The U.S. Department of Justice (DOJ) recovered $4.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government under the False Claims Act (FCA) in fiscal year 2016. The 2016 recovery was 30 percent more than the $3.6 billion recouped in fiscal year 2015, and represents the third largest annual recoupment in the FCA’s history. As in previous years, a handful of cases resulted in a substantial portion of DOJ’s total recoveries. Of the $4.7 billion recovered, over half ($2.6 billion) came from the health care industry and more than one third ($1.7 billion) came from the financial industry (among the cases categorized as “Other” by the DOJ in the chart below).
2016 FCA Statistics Number of Non-Qui Tam Cases Filed Number of Qui Tam Cases Filed Total Number of Cases Filed Total Recovery Health Care Fraud 69 501 570 $2.6 billion Defense Fraud 8 31 39 $122 million Other 66 170 236 $2.0 billion TOTAL 143 702 845 $4.7 billion
This article discusses some of the health care, financial and other fraud cases resolved during FY 2016 and potential implications for these industries going forward.
Health Care Fraud
In the health care sector, two significant settlements with major drug manufacturers stand out. Wyeth paid $785 million to resolve federal and state claims that it knowingly reported false and fraudulent prices on two drugs used to treat acid reflux. Novartis Pharmaceuticals paid $390 million to resolve federal and state claims that the company gave kickbacks to specialty pharmacies in return for recommending Novartis drugs.
Although the pharmaceutical cases provided a substantial portion of DOJ’s $2.6 billion in health care recoveries, there were other significant settlements involving hospitals and medical laboratories. For example, Tenet Healthcare Corp., a major U.S. hospital chain, paid $368 million to resolve federal and state allegations that four of its hospitals engaged in a scheme to defraud the United States by paying kickbacks in return for patient referrals, and two of its subsidiaries pleaded guilty to related charges and forfeited another $145 million. Additionally, in the medical lab arena, Millennium Health paid $260 million to settle allegations that it billed federal health care programs for excessive and unnecessary urine drug and genetic testing, and it gave free items to induce physicians to refer expensive and profitable lab tests to them.
DOJ recovered more than one third of its total 2016 FCA recovery from financial institutions involved in alleged housing and mortgage fraud. Over 70 percent of this recovery came from a $1.2 billion settlement with Wells Fargo over its origination and endorsement of residential mortgages as eligible for federal insurance by the Federal Housing Administration (FHA), even though those mortgages allegedly did not meet pertinent requirements intended to reduce the risk of default. Additionally, Freedom Mortgage Corp. paid $113 million to resolve similar allegations.
Other Fraud Recoveries
In the defense industry, L-3 Communications EOTech Inc. and its parent company, L-3 Communications Corp. paid the United States over $25 million for defective holographic weapon sights EOTech sold to the Department of Defense, Department of Homeland Security and the FBI.
DOJ recovered over $80 million from FCA litigation against BP Exploration and Production, Inc. (BP) arising from the April 2010 Deepwater Horizon explosion. DOJ alleged that BP provided false reports related to proper drilling, which left the well in a fragile state and ultimately resulted in the blowout.
Additionally, Education Management Corp., the second largest for-profit education company, in the country, paid the United States over $50 million to resolve FCA allegations that it unlawfully recruited students, engaged in deceptive and misleading recruiting practices, and falsely certified compliance with Title IV of the Higher Education Act, which prohibited such conduct.
Recent Trends and Attempts to Predict the Future
Although the FCA dates back to the Civil War, the modern era of FCA enforcement began in 1986 when Congress significantly revised the statute to incentivize more qui tam cases. Incredibly, nearly 60 percent of the total FCA recoveries since 1986 occurred during the Obama Administration. Before 2010, yearly FCA recoveries exceeded $3 billion only once (in 2006). Since 2010, DOJ has not recovered less than $3 billion in any year.
However, there are a number of factors other than the influence of President Obama and his appointed leaders of DOJ that contributed to this dramatic increase in FCA recoveries. First, an increasingly sophisticated and aggressive relators’ bar has played a major role—the yearly amount of recoveries in non-intervened cases has also increased significantly during the Obama Administration. As the relators’ bar benefits from its share of the increased recoveries, these firms have more money to bankroll new FCA cases. Second, new legislation relating to the FCA has increased the visibility and scope of the FCA. The Deficit Reduction Act of 2005 required large health care providers to educate their employees about the FCA and whistleblower rights. The Fraud Enforcement and Recovery Act of 2009 significantly expanded the scope of the FCA’s liability provisions, and the Affordable Care Act (ACA) eased the public disclosure bar’s requirements, making it easier for relators to maintain cases based on publicly available information. Third, although it is difficult to quantify, the Global War on Terror and the bailout of major banks in 2008 likely contributed to the increase in recoveries.
Companies doing business with the government should remain wary of the FCA in 2017 and the future, as many of these factors will likely continue to cause the amount of FCA recoveries to remain high. DOJ’s statistics on filed cases show a substantial increase in the number of qui tam cases filed during the Obama Administration:
DOJ Statistics Bush (2001-2008) Obama (2009-2016) Number of Qui Tam Cases Filed 2,930 5,106 Number of Non-Qui Tam Cases Filed 809 991 Total Recovery $13.97 billion $31.3 billion
Because FCA cases can remain under seal for several years and often result in protracted litigation, the volume of FCA cases currently in the pipeline makes it likely that FCA recoveries will remain high in the coming years. Although the Trump Administration may shift the focus away from individuals and repeal the ACA (which could affect the amendments to the FCA within the law), President-elect Trump has signaled that he may take other steps that could increase the likelihood of FCA cases. For example, President-elect Trump has made clear that reducing the costs of major defense procurements will be a priority in his administration, and has said he is exploring an expanded voucher program to allow veterans to seek medical care in private hospitals. Consequently, it is imperative that companies doing business with the government have robust FCA and whistleblower compliance programs and policies in place at all levels of the corporate structure.