Massachusetts recently enacted a law that might have major impact on investors in the healthcare industry, notable private equity. House Bill 5159 imposes a new rule on those who invest in healthcare companies in the state, requiring disclosure of False Claims Act violations that the companies they invest in may be liable for, or else face FCA liability themselves. The new law makes the Massachusetts FCA considerably broader than the federal version.
The new law seeks to hold investors liable if they “know about” an investment entity’s violation of the state FCA but fails to disclose that information within 60 days of identifying it. The law only applies to investors who own more than 10% of an entity, so retail investors are not implicated by it.
The new law is meant to target private equity’s recent, and major, investments in healthcare. Private equity investors now own one in twelve US hospitals and PE ownership has been correlated with a host of ill effects, including higher rates of patient complications and lower quality of care.
Plaintiffs suing PE-backed companies also risk finding out that the investment entity is poorly capitalized, with substantial funds staying with the investors, which may be harder to recoup. PE investors facing direct liability clearly aims at solving that problem.
Targeting PE investors with FCA liability is not new. In January 2025, the Department of Justice, a New Jersey hospital, and the hospital’s PE investors reached a $30M settlement resolving allegations of manipulating a Medicare reimbursement formula to draw higher payments from the federal government. Of the $30M, approximately $18M were paid directly by the hospital to resolve the FCA allegations. The remaining $12M were paid by the hospital’s investors to resolve allegations under the Federal Debt Collection Procedures Act that the hospital was improperly transfer money from itself to its investors in an attempt to shield that money from liability.
And in October 2021, Massachusetts, under the prior version of the Commonwealth’s FCA, reached a $25M settlement with a PE firm and several executives of a mental health center, resolving allegations that the health center suffered gaps in licensing requirements. At the time, it was “the largest amount a private equity company itself has agreed to pay to resolve fraud allegations involving health care portfolio companies.”
With the Commonwealth’s recent amendment to expand the reach of its FCA, that record will likely be broken soon. The law goes into effect April 8 of this 2025.