11 April 2024

DOJ's False Claims Act Report For FY 2023 Has Record Stats, New Initiatives

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(April 02, 2024) - Teddie Arnold and Sarah Barney of Seyfarth Shaw LLP discus key takeaways from the U.S. Justice Department's announcement of its fiscal year 2023 False Claims Act settlement and judgments.
United States Government, Public Sector
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(April 02, 2024) - Teddie Arnold and Sarah Barney of Seyfarth Shaw LLP discus key takeaways from the U.S. Justice Department's announcement of its fiscal year 2023 False Claims Act settlement and judgments.

On February 22, 2024, the Department of Justice ("DOJ") reported its annual recoveries under the False Claims Act ("FCA" or "the Act") for Fiscal Year ("FY") 2023, in which it recovered more than $2.68 billion in settlements and judgments. Notably, FY 2023 produced 543 settlements and judgments, the highest number in the Act's history.

Of the $2.68 billion reported, $1.8 billion related to matters involving the health care industry, including managed care providers, hospitals, pharmacies, laboratories, long-term acute care facilities, and physicians.

This follows what had been a general decline from the high water mark in 2014 when DOJ recovered a record $5.69 billion, after which the number of dollars recovered generally trended downward, with occasional uptick — 2015 ($3.5 billion), 2016 ($4.93 billion), 2017 ($3.47 billion), 2018 ($2.9 billion), 2019 ($3 billion), 2020 ($2.2 billion), 2021 ($5 billion), and 2022 ($2.2 billion).

In FY 2023, DOJ reported recoveries in the form of settlements and judgments across various sectors including health care fraud, COVID-relief program fraud, procurement fraud, and fraud stemming from violations of cybersecurity requirements in government contracts and grants. In addition, DOJ showcased successes resulting from its cyber-fraud initiative announced in 2021, dedicated to using the FCA to facilitate compliance by government contractors and grantees with cybersecurity requirements.

In keeping with historical trends, DOJ reported the largest FCA recoveries from the health care sector, including two notable actions against corporations related to the opioid epidemic.

DOJ also scored major wins in the healthcare sector for cases involving unlawful kickbacks. DOJ secured settlements ranging from $22.9 million to $85.5 million to resolve allegations that doctors or physicians were receiving financial kickbacks in exchange for patient referrals or recommendations for products.

DOJ also secured a settlement of $21.6 million against a former long-term care facility to resolve allegations that the facility knowingly submitted claims to the government for services that unlicensed and unauthorized students performed. Unsurprisingly, the data indicates that the healthcare industry will continue to be an industry targeted by the FCA.

Although FCA recoveries from procurement fraud are typically not as large as those that arise out of the health care sector, DOJ reported recovering $377 million from a large contractor over allegations that it improperly passed along costs associated with its commercial contracts to the government and was reimbursed for the costs of those non-governmental activities.

Other procurement fraud FCA settlements stemmed from allegations of double-charging the government for equipment or misrepresentations related to compliance with contractual manufacturing specifications, including a failure to perform monthly testing.

Following the COVID-19 pandemic, and the historic infusion of emergency funds from federal agencies to individuals and businesses, DOJ predictably recovered money doled out in connection with that relief effort, including improper payments made under the Paycheck Protection Program ("PPP") to companies that made false certifications in loan applications to obtain funds.

In FY 2023 the government collected sums ranging from $600,000 to $9 million for misreporting eligibility for a PPP loan, in featured instances because of a company's foreign status or number of employees.

Additionally, in early 2023, DOJ filed two proofs of claim in the Chapter 11 bankruptcy action of a PPP recipient alleging losses by the government of over $60 million based on the miscalculation of loans and the company's failure to implement appropriate fraud controls that resulted in improper claims for PPP processing fees and false claims for loan forgiveness and guarantees on fraudulent loans.

As demonstrated by the ongoing use of the FCA to recover PPP funds, the FCA's ability to target COVID-19 fraud will continue to be a powerful tool for DOJ to address the exploitation of relief funds.

DOJ's Civil-Cyber Fraud Initiative found some success in its use of the FCA to combat new and emerging cyber threats. In FY 2023, the Cyber Fraud Initiative landed a $4 million settlement with a major telecommunications company based on its cybersecurity failures on a contract to provide the General Services Administration with trusted internet connections.

As part of the settlement the company agreed to take certain remedial steps to earn cooperation credit, including written self-disclosures, independent investigations and compliance reviews, and supplemental disclosures.

In its continued trend of holding individuals accountable, particularly senior executives and owners, DOJ reported numerous settlements with individuals ranging from $6.6 million to $23.9 million, related to improper medical billing and false certification for small business program eligibility.

Notably, DOJ reported that, of the $2.68 billion in FCA recoveries in FY 2023, over $2.3 billion arose from qui tam litigation, marking a significant percentage of DOJ's overall recovery. The number of qui tam cases filed in FY 2023 was 712 (over 13 cases per week), which is within the typical range of new cases filed that has oscillated from 576 to 757 during the last 10 years.

While the amounts paid to whistleblowers has declined from a record amount of $715 million in FY 2014, it has increased from the $237 million in FY 2021 to $349 million in FY 2023. Despite the general trend of qui tam cases rising over the last several years, the low recovery is likely the result of more cases being dismissed, as courts scrutinize the various factual allegations pled, including whether they meet the demanding Escobar-materially standard as established by the Supreme Court in the landmark 2016 decision.

FY 2023 also marked a departure from the recent decline in recovery from qui tam actions in which DOJ intervened or which it otherwise pursued. Starting in FY 2017, DOJ reported a slump in recovery, hitting a low point of $803 million in intervened cases in FY 2022. However, DOJ reported a recovery of $1.89 billion in intervened cases in FY 2023.

DOJ's FCA statistics indicate that the Act continues to be a reliable tool for prosecution in new and old industries. This past year marked a record high of FCA settlements and judgments and, while some areas like healthcare remained consistent as a player on the FCA stage, recoveries based on COVID-19 fraud and the Civil Cyber Fraud Initiative indicate the evolving use of the Act to weed out fraud.

Whether DOJ can continue its positive trend in settlements and judgements and continue its expansion of the Act's reach into new markets remains to be seen. Contractors performing risk assessments can continue to count on the FCA bullseye on the healthcare and procurement fields, and may need to expand their thinking as DOJ demonstrates its willingness to follow through on initiatives to target new industries, individuals, and the continued impact of the pandemic.

Originally published by Westlaw Today

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