After reporting its lowest annual recovery from False Claim Act ("FCA") cases in Fiscal Year (FY) 2020, the Department of Justice ("DOJ") has reportedly bounced back. On February 1, 2021, DOJ released detailed statistics regarding FCA recoveries during FY 2021, during which DOJ reportedly obtained more than $5.6 billion in civil FCA settlements and judgments, of which $5 billion related to matters involving the health care industry. This follows what had been a significant decline from the high water mark in 2014 when DOJ recovered a record $5.69 billion, after which the number of dollars recovered had generally trended downward—2015 ($3.5 billion), 2016 ($4.93 billion), 2017 ($3.47 billion), 2018 ($2.9 billion), 2019 ($3 billion), and 2020 ($2.2 billion). DOJ reported recoveries in the form of settlements and judgments across various sectors including health care fraud, procurement fraud, COVID-related fraud, as well as a slew of other fraud including those involving oil and natural gas exploration, the FCC's E-Rate program, federal funding for tutoring services, and FHA loan underwriting deficiencies. In addition, DOJ touted its cybersecurity initiatives, as well as its continued commitment to hold individuals accountable under the FCA.
As is typically the case, DOJ reported the largest FCA recoveries from the health care sector, including a $600 million global settlement with a prescription opioid manufacturer to resolve allegations over the company's promotion of an opioid-addiction treatment drug. One of the reasons recovery in the health care sector was so large in FY 2021 was due to a $2.8 billion settlement with a large pharmaceutical company, which had been delayed due to chapter 11 bankruptcy, over allegations that the company promoted its opioid drugs to heath care providers that it knew were unsafe, ineffective, and not medically necessary.
Although FCA recoveries from procurement fraud typically pale in comparison to those from the health care sector, DOJ reported recovering $50 million from a large contractor over allegations of fraudulent inducement of a contract modification at inflated prices, and $25 million from a contractor over the knowing submission of false cost and pricing data. Other procurement fraud FCA settlements included those involving failure to provide accurate information about commercial sales practices during contract negotiations, failure to comply with contract requirements, including the use of unqualified labor and overcharging for services, and kickbacks paid by, and solicited from, subcontractors.
In the wake of the COVID-19 pandemic, and the historic levels of emergency funding that was provided to federal agencies for direct financial assistance to individuals and businesses, DOJ predictably recovered various monies paid as part of that relief effort, including improper payments made under the Paycheck Protection Program ("PPP") to companies who falsely certified information in loan applications in order to obtain funds. Notably, although the prospect of fraud occurring under the PPP program was predicted, the resulting data suggests that the impact is predominantly in low-dollar amounts. For instance, DOJ reported settlements in the respective amounts of $70,000, $30,000, and $287,055 in relation to COVID-19 fraud. As FCA investigations and prosecutions often take years to reach a conclusion, it will be interesting to see what other COVID-19 fraud is pursued in the coming years.
Although just coming into existence, and with no reported settlements or judgments as of yet, DOJ touted the establishment of the department's Civil-Cyber Fraud Initiative to use the FCA to combat new and emerging cyber threats. With the ever increasing prevalence and sophistication of cyber-related breaches and attacks, and the evolution ofthe Department of Defense's Cybersecurity Maturity Model Certification program, it will be interesting to see the results of this new initiative and its impact on FCA recoveries moving forward.
In making good on its stated promises to continue holding individuals accountable, particularly senior executives and owners, DOJ reported numerous high dollar settlements with individuals, particularly in the health care sector.
Notably, DOJ reported that, of the $5.6 billion in FCA recoveries in FY 2021, $1.6 billion arose from qui tam litigation, marking the lowest recovery from whistleblower litigation since 2008. The number of qui tam cases filed in FY2021 was 598 (approximately 11 cases per week), which is down from the 672 cases filed in FY 2020. However, this still falls within the typical range of new cases filed, which have oscillated from 576 to 757 during the last 10 years. Corresponding to the low recovery in qui tam cases, the amounts paid to whistleblowers has declined from a record amount of $715 million in FY 2014 to $237 million in FY 2021, marking the lowest amount paid to whistleblowers since FY 2008. 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 materially standard as established by the Supreme Court in Escobar.
Although FCA recoveries jumped statistically from $2.2 billion in FY 2020 to $5.6 billion in FY2021, it bears worth remembering that over $3 billion of that is attributable to recovery from two opioid manufacturers. Whether DOJ can sustain these numbers in FY 2022 is, of course, an open question. But a review of the FY 2021 statistics indicates an increasing trend towards diversifying the types of matters that DOJ pursues. While health care will likely continue to dominate the prosecutions and recoveries, with government procurement a distance second, expect to see increasing activity on government programs, as well as in the cybersecurity fraud space, especially as the world moves further towards a remote work environment. Moreover, the dust is still settling on the multiple trillions of dollars doled out by the government in the form of COVID-19 stimulus payments and loans that the government will be auditing for years to come. Given the heightened risk of accepting government stimulus funds requiring certain eligibility representations, combined with a mounting federal deficit that must be addressed sooner rather than later, enforcement actions are likely only going to increase. While industry should always brace for the inevitable knock on the door from government investigators, that rings even more true as the pandemic subsides and the world strives to return to normalcy.
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