United States: False Claims Act Enforcement: Looking Back And What To Expect In 2023

This is the first in our 2023 series examining important trends in white collar law and investigations. Up next: criminal tax enforcement.

The False Claims Act (or “FCA”) continued to drive significant enforcement activity in 2022, especially, but not exclusively, in the healthcare sector. In 2023, we expect the government and whistleblowers to continue to prosecute and likely resolve False Claims Act matters in large numbers. In addition, we await decisions from the Supreme Court in United States, ex rel. Polansky v. Executive Health Resources, Inc. and consolidated cases, United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc. Together, these cases will answer critical questions about the government's ability to dismiss suit after declining to intervene and False Claims Act defendants' ability to rely on objectively reasonable interpretations of regulation as evidence of intent.

2022 by the numbers

In 2022, FCA matters continued to be a fertile ground for the government and whistleblowers, though the sheer number of FCA matters did not necessarily track the dollars recovered. Thus, in 2022, the government and whistleblowers resolved 351 FCA matters through settlement or judgment—the second highest number of settlements and judgments in a single year. Despite this high volume, total FCA recoveries dipped from $5.6 billion in FY 2021 to $2.2 billion in FY 2022. More than $1.9 billion of the $2.2 billion came from resolutions of whistleblower lawsuits, resulting in $488 million in payouts to whistleblowers.

Notably, whistleblowers filed 652 new qui tam lawsuits in 2022, a steady stream of more than 12 new cases on average each week. What this portends for 2023 awaits to be seen, but based on this data and general historical trends, the FCA will continue to be a frequently invoked enforcement tool.

Healthcare continues to be the mainstay, but not to the exclusion of other industries

Unsurprisingly, the health care industry remained the primary area of FCA enforcement in 2022, with over $1.7 billion in settlements and judgments in matters involving drug and medical device manufacturers, durable medical equipment, home health and managed care providers, hospitals, pharmacies, hospice organizations, and physicians. Notably, several of these health care matters involved claims against individuals, consistent with the government's stated commitment to use the FCA to pursue individuals as well as corporations.

There are pockets of other budding FCA activity. In a first under its Civil Cyber-Fraud Initiative, announced in October 2021, the government settled its first Civil Cyber-Fraud FCA matter with Comprehensive Health Service LLC (CHS) for $930,000. The government alleged that CHS certified that it complied with the State Department and Air Force's contract requirements and submitted claims to the State Department for the cost of a secure electronic medical record system. The electronic medical record system was intended to store the confidential identifying information of U.S. service member, diplomats, officials, and contractors working and receiving medical care in Iraq. However, the government alleged that CHS failed to disclose that it did not consistently store patients' medical records on this secure system, and instead stores copies of the records on an internal, unsecured, network drive.

Cybersecurity is not the only non-health care area where the government's FCA attention has increased. The government continues to pay close attention to COVID-related fraud cases, including improper payments and lender disbursements under the Paycheck Protection Program by the U.S. Small Business Administration and improper vaccination of ineligible individuals under the Centers for Disease Control and Prevention's Pharmacy Partnership for Long-Term Care Program.

In addition to the above, we note other areas of interest for the government, including allegations of fraud in customs contracts, small business contracting, and telecommunications contracts.

Up next: A big year for the False Claims Act at the Supreme Court

The year ahead promises to be a big year for the False Claims Act, both doctrinally and practically, with the Supreme Court of the United States agreeing to hear two sets of FCA cases during its 2022-2023 term.

The first, United States, ex rel. Polansky v. Executive Health Resources, Inc. (“Polansky”), concerns the government's authority to dismiss a False Claims Act suit after initially declining to intervene in the action. Under the FCA, when a whistleblower files a lawsuit alleging violations of the Act, the government must decide within a specified period of time whether it wishes to intervene in the suit, in which case the government will take over prosecuting the action. If the government declines to intervene, the whistleblower may conduct the action on their own and receive up to thirty percent of any recovery. In Polansky, the government had initially declined to intervene, only to later decide, after the whistleblower's lawyers had incurred $20 million in time and costs, to seek dismissal. The district court dismissed the action over the whistleblower's objection, and the whistleblower appealed, first to the Third Circuit, which affirmed the dismissal, and now to the Supreme Court. The Supreme Court heard argument on December 6, 2022, and will decide whether the government can seek dismissal in such circumstances and, if so, what standard courts should apply when ruling on motions to dismiss. Certainly for companies facing False Claims Act suits prosecuted by whistleblowers, the government's ability to seek dismissal of pending suits is an important protective mechanism.

The second set of cases, United States ex rel. Schutte v. SuperValu Inc. (“SuperValu”), and United States ex rel. Proctor v. Safeway, Inc. (“Safeway”), concern the FCA's scienter element. FCA liability only attaches to a defendant who acts “knowingly,” which the Act defines as actual knowledge, deliberate ignorance, or reckless disregard. The defendants in SuperValu and Safeway argued that they did not “knowingly” submit false claims because they relied on objectively reasonable interpretations of relevant regulations, regardless of whether they subjectively believed that those interpretations were correct. The Seventh Circuit sided with the defendants, ruling that the defendants had not acted “knowingly” because their interpretations of the regulations were objectively reasonable, there was no authoritative guidance that cautioned against their interpretations, and their subjective beliefs were irrelevant for purposes of liability. The plaintiffs petitioned the Supreme Court to hear their appeal, and the Supreme Court granted the petitions and consolidated the appeals for argument this April.

We will follow these matters closely in the year ahead and share development as they come down.

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