Former Execs, PE Firm Settle Mental Health Fraud Case for $25 Million

Former executives of the South Bay Mental Health Center (SBMHC), headquartered in Massachusetts, and their private equity (PE) backers have settled a Medicaid fraud suit filed in 2018 by the Massachusetts Attorney General (AG) for a record $25 million. To date, this is the largest publicly disclosed government health care fraud settlement involving PE oversight of health care providers. 

‘A former SBMHC employee made the initial complaint in a 2015 suit, alleging that the provider illegally employed unlicensed, unqualified and unsupervised staff to provide care in its clinics, then billed the state’s Medicaid program (MassHealth) for those services. The AG’s office filed an amended complaint contending that these practices violated Massachusetts’ False Claims Act.

“This company provided substandard care to many vulnerable patients and fraudulently billed the state for its inadequate services,” Massachusetts AG Maureen Healey said in a 2018 statement when the AG lawsuit was filed. “MassHealth members deserve competent treatment from qualified individuals, and our office will continue to take action in order to remove these significant barriers to accessing critical mental health care in our state.”


SBMHC operates 17 clinics across the state. The new settlement is the largest amount a PE firm has agreed to pay to resolve fraud allegations involving health care portfolio companies.

Additionally, the settlement is the largest ever for Massachusetts Medicaid fraud.

In addition to SMBHC, the whistleblower lawsuit named the provider’s founder, owner and former CEO, Peter Scanlon, as well as PE entities H.I.G. Growth Partners and H.I.G. Capital (HIG). HIG created the organization Community Intervention Services (CIS) to purchase SMBHC from Scanlon. Kevin Sheehan, co-founder and CEO of CIS, was also a defendant.


Between August 2009 and January 2018, MassHealth and its contracted managed care entities paid SBMHC more than $123 million for outpatient services, according to the AG. A significant portion of that amount was based on fraudulent claims for services provided to more than 30,000 MassHealth members.

SMBHC in February 2018 agreed to pay $4 million to settle the fraud allegations. The SMBHC employee who initiated the lawsuit was awarded $700,000 of that sum, with the remainder going to MassHealth.

“It’s vital that people who need mental health services receive treatment from qualified individuals,” Healey said in a statement. “We took action against these defendants for leaving thousands of MassHealth patients with unlicensed and unsupervised care, while MassHealth paid millions of dollars for fraudulent services. We will go after bad actors who jeopardize people’s health and well-being to make a profit.”

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