July 30, 2025
The high-profile bankruptcies of Dallas-based Steward Health Care and Prospect Medical in 2024 weren’t just financial failures; they exposed a troubling trend in healthcare. These collapses highlighted risky financial strategies like sale-leasebacks and heavy debt loads. But often hidden within these complex deals is outright fraud – and insiders, empowered by the False Claims Act (FCA), are increasingly stepping forward to expose it.
Whistleblowers Expose Healthcare Fraud
Healthcare fraud whistleblowers often witness warning signs, including potentially fraudulent billing practices designed to prop up failing finances or enrich owners. The federal False Claims Act provides a powerful pathway for these individuals – typically employees or contractors – to report this fraud.
Take Steward Health Care: In 2022, two years before its bankruptcy, the Department of Justice recovered $4.7 million after an insider filed an FCA lawsuit. This whistleblower alleged the system billed Medicare for services never actually provided. Acting under the FCA’s qui tam provisions, which allow private citizens to sue on behalf of the government, this individual brought the fraud to light.
This isn’t an isolated incident. The DOJ and whistleblowers have pursued numerous FCA cases linked to private equity firms and the healthcare companies they own, signaling a growing willingness to hold PE firms accountable when their portfolio companies engage in fraud. For their courage, successful FCA whistleblowers may receive 15% to 30% of the recovered funds and are legally protected from employer retaliation.
Healthcare Fraud Under Scrutiny
The financial tactics drawing scrutiny often involve complex maneuvers that prioritize profits over patient care. According to Axios, both Steward and Prospect sold their hospital real estate to Medical Properties Trust (a REIT) and then leased the properties back. This “sale-leaseback” model saddles hospitals with massive rent obligations and escalating debt, making them vulnerable when operating costs rise or margins tighten.
While not illegal in themselves, these strategies can create immense pressure to cut corners or engage in fraud. Concerns are mounting – a recent bipartisan Senate Budget Committee report sharply criticized these practices for jeopardizing hospital stability and patient access to care.
Other tactics involve charging the government for services not provided or billing for services by staff who are not properly licensed or qualified, said whistleblower attorney Caitlyn Silhan, a partner in Dallas-based Waters Kraus Paul & Siegel.
In October 2021, Ms. Silhan and Waters Kraus Paul & Siegel were part of a team that secured a record $25 million settlement with private equity firm H.I.G. Capital, LLC and its subsidiary, H.I.G. Growth Partners, LLC (“H.I.G.”), together with Peter J. Scanlon and Kevin P. Sheehan. The case centered on whistleblower claims that false claims were submitted to MassHealth (Massachusetts’ Medicaid program) for mental health services provided by unlicensed, unqualified staff without the required licensed clinical supervision.
At the time of the agreement, it was believed to be the largest FCA settlement involving a private equity firm, as well as the largest Massachusetts-only Medicaid fraud settlement.
“Whistleblowers are often the first — and sometimes the only — line of defense against fraud in our healthcare system,” Ms. Silhan said. “They see firsthand when financial pressures or unethical practices start to compromise patient care or taxpayer dollars. By coming forward under the False Claims Act, their courage makes the entire system stronger.”
States Respond to Protect Patients and Taxpayers
The fallout from these collapses and the risks highlighted by whistleblowers haven’t gone unnoticed. Frustrated by the slow pace of federal action, states are now taking the lead. From Massachusetts to Texas, lawmakers are implementing reforms to curb the potential harms of private equity in healthcare.
In early 2024, Massachusetts enacted laws expanding state oversight of healthcare deals involving PE firms and REITs and blocking hospital licenses on REIT-owned land. Axios reports at least 13 other states, including Maine, Pennsylvania, California, and Texas, are pursuing similar measures. Maine is considering halting PE hospital acquisitions altogether, while Pennsylvania aims to give its attorney general more power over healthcare mergers. The message is clear: states are stepping up to demand transparency and protect public funds and patient well-being.
The Bottom Line: Listen to the Whistleblowers
The Steward and Prospect bankruptcies confirmed what many whistleblowers had warned about. These insiders saw the dangerous financial games and the potential for fraud long before the systems imploded. Their actions, often taken at great personal and professional risk under the False Claims Act, serve as a critical early warning system. For healthcare providers, investors, and advisors, the lesson is increasingly stark: ignoring whistleblowers doesn’t hide the problem; it often merely delays the inevitable reckoning. They aren’t the disruption; they are the first alert.
How Do We Fight Fraud Against the Government?
Seek justice on behalf of taxpayers with the help of our experienced attorneys. Our Dallas, Texas, whistleblower team has battled corporate giants for 20 years, aggressively fighting to hold corporations, individuals, and other entities accountable for fraud committed against the government. If you believe you have a whistleblower case, we can help.
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A Philadelphia jury awarded a record verdict against ExxonMobil for failing to warn about cancer risks due to benzene in its petroleum products.
Private equity firm and co-defendants agree to pay $25M in Medicaid fraud case alleging mental health services provided by unqualified providers.
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