In December, the Civil Division of the Department of Justice (DOJ) released statistics on its recoveries and enforcement activities under the False Claims Act (FCA or the Act) for fiscal year 2017 (October 1, 2016 – September 30, 2017). The report shows steady levels of enforcement and recovery in 2017, continuing multi-year highs in government and private activity under this critical statute. These results came among a still-evolving legal atmosphere for bringing certain FCA claims following the Supreme Court’s landmark Escobar decision in 2016.
Steady Highs in Enforcement and Recovery
The DOJ recovered more than $3.7 billion in settlements and judgments in FCA cases in 2017. By comparison, the DOJ recovered $4.8 billion in 2016 and $3.1 billion in 2015. As in prior years, the large majority of the department’s recoveries continued to come from qui tam actions (i.e., actions initiated by a private-party relator on behalf of the government) in the health care space, including major recoveries in 2017 against medical device makers ($900 million), nursing facilities ($145 million) and health care records providers ($155 million). 93% (over $3.4 billion) of the money recovered in FCA actions by the DOJ in fiscal year 2017 came from actions first initiated by a relator.
New enforcement activities by the DOJ and independent relators also remained near ten-year highs. The department initiated 125 new FCA matters in 2017 (including referrals and investigations); relators initiated another 674. In the last 30 years, more new matters were initiated under the Act in only three other years (2013, 2014, and 2016). Of the 799 new FCA matters, 544 related to health care spending (Department of Health and Human Services as the primary agency) and 47 related to defense spending (Department of Defense as the primary agency). The DOJ does not disclose the subject of new referrals or investigations, and cases filed by relators are immediately placed under seal and can remain under seal for years. Companies in the health care industry, in particular, and the defense, housing and financial industries should expect another year of robust FCA enforcement activity.
A Focus on Individual Liability
Although the large majority of recoveries by the DOJ in 2017 came from settlements or judgments paid by corporate entities, the DOJ’s report highlights its effort to impose individual liability. The department sought and made recoveries from several individual defendants in 2017, including tens of millions of dollars in judgments against doctors and other personnel who participated in various types of medical services fraud. Several more hundreds of millions of dollars of liability was imposed jointly and severally against defendant companies and their individual owners and executives.
The DOJ’s attention to FCA recoveries from individuals is consistent with the wider DOJ focus on, in the words of the report, “ensur[ing] individual accountability for corporate wrongdoing.” Increased emphasis on recoveries from culpable individuals is likely to be a continuing trend in the future government FCA enforcement activities and resolutions.
Evolving Legal Standards
The Supreme Court’s last major FCA decision was issued in June 2016. That decision, Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), addressed the “implied false certification” theory of FCA liability that had previously divided circuit courts. Under that theory, liability under the FCA is premised on a defendant’s submission of a claim for payment to the government without disclosing that the defendant violated a statutory, regulatory or contractual requirement, thereby making the claim for payment “false or fraudulent” by omission. In Escobar, the Supreme Court agreed that an implied false certification could constitute a basis for FCA liability in some cases but imposed a stringent, totalityof-the-circumstances materiality requirement.
Over the last year and a half, lower courts across the country have worked to apply the “familiar and rigorous” materiality standard articulated in the Escobar decision – a standard that the Supreme Court instructed courts to assess as early as on a motion to dismiss. Although open questions remain, the results have been generally, but not universally, favorable for defendants, with courts willing to critically consider the importance of the statutory, regulatory or contractual requirement that allegedly was not followed, and dismiss cases that do not allege facts (on a motion to dismiss) or develop evidence (on a motion for summary judgment) showing an impact on the government’s payment decisions. See, e.g., United States ex rel. Grabcheski v. Am. Int’l Grp., Inc., 687 F. App’x 84, 87 (2d Cir. 2017) (upholding dismissal on motion to dismiss based on materiality); United States ex rel. Petratos v. Genentech Inc., 855 F.3d 481, 489-92 (3d Cir. 2017) (same); United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 333 (9th Cir. 2017) (same on motion for summary judgment). Courts will continue to weigh in on and refine this important area of FCA jurisprudence over the coming year.