H.I.G. Capital’s Mental Health Company Files for Bankruptcy Amid Fraud Litigation

Private equity firm H.I.G. Capital’s mental health company Community Intervention Services (CIS) filed for bankruptcy earlier this month amid ongoing litigation alleging fraud by H.I.G. related to its ownership of the company.

H.I.G. established Community Intervention Services in 2012 as a platform to acquire mental health companies. Shortly after, it acquired South Bay Mental Health Center (SBMHC), a Massachusetts-based mental health provider.[i]

In January 2018, Massachusetts Attorney General Maura Healey joined a whistleblower lawsuit against SBMHC that alleged that the firm fraudulently billed the state’s Medicaid Program, known as MassHealth, for mental health care services provided to patients by unlicensed, unqualified, and unsupervised staff members at 17 clinics across the state. In a statement, Healey’s office wrote that the company “provided substandard care to many vulnerable patients and fraudulently billed the state for its inadequate services.”[ii]

In an unusual move, the Attorney General also named H.I.G. as a defendant in the lawsuit, alleging that H.I.G. “knew that SBMHC was providing services in violation of regulatory requirements and did not bring SMBHC operations into compliance or make any attempts to repay the money owed to MassHealth, as required by law.”[iii]

Until recently, False Claims Act suits have rarely involved private equity owners of companies that are sued, even when the owners controlled the companies during period of the alleged fraudulent activity. However, the U.S. District Court for the District of Massachusetts held that H.I.G. could be liable because “H.I.G. members and principals formed a majority of the C.I.S. and South Bay Boards, and were directly involved in the operations of South Bay.”[iv]

SBMHC agreed to pay a $4 million settlement to resolve the allegations in February 2018, but litigation against H.I.G. remains ongoing.[v]

Private Equity Stakeholder Project wrote about the lawsuit against H.I.G. in our report: “Understaffed, Unlicensed, and Untrained: Behavioral Health Under Private Equity”

In October 2020, H.I.G. began to quietly wind down CIS’ business, selling the bulk of its subsidiaries to another company. CIS then filed for Chapter 11 bankruptcy on January 5, 2021.[vi] It agreed to sell South Bay Mental Health Center and its other remaining business, Futures Behavior Therapy Center, for $39.5 million.[vii]

Despite H.I.G.’s exit, Community Intervention Services’ business will all continue to be owned by private equity firms.

The Mentor Network, which acquired SBMHC and Futures Behavior Therapy Center out of bankruptcy, is owned by Centerbridge Partners.

Pathways Health and Community Support—which bought Access Family Services (AFS), Family Behavioral Resources (FBR) and Autism Education and Research Institute (AERI) from CIS in October—is owned by Atar Capital.[viii]

H.I.G. remains an active acquirer of health care companies. In October, H.I.G. bought St. Croix Hospice, a leading hospice provider in the Midwestern United States. In December, H.I.G. partnered with the Center for Digestive Health to create Pinnacle GI Partners, a new platform for acquiring digestive health providers.

H.I.G. also owns prison health company Wellpath, one of the largest healthcare companies serving jails, prisons, detention facilities, and state psychiatric hospitals. Wellpath’s subsidiaries have been sued over a thousand times for allegations including understaffing and inadequate staff training that lead to negligence and untimely care, in some cases resulting in patient death. The company has drawn criticism from Department of Homeland Security, Department of Justice, and members of Congress.[ix]

[i]https://higcapital.com/portfolio/company/125

[ii]https://dlbjbjzgnk95t.cloudfront.net/0999000/999329/https-ecf-mad-uscourts-gov-doc1-09518463625.pdf Office of Attorney General Maura Healey, “AG Healey Sues Mental Health Center for Illegally Billing MassHealth for Unlicensed and Unsupervised Patient Care,” Press release, January 9, 2018. https://www.mass.gov/news/ag-healey-sues-mental-health-center-for-illegally-billing-masshealth-for-unlicensed-and

[iii]https://dlbjbjzgnk95t.cloudfront.net/0999000/999329/https-ecf-mad-uscourts-gov-doc1-09518463625.pdf

[iv] Massachusetts ex rel. Martino-Fleming v. S. Bay Mental Health Ctr., Inc., Civil Action No. 15-13065-PBS. https://www.bclplaw.com/images/content/1/6/v2/162247/Martino-Fleming-US-Decision-2018-09-21-PACER-version.pdf

[v] https://www.mass.gov/news/ag-healey-sues-mental-health-center-for-illegally-billing-masshealth-for-unlicensed-and

[vi] Community Intervention Services, Inc., Chapter 11 Voluntary Petition, US Bankruptcy Court for the District of Massachusetts. Filed January 5, 2021. Case #: 4:21bk40002.

[vii]https://www.wsj.com/articles/mental-health-services-provider-community-intervention-files-for-bankruptcy-11609886971#:~:text=Community%20Intervention%20Services%20Inc.%2C%20a,services%20provider%20The%20Mentor%20Network.

[viii]https://www.businesswire.com/news/home/20201006005812/en/Pathways-Acquires-Three-Subsidiaries-of-Community-Intervention-Services-Inc.-CIS

[ix]https://pestakeholder.org/report/hig-capitals-and-wellpaths-correctional-healthcare-investment-risks/