Private equity firm HIG Capital settles fraud case for $20 million

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REUTERS/Jason Redmond

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BOSTON, Oct 14 (Reuters) - Private equity firm HIG Capital has agreed to pay nearly $20 million to resolve claims a mental health company it owned billed Massachusetts' Medicaid program for services provided by unlicensed and unqualified staff.

Massachusetts Attorney General Maura Healey said Thursday's settlement was the largest of its kind with a private equity firm, whose healthcare investments have drawn increased scrutiny.

HIG Capital will pay $19.95 million, while two former executives associated with the mental health company, Peter Scanlan and Kevin Sheehan, will pay an additional $5.05 million.

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They did not admit wrongdoing, and their lawyers had no immediate comment.

The settlement stemmed from an investigation prompted by a whistleblower lawsuit in Boston federal court against South Bay Community Services, which operated several mental health clinics in the state.

The whistleblower, former South Bay employee Christine Martino-Fleming, filed the lawsuit under the False Claims Act and the state's equivalent law.

South Bay was acquired in 2012 by HIG's mental health company Community Intervention Services, which filed for bankruptcy protection in January.

Healey joined the lawsuit in 2018 and accused South Bay of employing unlicensed, unqualified and unsupervised personnel at its 17 facilities in violation of state regulations governing MassHealth, the state's Medicaid Program.

South Bay nonetheless billed MassHealth as if the mental health services were provided by qualified, properly supervised staff, defrauding the program in the process by submitting false claims for payment, the lawsuit said.

South Bay received $125.4 million from 2009 to 2017 from MassHealth, the state alleged.

In addition to suing South Bay and HIG, Healey also sued Scanlan, South Bay's founder and former owner, and Sheehan, who was Community Intervention Service's chief executive.

South Bay previously in 2018 agreed to pay $4 million to settle the claims against it.

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Reporting by Nate Raymond in Boston; Editing by Kirsten Donovan

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Nate Raymond reports on the federal judiciary and litigation. He can be reached at nate.raymond@thomsonreuters.com.