prepare for Evolving Compliance Obligations: Stay informed about regulatory developments to anticipate new compliance requirements and responsibilities.

Troutman Pepper Locke State Attorneys General Team

	Ashley Taylor – Co-leader and Firm Vice Chair Ashley is co-leader of the firm’s nationally ranked State Attorneys General practice, vice chair of the firm, and a partner in its Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He helps his clients navigate the complexities involved with multistate attorneys general investigations and enforcement actions, federal agency actions, and accompanying litigation.
	Clay Friedman – Co-leader Clayton is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice, multidisciplinary teams with decades of experience crafting effective strategies to help deter or mitigate the risk of enforcement actions and litigation.
	Stephen Piepgrass Stephen leads the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on enforcement actions, investigations, and litigation. Stephen primarily represents clients engaging with, or being investigated by, state attorneys general and other state or local governmental enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, with a particular focus on heavily regulated industries.
	Michael Yaghi Michael is a partner in the firm’s State Attorneys General and Regulatory Investigations, Strategy + Enforcement (RISE) Practice Groups, nationwide teams that advise clients on consumer protection enforcement matters and other regulatory issues.
	Samuel E. “Gene” Fishel Gene is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) practice, based in the Richmond office. He brings extensive regulatory experience, having most recently served as senior assistant attorney general and chief of the Computer Crime Section in the Office of the Attorney General of Virginia, and as special assistant U.S. attorney in the Eastern District of Virginia for 20 years.
	Chuck Slemp Chuck advises clients on a wide range of complex issues that frequently involve government actions, including investigations, inquiries, regulatory matters, and litigation. With a distinguished background in the law and public service, he served as chief deputy attorney general of Virginia before joining the firm. In addition to overseeing the Department of Law and Division of Debt Collection, Chuck managed a team of attorneys who handle complex litigation and investigations. He also directed the attorney general’s legislative affairs and represented the attorney general in various capacities.
	Tim Bado Tim is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, where he represents corporations and individuals facing potential civil and criminal exposure. Tim’s experience in government investigations, enforcement actions, and white-collar litigation spans a number of industries, including financial services, pharmaceutical, health care, and government contracting, among others.
	Jessica Birdsong Jessica is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice Group. She received her J.D. from the University of Richmond School of Law, magna cum laude, where she served as associate articles editor of the Journal of Law & Technology.
	Chris Carlson Chris Carlson represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general.
	Blake R. Christopher Blake collaborates with clients on matters related to government contracting, investigations, and disputes. His senior-level government experience generates valuable insights and strategies for clients across a variety of industries.
	Nick Gouverneur Nick is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice Group.
	Natalia Jacobo Natalia is an associate in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice. She focuses her practice on two primary areas: government contracting and state attorney general work.
	Namrata Kang Namrata (Nam) is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. She routinely advises clients on a wide variety of state and federal regulatory matters, with a particular emphasis on state consumer protection laws relating to consumer financial services and marketing and advertising.
	Michael Lafleur Michael is an associate in the firm’s Regulatory Investigations, Strategy, and Enforcement Practice Group. Based out of the firm’s Boston office, Mike has deep experience in litigation, investigations, and other regulatory matters involving state-level regulators and state attorneys general.
	Lane Page Lane specializes in federal and state regulatory investigations and complex civil litigation. He focuses on representing financial institutions and other businesses, with a particular emphasis on consumer protection and fair lending issues.
	Trey Smith Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation.
	Daniel Waltz Daniel is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and State Attorneys General team. He counsels clients in connection with navigating complex government investigations, regulatory compliance, and transactions, involving state and federal government contracting obligations. Drawing on his broad experience as a former assistant attorney general for the state of Illinois, Daniel is a problem solver both inside and outside the courtroom.
	Cole White Cole is a member of the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) group. He has a decade of experience working in the attorney general community, having joined the firm from the Wyoming Office of the Attorney General, where he was assistant attorney general.
	Stephanie Kozol Stephanie is Troutman Pepper Locke’s senior government relations manager in the state attorneys general department.