An article published in the August 2025 issue of New Jersey Lawyer, a New Jersey State Bar Association publication, notes:

“The concept of artificial intelligence has permeated almost all aspects of society. AI is being implemented more and more each day by major technology companies to try to improve daily living and optimize the delivery of data and information in our daily lives. AI is also being viewed as a tool that will revolutionize and improve the delivery of health care.”

Read more about the concerns being raised by members of the health care industry, and the federal government,  about the use of AI by insurers in this article authored by Greenbaum partners Bob Hille and John Kaveney.

The U.S. Court of Appeals for the First Circuit, in United States v. Regeneron, has joined the Sixth and Eighth Circuits in adopting the “but-for” standard to find that a violation of the Anti-Kickback Statute (AKS) triggers the False Claim Act (FCA). The First, Sixth, and Eighth Circuits have adopted the burdensome “but-for” causation standard to prove that a violation of the AKS also violates the False Claims Act. This arguably makes it more difficult for the government to establish liability. The Third Circuit is now the lone Circuit that has adopted a more lenient “causal link” standard. This widening split among the federal circuit courts may motivate the United States Supreme Court to clarify the appropriate applicable standard.

First Circuit Decides United States v. Regeneron Pharmaceuticals, Inc.

Regeneron manufactures Eylea, a drug approved by the U.S. Food and Drug Administration (FDA) for treating an ophthalmological condition. The economics behind Medicare Part B create an incentive for Regeneron to price Eylea in a manner that frees the patient from the co-pay.

The government in United States v. Regeneron Pharmaceuticals, Inc. alleged that Regeneron paid more than $60 million over the course of four to five years to a foundation that provided co-payment assistance to patients suffering from an ophthalmological condition and that some or all of those donations were unlawful kickbacks.

The long-awaited decision in this case called for the First Circuit to determine the meaning of the words “resulting from” as used in a 2010 amendment to the federal Anti-Kickback Statute.

FCA Liability Standard for AKS Violations

The AKS imposes criminal liability on anyone who “knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate)” to induce a person to “recommend … ordering any … service … for which payment may be made in whole or in part under a [f]ederal health care program.” 42 U.S.C. § 1320a-7b(b)(2). Thus, the AKS targets any remunerative scheme through which a person receives or solicits payment in return for directing a patient to a program under which payments may be made from federal funds.

A 2010 amendment to the AKS established an express link to the False Claims Act. Therefore, the AKS now provides that “a claim that includes items or services resulting from a violation of [that Statute] constitutes a false or fraudulent claim for purposes of [the False Claims Act].” 42 U.S.C. § 1320a-7b(g). In other words, an “AKS violation that results in a federal [healthcare] payment is a per se false claim under the FCA.” Guilfoile v. Shields, 913 F.3d 178, 190 (1st Cir. 2019).

The FCA, in turn, imposes civil liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A), (a)(1)(B).

Importantly, the AKS does not define the term “resulting from.” Accordingly, the Circuits have split in their interpretation of the AKS statute’s meaning of the words “resulting from.”

Notably, the Supreme Court denied certiorari following the Sixth Circuit’s decision to adopt the more stringent “but-for” causation standard. However, the First Circuit’s decision and the widening Circuit split may finally motivate the Supreme Court to clarify the appropriate applicable standard when evaluating the meaning of “resulting from” as set forth in 42 U.S.C. § 1320a-7b(g).

The medical spa industry is thriving, but with growth comes complexity, particularly in New Jersey where healthcare and professional licensing rules intersect with business and real-estate regulations. For physicians, nurses, or allied health professionals exploring a new medical spa venture, expanding an existing practice, or preparing for a sale, understanding the state’s unique requirements is crucial to avoiding costly enforcement actions.

This post distills the key legal and operational considerations, including entity structuring, scope-of-practice limits, privacy, billing, antitrust, and zoning, and highlights recent developments related to medical spas, or medspas as they are commonly referred to, in New Jersey.

Business Structure & Corporate Practice of Medicine

Operating through the correct entity and avoiding unauthorized corporate control of a medical practice is foundational. Some key considerations include:

Entity Selection: The Corporate Practice of Medicine (CPOM) doctrine prohibits non-physician entities from owning or controlling medical practices to ensure that clinical decisions are made by licensed healthcare professionals and are not influenced by corporate interests. New Jersey mandates that medical services be offered through a professional entity owned by licensed physicians, such as a professional corporation (PC). As a result, medical spa operators typically organize into two complementary entities: one a PC owned and governed by licensed clinicians to deliver all clinical services, and the other a Management Services Organization (MSO), often established as a corporation or LLC, to oversee non-clinical activities like billing, marketing, human resources, and facility upkeep.

CPOM Prohibitions: Non-providers may not direct or control clinical decisions; fee-splitting or tying compensation to referrals is forbidden. For example, New Jersey’s CPOM regulations forbid professionals with a narrower scope of practice (such as chiropractors, physical therapists, or nurse practitioners) from employing physicians. In the case Allstate Ins. Co. v. Northfield Med. Ctr., P.C., the New Jersey Supreme Court held that a chiropractic-led ownership structure likely violated CPOM because the chiropractor could fire the physician at will and shared more directly in the practice’s profits—demonstrating that true physician control is non-negotiable.

Risk of Non-Compliance: Violating CPOM not only risks insurers clawing back claims as false submissions, but also exposes physicians, corporate entities, and advising attorneys to professional discipline or fraud charges. For anyone opening a medical spa, it’s essential that physicians hold both legal and practical authority over medical protocols, hiring/firing, and profit distribution. Read more of our CPOM-centered posts here.

Recent Developments:

  • Oregon SB 951 (effective June 9, 2025) expands CPOM restrictions—prohibiting MSOs and their principals from owning or controlling professional medical entities, with a private right of action for physicians. Under SB 951, MSOs that provide non-clinical support to professional medical entities may no longer be majority-owned, managed, or controlled by the same individuals who hold PC shares or key leadership roles in the practice—effectively closing “friendly PC” loopholes that previously allowed private‐equity and other unlicensed entities to exert significant influence over medical practices. While this does not impact New Jersey’s CPOM restrictions, New Jersey regulators might consider tailored amendments to balance physician autonomy with the operational realities of modern MSO partnerships.
  • In June 2025, New Jersey’s Attorney General announced that Ana Velazco, owner of a medical spa in Fair Lawn, agreed to a five-year suspension of her massage and bodywork therapy license and a $15,000 fine after investigators found she performed unlicensed invasive medical procedures—such as suture removal, fluid drainage, Mesolipo injections, and microneedling. The consent order permanently bars Velazco from owning or operating a massage business in the state and mandates that any future practice be under the supervision of a licensed therapist. This case reinforces the perils of blurring non-clinical and clinical roles and the need for airtight entity structures. Medical spa operators must ensure that all medical-grade procedures are conducted only by appropriately licensed entities, structured so that physicians or other authorized clinicians retain true control over clinical activities, to avoid similar sanctions.

Licensing, Scope of Practice & Supervision

Ensuring each provider practices only within their authorized scope—and that non-physician staff are properly supervised—protects patient safety and mitigates malpractice exposure. Some considerations to know and document:

Permissible Delegations: Under New Jersey law, physicians (MDs and DOs) and physician assistants (PAs) enjoy broad authority to perform, supervise, and delegate medical spa services, including injectables, laser therapies, and chemical peels. Nurse practitioners, called Advanced Practice Nurses (APN) in New Jersey, and PAs may likewise evaluate patients, develop treatment plans, and carry out many of the same procedures under their collaborative practice agreements. Registered nurses are permitted to administer certain aesthetic treatments—such as specific neuromodulator injections or non-ablative laser sessions, but only pursuant to a detailed, physician-signed protocol. In every case, the supervising physician or APN/PA must exercise “direct supervision” under New Jersey rules, meaning they must be immediately available on the premises or via real-time audio/video connection and conduct periodic in-person or chart reviews to confirm compliance with the written protocol.

Unlicensed Personnel: New Jersey strictly prohibits unlicensed personnel or non–healthcare staff from performing or assisting with any medical-grade procedure. For example, individuals without the appropriate license may not inject, peel, or operate lasers, even under remote direction. The State Board of Medical Examiners and Board of Nursing will scrutinize any lapse in documented oversight.

Medical spa operators should strive to maintain up-to-date delegation orders and supervision logs, renew protocols at least annually (or whenever new treatments are adopted), and ensure that physicians retain the final authority over all clinical and safety decisions.

Required Documentation: New Jersey requires APNs and PAs to have written collaboration agreements with a supervising physician before performing any medical‐grade Medi-Spa services. Under N.J.A.C. 13:37-6.3, APNs’ joint protocols must list authorized injectables, lasers, chart‐review frequency, and emergency procedures. Likewise, PAs’ agreements under N.J.A.C. 13:35-2B.10 must define delegated tasks, supervision levels (on-site or virtual), and adverse-event protocols. These agreements ensure treatments occur only with documented physician oversight.

Privacy & Data Security

Medical spas often collect and sometimes monetize sensitive health information. Robust privacy and security practices are mandated by federal law, and a single breach can trigger steep fines and reputational harm. Key Considerations include:

PHI Safeguards: Any medical spa capturing identifiable treatment data (treatment plans, before/after photos) must implement the Health Insurance Portability and Accountability Act’s (HIPAA) administrative, technical, and physical safeguards, including privacy notices, breach-response plans, encryption, and annual staff training. In practice, this means conducting regular risk assessments to identify vulnerabilities in records systems, designating a Privacy Officer to oversee compliance, and maintaining strict access controls so that only authorized personnel can view or modify electronic Protected Health Information (PHI). New Jersey’s breach-notification laws also require prompt patient and regulator alerts. Failure to comply can lead to significant fines and reputational damage.

Marketing Consents: Given that many medical spas obtain referrals and business through their social media posts, it is important for these businesses to obtain separate, documented patient authorizations for the use of images or testimonials. Each release should clearly describe what media will be used (e.g., social media, website, print ads), how long it will remain in circulation, and the patient’s right to revoke consent at any time.

Fraud & Abuse; Billing Compliance

Improper referral incentives or miscoding of services can lead to severe enforcement actions under the Anti-Kickback Statute, Stark Law, and False Claims Act. This section highlights some key elements related to structuring financial arrangements and billing practices to stay compliant.

Anti-Kickback & Stark: It is important to structure all MSO and physician-compensation arrangements at fair market value, without referral-volume incentives. Any bonus structures, percentage-of-collections models, or other incentives that could be viewed as rewarding referral volume should be avoided.

Billing Segregation: Medical spa businesses should clearly separate cash-pay “cosmetic” services (e.g., Botox, fillers, laser hair removal) from insurer-billed “medically necessary” treatments (e.g., scar revision, lesion removal). Businesses should also implement distinct charge masters or billing codes, maintain separate patient statements or invoices, and train front desk staff to verify the type of payment at scheduling.

Recent Developments

  • In Advisory Opinion 25-03 (posted June 11, 2025), the U.S. Department of Health and Human Services Office of Inspector General (OIG) reviewed a proposed arrangement between a MSO and an affiliated professional corporation providing telehealth staffing and administrative services. The OIG concluded that the arrangement met all elements of the “personal services and management contracts” safe harbor at 42 C.F.R. § 1001.952(d)—including a written, one-year agreement, a clear description of services, fixed fair market value-based fees negotiated at arm’s length, and commercial reasonableness irrespective of referrals. This opinion highlights that when MSO contracts are carefully documented, priced at fair market value, and explicitly decoupled from referral incentives, they can safely coexist with the Anti-Kickback Statute.

Antitrust Considerations

Collaborating with other providers or negotiating group-rate contracts can cross the line from pro-competitive clinical integration into illegal “price-fixing.” It’s important to be mindful of:

Collaborations & Pricing: Medical spas must steer clear of any agreements with competitors to set service prices, divide markets, or limit output—classic “price-fixing” or “market allocation” that is automatically illegal. For example, if two or more medical spas agree to charge the same fee for Botox treatments or divide geographic territories to avoid competing with one another, that would likely constitute illegal “price fixing.”

Provider Networks: Any coordination with other medical spa operators, physician groups, or payers over fee schedules, contract terms, or referral arrangements risks triggering an antitrust investigation. Even informal discussions about typical charges or preferred insurer rates can be construed as an attempt to standardize pricing or disadvantage certain competitors. To minimize risk, it’s important to keep all negotiations and contract-bargaining separate and unilateral and to avoid any multi-party communications that could suggest concerted action on rates or terms.

Recent Developments:

  • In June 2025, the Federal Trade Commission’s (FTC) Health Care Division issued an updated “Topic and Yearly Indices of Health Care Antitrust Advisory Opinions,” a comprehensive compendium that organizes all Commission and staff opinions by subject and year. This update signals that any joint venture proposal involving shared contracting or integration with payers will receive heightened review. Medical spa operators considering group purchasing, shared protocols, or joint negotiations, should ensure their arrangements are clearly pro-competitive and well documented.

Real Estate, Zoning & Facility Requirements

A medical spa’s physical location must comply with local zoning and health regulations. Misclassification can lead to costly enforcement actions or forced relocation. Key considerations include:

Zoning Classification: It’s important to confirm the municipality’s “medical office” vs. “spa” use permit requirements to avoid enforcement actions. Securing the correct use permit or variance often involves submitting floor plans, a business description, and proof of professional licensure to the planning or zoning board, and failure to do so can result in fines, cease‐and‐desist orders, or forced relocation. If the medical spa uses a business name other than the name of the physician or the corporate name, the facility may need to register it as a fictitious business name or that the medical spa is “doing business as” (dba) that business name. It’s also wise to confirm any signage, parking, and accessibility requirements tied to medical use permits, as these may differ from those for traditional spas.

OSHA & Sanitation: Depending on the services offered by the medical spa, treatment rooms must be outfitted to meet OSHA’s Bloodborne Pathogens Standard, which includes having approved sharps‐disposal containers, an exposure control plan, and staff training records on file. Beyond sharps, readily accessible hand‐washing stations or alcohol‐based dispensers, a stocked first‐aid or emergency kit (including eye‐wash solutions), and regularly updated Safety Data Sheets for all chemicals and topical agents are required. It’s important to perform routine facility inspections and maintain maintenance logs in the event of a compliance audit.

Conclusion

The regulatory landscape for medical spas in New Jersey is multifaceted and evolving. A proactive compliance strategy centered on the right entity structure, clear delegation protocols, robust privacy and billing controls, antitrust vigilance, and proper facility permits will safeguard the medical spa’s practice and patients alike. If you’re launching, expanding, or selling a medical spa, Greenbaum’s Healthcare practice team can assist with translating these requirements into operational policies, updating your agreements, and navigating any related legal issues.

As New Jersey begins its long-awaited build-out of energy and battery storage for electricity, the healthcare sector can look down the road for potential benefits and opportunities.  Although Phase 1 of the program is designed for large scale generation, it will set the framework and serve as a blueprint for healthcare facilities to add another value stream to being energy self-sufficient when the program moves into Phase 2 in 2026. As summarized in this recently published Client Alert by Greenbaum partners Barbara Koonz and Ken Sheehan, Phase 2 is when medium and large-scale energy users may find even more reason to bring batteries on-site beyond just keeping the lights on.   

The implementation of the One Big Beautiful Bill Act will have profound and broad-based impacts on alternative and clean energy initiatives, and potential impacts to the healthcare sector are no exception.

Healthcare facilities, as well as other medical and life-science organizations, are well advised to accelerate their thinking on developing and deploying solar and other renewable energy options on-site.  This recent Client Alert by Greenbaum partner Ken Sheehan,  while not explicitly tied to the healthcare field, explains how the restrictions and end-of-life on a number of credits and incentives in the Act may provide the healthcare sector and others with that final push to develop local generation or additional energy support for the benefit of facilities, employees, and patients.

New York is poised to become the twelfth state in the country to authorize medical aid in dying with a physician’s prescription for lethal medication to be self-administered by the patient. On June 9, 2025, the New York Senate passed the bill on its third reading after earlier passage in the Assembly on April 29. The legislative session ended on June 17, and the legislation now awaits Governor Hochul’s decision whether to sign or veto it. If approved, the New York Medical Aid in Dying Act “shall take effect immediately.”

The New York Act declares that action taken pursuant to its provisions shall not constitute “suicide, assisted suicide, attempted suicide, promoting a suicide attempt, euthanasia, mercy killing, or homicide under the law, including as an accomplice or accessory or otherwise.” The legislation overrules the long-standing interpretation of New York criminal law prohibiting physician assisted suicide. In its 1997 opinion in Vacco v. Quill, the Supreme Court of the United States rejected a federal Equal Protection Clause challenge to the suicide statutes since New York law authorized a physician to participate in a patient’s request for the withholding or withdrawing of life-supporting medical treatment even if death were an inevitable consequence. In Vacco’s companion case of Washington v. Glucksberg, decided under the Due Process Clause, the Court stated: “Throughout the Nation, Americans are engaged in an earnest and profound debate about the morality, legality, and practicality of physician-assisted suicide. Our holding permits this debate to continue, as it should in a democratic society.” In his concurring opinion in Glucksberg, Justice Souter emphasized that the legislature was in the best position to address the claim concerning physician-assisted suicide and that it should be addressed by the legislature. This stance was embraced by the New York State Court of Appeals in its 2016 decision of Meyers v. Scheinderman. It stated that “[t]he assisted suicide statutes apply to anyone who assists an attempted or completed suicide” and that a physician who intentionally prescribes a lethal dosage of a drug is “‘promoting a suicide attempt’ or ‘aid[ing] another person to commit suicide’” in violation of the statute. But while rejecting the plaintiffs’ proposed statutory construction and their state constitutional challenge to the New York suicide statute, the Court of Appeals stated: “Plaintiffs’ claims are better addressed to the Legislature.” However, attempts in multiple legislative sessions to enact some form of medical aid in dying were unsuccessful dating back to at least 2016.

As passed by the Legislature, the New York Act resembles many of the provisions commonly found in comparable legislation in other states. Central among these are that the prescription for lethal medication is only available to an adult over the age of 18 who has decision-making capacity, has a diagnosis of a terminal condition expected to lead to death within six months confirmed by the second opinion of a consulting physician, makes a voluntary and informed decision to request the prescription, and is able to self-administer the medication. Self-administer means ingesting the medication and excludes lethal injection or lethal infusion. The request for the medication cannot be made through a surrogate or advance directive. The death certificate is to list the underlying disease as the cause of death. The Act explicitly states that a physician or other healthcare provider has no duty to participate in providing lethal medication to a patient. It also permits private healthcare facilities to prohibit the prescribing, dispensing, order or self-administering of medication while a patient is being treated or is resident in the facility provided that the facility has a formally adopted policy to this effect based on sincerely held religious beliefs or moral convictions central to the facility’s operating principles.

However, the New York Act differs from the legislation in most other states in some significant respects. For example, unlike the New Jersey statute, there is no requirement for repeated requests for the medication with a mandated waiting period before the prescription can be issued. Perhaps more importantly, to be a “qualified individual” to receive the medication under the Act, there is no residency requirement. This is a distinct difference from the New Jersey statute and from all other states except Oregon and Vermont. In a previous blog post, the implications of medical tourism were described with a risk of criminal exposure for physicians caring for out of state patients who return to self-ingest the medication in their home states which persist in the characterization of physician-assisted suicide as a criminal offense. The possible consequences have not yet been tested. A challenge to New Jersey’s residential requirement was rejected in Govatos v. Murphy based in part on the State’s legitimate interest in protecting New Jersey healthcare providers from liability in another state for conduct that would be a crime there. Briefing on the appeal to the Third Circuit has been completed and the case awaits the scheduling of oral argument. The New York Act does not have a provision similar to New York’s “shield law” for reproductive care services as “a legally protected health activity if the service or care is permitted under the laws of this state, regardless of the patient’s location.”

Private Equity (PE) firms continue to be significant players in U.S. healthcare, acquiring assets across various sectors such as physician practices, home health, behavioral health, and urgent care. However, recent legal developments and enforcement trends over the last five years underscore the increasing regulatory scrutiny and legal risks associated with these investments.

Antitrust Enforcement Is Ramping Up

The Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) have intensified their focus on serial acquisitions and roll-up strategies. Recent enforcement actions suggest that smaller deals may still trigger antitrust reviews, especially when a PE firm accumulates significant market power through multiple transactions that fall below traditional Hart-Scott-Rodino (HSR) thresholds.

For example, in FTC v. U.S. Anesthesia Partners, Inc. (USAP), the FTC alleged that a PE firm orchestrated a decade-long “roll-up” strategy to consolidate anesthesiology practices in Texas, potentially driving up service prices. While the court dismissed the PE firm from the lawsuit, it denied the motion to dismiss for USAP, alleging that these acquisitions significantly reduced competition and amounted to illegal monopolistic conduct.

Last week, the FTC approved a final consent order with USAP. This final consent order imposes several restrictions including notification, compliance and reporting requirements. Viewed alongside other enforcement actions, it becomes clear that the current administration is taking a hard line with PE and is unlikely to extend the benefit of the doubt. This order serves as a timely reminder for PE firms to seek antitrust counsel when pursuing strategic acquisitions and roll-up transactions, particularly in the healthcare sector.

Takeaway for Deal Terms: Integrate Antitrust Review Early in the Deal Process

Even sub-HSR-threshold deals can attract FTC or state scrutiny, particularly in roll-up strategies. Engage counsel early to assess cumulative acquisition activity and avoid post-closing surprises.

State Oversight Is Expanding

States are enacting laws requiring pre-transaction notice or approval for healthcare mergers and acquisitions — even for non-reportable deals. For example, in New York, certain healthcare facilities, including hospitals and nursing homes, must obtain a Certificate of Need or prior approval from the New York State Department of Health (NYSDOH) before completing a merger or acquisition. Under Public Health Law § 2801-d, the NYSDOH reviews proposed transactions to evaluate their impact on the quality, accessibility, and cost of healthcare services in the community. This process can involve a detailed application, public notice, and opportunities for community input. Failure to obtain necessary approvals can result in enforcement actions or delays.

Beyond hospitals and nursing homes, other healthcare entities may be subject to pre-transaction notification or review under various state laws or contractual obligations. For example, transactions involving managed care organizations (MCOs) or provider networks could trigger review by the New York State Department of Financial Services or the Attorney General’s Office under antitrust and consumer protection laws.

While New Jersey does not have any such notification requirement, many other states, including Massachusetts, Vermont, Rhode Island, and Connecticut have similar legislation.

Takeaway for Deal Terms: Conduct Jurisdiction-Specific Regulatory Diligence

State laws vary significantly, especially around pre-transaction notice requirements, corporate practice of medicine (CPOM) rules, and facility licensing. Including counsel early on to conduct diligence to identify red flags and structural risks can help with compliance and reduce post-signing to closing periods.

CPOM Doctrine Still a Barrier

The CPOM doctrine remains a significant structural hurdle for PE firms investing in healthcare providers, particularly in states like New Jersey and New York, where enforcement of CPOM restrictions is active and nuanced. Both states generally prohibit non-physicians — including business entities such as PE firms — from owning or exercising control over medical practices. In New Jersey, the Board of Medical Examiners enforces this prohibition by restricting the ownership of professional medical corporations and limiting management agreements that may encroach upon clinical decision-making. Similarly, New York prohibits the ownership of medical practices by unlicensed individuals or entities under the Education Law and related regulations, and scrutinizes management service arrangements to ensure they do not amount to de facto control over professional judgment or fee-splitting.

To navigate these restrictions, PE firms commonly rely on management services organization (MSO) models, whereby a non-clinical entity provides administrative services under contract with a physician-owned PC. However, both New Jersey and New York regulators closely examine MSO arrangements for signs of indirect control, such as influence over staffing, compensation, or treatment protocols. If deemed to cross the line, these arrangements can trigger enforcement actions, regulatory penalties, or invalidate the structure entirely—jeopardizing the investment. Read more of our CPOM-centered posts here.

Takeaway for Deal Terms: Reassess MSO Structure and CPOM

Improperly structured MSO arrangements may expose both the portfolio company and the PE sponsor to CPOM violations or fee-splitting allegations. It is important to engage counsel early on to ensure MSO models are well-documented and preserve clinical autonomy.

Increased Focus on Billing and Compliance

PE-backed healthcare entities have faced whistleblower suits and False Claims Act (FCA) investigations tied to aggressive revenue strategies and alleged upcoding. Regulators are increasingly scrutinizing whether financial incentives tied to PE ownership result in overutilization of services or unnecessary procedures. While scrutiny of PE remains elevated, it is largely concentrated on the degree of control and influence exerted over portfolio companies — especially in cases tied to FCA liability.

In U.S. ex rel. Mandalapu v. Alliance Family of Companies LLC, the DOJ announced a $15.3 million settlement resolving claims that Alliance submitted false claims to federal healthcare programs for EEG tests that were incorrectly coded to increase reimbursement. The settlement also involved allegations against a PE firm that had invested in Alliance, highlighting the importance of robust billing and compliance practices.

Takeaway for Deal Terms: Understand the Sponsor’s “Line of Sight”

FCA enforcement trends suggest the DOJ may examine the sponsor’s involvement in operational decisions. Some ways to mitigate these risks include clarifying the sponsor’s role in governance versus operations and maintaining board-level oversight while avoiding involvement in day-to-day patient care decisions or billing practices that could trigger liability. Counsel can help provide a clear governance boundary to avoid allegations of direct control over clinical or billing practices.

Public and Legislative Criticism

Government officials have vocalized that PE ownership may prioritize profits over patient care. This has led to congressional hearings and public investigations into PE’s role in nursing homes, hospice care, and emergency room staffing.

For example, Prospect Medical Holdings, a PE-backed firm, faced bankruptcy proceedings after acquiring Eastern Connecticut Health Network and Waterbury Hospital. Accusations against Prospect included prioritizing profits over patient care and failing to invest in hospital infrastructure. These issues led to widespread criticism and scrutiny from local officials, emphasizing the reputational risks associated with PE ownership in healthcare.

Takeaway for Deal Terms: Monitor Portfolio Company Risk Post-Closing

It is important to establish post-acquisition compliance audits and consider board-level compliance reporting. Risks don’t end at closing, and ongoing oversight helps prevent problems from escalating into government investigations.

Conclusion

PE investment in healthcare continues to offer compelling returns, but the legal and regulatory environment is growing more complex. Proactive legal planning is essential to avoid pitfalls and protect long-term value. If you have questions about structuring a healthcare acquisition or navigating evolving legal risks, contact our Healthcare practice team.

On May 12, 2025, the U.S. District Court for the District of New Jersey entered a decision dismissing a lawsuit filed by a Massachusetts radiation oncologist and a Pennsylvania neurosurgeon, which claimed New Jersey’s licensure requirements to offer healthcare via telemedicine in New Jersey was unconstitutional. The case is MacDonald et al. v. Sabando.  

The plaintiff physicians operate national practices from Massachusetts and Pennsylvania and each treated a patient who subsequently resided in New Jersey. Those patients wished to continue their care with the out-of-state physicians but were unable to do so because neither physician was licensed in the State of New Jersey, a prerequisite to providing telehealth services in New Jersey.

Pursuant to N.J.S.A. 45:1-62(b), any healthcare provider who utilizes telemedicine or engages in telehealth must be licensed, certified, or registered to provide such services in New Jersey.

The plaintiffs’ complaint alleged four constitutional violations: (1) the Dormant Commerce Clause, (2) the Privileges and Immunities Clause, (3) the First Amendment Freedom of Speech, and (4) the Due Process Rights of Individuals.

With regard to the Dormant Commerce Clause, which prohibits in-state economic protectionism from out-of-state competition, the Court rejected the plaintiffs’ arguments, finding that the New Jersey licensure requirements applied equally to both in-state and out-of-state physicians. Thus, the Court would not apply a heightened scrutiny test to its review. Instead, the question was whether the burden on interstate commerce substantially outweighs the benefit. Since New Jersey has a strong interest in regulating the practice of medicine within the State, the Court found this interest to outweigh any burdens alleged by the plaintiffs.

The plaintiffs next argued the Privileges and Immunities Clause, which entitles all citizens of each state to all the privileges and immunities of citizens in the several states. Thus, the Court assessed whether the licensure requirements discriminated against non-residents of New Jersey, finding that the law does not treat in-state and out-of-state physicians any differently in terms of being permitted to provide telehealth services to patients in New Jersey. And, even if the law were to be found to discriminate, the Court stated that “the licensure requirement bears a substantial relationship to the state’s objective and does not impose too heavy a burden on the privileges of nonresidents.”

The plaintiffs’ next argument discussed the First Amendment’s right to freedom of speech and alleged the licensure requirements restricted the physicians’ speech in communicating with their patients. The Court rejected this argument, finding that the statute does not limit an out-of-state physician’s speech based on viewpoint or content. Rather, out-of-state physicians can become licensed in New Jersey and provide telehealth services. The Court further opined that the law takes no interest in what a physician might say, only whether they are licensed in New Jersey.

Finally, the plaintiffs alleged a violation of due process rights by claiming a fundamental right of parents to make decisions concerning the care, custody and control of their children. Thus, they alleged the law limited their ability to do so. The Court, while acknowledging the due process rights of parents, held that the licensure requirement does not implicate a fundamental right, and thus rational-basis review applied. The Court found that standard was met and concluded that the state has a legitimate interest – the health and safety of the public – and the legislature’s decision to require licensure serves that interest.

The Court’s decision to dismiss this lawsuit reinforces New Jersey’s authority to regulate the practice of medicine within its borders, including the means by which out-of-state physicians may offer telehealth services within the State of New Jersey.

On March 15, 2025, President Donald Trump signed a continuing resolution extending funding of the federal government through September 2025. Included in the continuing resolution were provisions that also extended Medicare telehealth flexibilities through September 2025.

Many providers in the healthcare industry have come to rely upon these virtual services for the delivery of care to patients. These flexibilities were originally set to expire on March 31, 2025, after having been put in place during the COVID pandemic. Up until only a few days ago, many feared they were going to be allowed to expire at the end of the month.

Of primary significance, the continuing resolution permits the following flexibilities, among others, to continue:

  • Enabling telehealth visits to occur from a wider range of locations, including a patient’s home, rather than the services being limited to rural areas and requiring certain originating sites.
  • Permitting additional qualified provider types and services to deliver virtual care, including physical and occupational therapy, emergency department visits, and nursing facility care.
  • Extending the Acute Hospital Care at Home Program, which allows Medicare-certified hospitals to furnish inpatient-level care in patients’ homes.
  • Continuing the waiver of the in-person visit requirement for behavioral health services.

While many had pushed for these flexibilities to be made permanent, or at least extended for a longer period of time, the continuing resolution will provide Congress and telehealth advocates with an additional six months to continue work on shaping the future of telehealth services.

On February 28, 2025, the Appellate Division of the Superior Court of New Jersey filed an opinion approved for publication in S.V. v. RWJ Barnabas Health. The court reversed the denial of a motion for summary judgment and ordered the dismissal of the psychiatric malpractice complaint. In an opinion written by Judge Sabatino, it held that the healthcare providers who had discharged a patient from a voluntary commitment did not have liability for a single car crash in which the passenger was injured when the recently discharged patient drove into oncoming traffic before losing control and crashing into a telephone pole. The court granted leave to appeal limited to the issue of whether the defendants had a legal duty to the non-patient passenger plaintiff who was the patient’s sister. Concluding that under the circumstances presented, the defendants “could not have reasonably foreseen that [the patient], shortly after her discharge, would cause a motor vehicle crash that would injure plaintiff.”

In dismissing the complaint because the defendants did not owe a duty of care to the third-party passenger, the court built upon a similar outcome in Vizzoni v. B.M.D. in which the Appellate Division affirmed summary judgment in favor of a psychiatrist whose co-defendant patient had killed a bicyclist while driving under the influence of psychotropic medications. The psychiatrist had not warned the patient that she should not drive while taking the medication. The court held that because the bicyclist was not the psychiatrist’s patient, he did not owe a duty of care to a third-party injured by the patient.

In Vizzoni, the court emphasized that foreseeability was “the foundational element in the determination of whether a duty exists” to provide a basis for imposing tort liability. It serves a dual purpose in determining both the existence of a duty of care and whether a breach of that duty is a proximate cause of the ultimate injury. In Hopkins v. Fox & Lazo Realtors, the New Jersey Supreme Court noted that this formulation arises out of the classic case of Palsgraf v. Long Island Railroad Company studied in law school. In various cases, the Supreme Court has repeatedly stated that the determination of the existence of a duty of care “is one of fairness and policy that implicates many factors” and “turns on whether the imposition of such a duty satisfies an abiding sense of basic fairness under all of the circumstances in light of considerations of public policy.” The factors to be identified, weighed, and balanced include the relationship of the parties, the nature of the risk, the opportunity and ability to exercise care, and the public interest in the proposed solution. 

In Vizzoni, the court noted the recognition in New Jersey judicial decisions that a mental health professional owes a duty to take reasonable steps to protect a readily identifiable victim put at risk by their patient. This duty of care arises from the context of a special relationship between physician and patient with the principal question being whether the defendant had a duty to act for the benefit of another but failed to do so. A special relationship can be the result of status, such as employer and employee, or it may emerge from some undertaking by the defendant to exercise care for the plaintiff, such as when a physician accepts a patient with an implicit promise to treat the patient with at least the skill and care customarily exercised by physicians in that field. In the absence of a special relationship a person has no duty to control the actions of another. The Appellate Division utilized Section 41 of the Restatement (Third) of Torts (2005) to support a distinction between where the practitioner is under an affirmative duty to act as opposed to when the practitioner’s conduct creates a foreseeable risk of harm. For example, when a practitioner prescribes either appropriate or inappropriate medication that impairs the patient, who in turn puts others at risk, the practitioner was under a duty to exercise reasonable care in making that decision to prescribe. The defendant psychiatrist in Vizzoni acted affirmatively by prescribing medication for his patient B.M.D. A risk to others may occur because of negligent treatment, such as prescribing inappropriate medication that impairs the patient, but it can also occur because of appropriate care of the patient, such as properly prescribing medication that impairs the patient. The Appellate Division stated: “Thus, the question is not whether the practitioner had a duty to act, but rather were the consequences of the act of prescribing medication foreseeable to the practitioner.” It then stated that “the issue in this case is properly framed as one of proximate cause, not the duty of care.” Based on its review of the record, the court found that the evidence did not show that the patient B.M.D. was impaired at the time of the crash. The plaintiff’s proofs that the patient was experiencing side effects of the medications such as dizziness, sleepiness, blurred vision and loss of coordination amounted to pure conjecture and speculation untethered to the observations of the police who had interviewed the driver at the scene of the accident and found no impairment.

While employing the Hopkins multi-factorial analysis for the determination of duty, in S.V. Judge Sabatino approached the question differently to reach the same conclusion as in Vizzoni. In contrast to focusing on proximate cause, he stated: “Breach or no breach, the injury must have been reasonably foreseeable to support liability.  In sum, there simply is no basis here to infer that this motor vehicle crash could reasonably have been foreseen by defendants when they discharged J.V. from their facility.” The patient was a middle-aged woman who began having psychiatric symptoms at the age of 18 with an eventual diagnosis of schizoaffective disorder and bipolar disorder. She received in-patient and out-patient treatment but had been without psychiatric episodes for about twenty years before the car crash incident. In August 2017, she threatened to kill herself which prompted a psychiatric evaluation. She agreed to a voluntary admission on the day of the evaluation.

While hospitalized, the patient received several anti-psychotic and other psychiatric medications. The medication doses and combinations were adjusted during her 14-day stay. She appeared to begin having delusions that other people were giving her cocaine and touching her belongings. Nonetheless, her condition seemed to improve during the hospitalization, and she asked to be discharged. She was attending group therapy, compliant with medication, and was eating and sleeping appropriately. She was referred to a psychiatric screening assessment with a note indicating some symptoms. However, the psychiatric screener and the psychiatrist who evaluated her both concluded that she did not meet the criteria for involuntary commitment. The statute requires proof the patient is dangerous to oneself or others in the “reasonably foreseeable” future.

The plaintiff’s expert criticized the decision to discharge as premature while her medications were being adjusted and that she was allegedly not sufficiently stabilized. There was no contention that the patient’s sister should have been warned that the patient was too unstable to drive a car or of any other dangers related to her condition. The plaintiff’s expert did not review the police report, the recorded statements obtained by the patient’s insurance investigator with contradictory versions of what happened in the crash, or the deposition of any of the fact witnesses. Significantly, in his deposition, the expert testified that he did not know what caused the patient to act in the way she did while driving. Proving that premature discharge is medical malpractice means not only proving that a doctor or hospital did not meet all standards of care in making the decision to discharge, but also that the premature discharge led to harm. Accordingly, Judge Sabatino concluded:

Given the absence of this critical element of foreseeability, we discern no grounds to impose a legal duty upon these defendants to protect third parties such as plaintiff who could have been passengers injured in a vehicle driven by J.V. after her discharge.  The sibling “relationship of the parties” did not make the crash foreseeable.  Nor did the “nature of the risk” or the “opportunity and ability to exercise care.”

He bolstered this conclusion by pointing out that the claim of a “premature discharge” of this voluntary mental health patient clashed with the terms of the civil commitment laws. The patient had requested that she be discharged after a 14-day hospitalization and, before being discharged, she was found to not be a danger to herself or others on an evaluation for involuntary commitment conducted in accordance with the statute. Invoking the fourth Hopkins factor of “the public interest” he stated that the premature discharge theory of liability actually ran counter to the civil commitment laws. By statute, a patient voluntarily admitted for psychiatric care “shall be discharged by the treatment team at the patient’s request” within 48 hours of the request unless the treatment team determined that there was a need for an involuntary commitment. Such an evaluation had been done but without finding an indication for the involuntary commitment because of danger to oneself or others “within the reasonably foreseeable future.” The theory of liability based on a supposed premature discharge was contrary to “these statutory requirements that are designed to honor a patient’s liberty and autonomy.” 

Use of foreseeability as a “crucial element” in deciding whether imposition of a duty on an alleged tortfeasor is appropriate and well engrained in New Jersey law. The Vizzoni court referred to both Section 41 and Section 7 of the Restatement (Third) of Torts. Section 7 presents an intriguing challenge.Comment j addresses the proper role for foreseeability in determining duty. It states:

Despite widespread use of foreseeability in no-duty determinations, this Restatement disapproves that practice and limits no-duty rulings to articulated policy or principle in order to facilitate more transparent explanations of the reasons for a no-duty ruling and to protect the traditional function of the jury as factfinder.

However, in Coleman v. Martinez, the Supreme Court noted that Vizzoni did not adopt Section 41 and commented that while the court typically gave “considerable weight” to views expressed in the Restatement, it concluded that “the particularized foreseeability test established in our jurisprudence readily covers whether a mental-health practitioner could be found to owe a duty of care for harm caused by a patient under a particular set of factual circumstances.” Similarly, in the more recent decision of Estate of Campbell v. Woodcliff Health & Rehabilitation Center, the Appellate Division stated that “no New Jersey published case … has looked to the Restatement to establish the existence and scope of a physician’s duty to a third party.” Thus, in the context of mental health malpractice claims, this will remain a fact-sensitive determination.