On December 21 , 2018, the Department of Justice (DOJ) released its annual statistics on recoveries and enforcement activities in civil suits brought under the False Claims Act (FCA or the Act) for fiscal year 2018, spanning from October 1, 2017, through September 30, 2018. Recoveries for 2018 were approximately $2.8 billion, which represents a nearly $600 million decline from the total recoveries reported for fiscal year 2017 and the lowest amount recovered since 2009. The report also discloses an overall reduction in enforcement activities, with fewer FCA actions initiated both by the government and private relators in 2018 than in recent years. These declines follow the DOJ's issuance of two internal policy memoranda in January 2018 that provided guidance on FCA litigation, including the dismissal of meritless qui tam actions initiated by private-party relators.
Decreased Recovery and Enforcement
The DOJ recovered more than $2.8 billion in settlements and judgments in FCA cases in 2018. While still significant, this amount represents a marked decrease in recoveries over the past eight years, during which recoveries exceeded $3 billion each year. The primary source of recovery, however, remained consistent: the vast majority of the $2.8 billion recovered involved the health care industry, with the highest recoveries in matters concerning drug and medical devices, including a $625 million recovery against a drug manufacturer. Other notable recoveries include a $210 million settlement in an FCA action against a pharmaceutical company and a $270 million settlement with a health care provider to resolve allegations that it violated the Act. Approximately 75% (more than $2.1 billion) of the total money recovered by the DOJ stemmed from qui tam actions.
Enforcement activities for 2018 also declined slightly in comparison to 2016 and 2017, though they remained historically high compared to enforcement a decade ago. Specifically, the DOJ initiated 122 new matters, including referrals and investigations, and relators initiated 645 qui tam suits for a total of 767 new matters. Of the 767 newly received referrals, investigations, and qui tam actions, the Department of Health and Human Services was the primary client agency for 506 matters. It is likely that the DOJ and independent relators will continue to target players in the health care industry in fiscal year 2019.
A Wide Range of Different Types of Fraud Matters
While the majority of the recoveries and enforcement activities involved matters in the health care sphere, the DOJ's report emphasizes that it pursued a variety of fraud matters in fiscal year 2018. For example, the DOJ recovered more than $100 million in different cases involving the government's purchase of goods and services. In one case highlighted in its report, a manufacturer of a particular fiber used in bulletproof vests, which had been purchased by the United States, settled claims alleging that it violated the FCA for $66 million. The DOJ also recovered money from FCA settlements with a marine services contractor, a communications company, and an earplug manufacturer—all of which had contracted to provide goods or services to one or more branches of the United States military. The Department of Defense was the primary agency for 47 of the 767 new matters initiated in 2018.
In addition to the defense industry, the DOJ obtained a significant recovery against an accounting firm that audited an originator of fraudulent mortgage loans insured by the Federal Housing Administration (almost $150 million) and pursued claims related to antidumping duties. As in 2017, the DOJ also continued its broader focus on individual liability in fiscal year 2018, including in different types of FCA actions outside of heath care fraud. While the focus will likely remain on the health care industry, the DOJ's emphasis on the diversity of matters it pursues may indicate a potential trend in expanded enforcement activities in years to come.
Likely Impact of DOJ Guidance
In January 2018, the DOJ issued two internal memoranda related to the government's approach to FCA actions, both of which provide some insight into the declined levels of recoveries and enforcement activities in fiscal year 2018. The first memorandum, dated January 10, 2018, addressed the DOJ's authority to dismiss meritless qui tam actions under 31 U.S.C. S 3730(c)(2)(A). Though the DOJ had historically invoked this power sparingly, the memorandum encouraged DOJ attorneys to consider their role as an "important gatekeeper" to the FCA and their ability to "advance the government's interests, preserve limited resources, and avoid adverse precedent" by utilizing S 3730(c)(2)(A). To that end, the memorandum presented a non-exhaustive list of seven factors for DOJ attorneys to consider in seeking dismissal of qui tam actions. The factors ranged from curbing meritless and opportunistic qui tam actions to preserving government resources.
The second DOJ memorandum, dated January 25, 2018, imposed limitations on the use of agency guidance documents in civil enforcement cases, including FCA actions. The memorandum prohibits the DOJ from using "its enforcement authority to effectively convert agency guidance documents into binding rules" and from relying on "noncompliance with guidance documents as a basis for proving violations of applicable law." Because the guidance and instruction presented in both memoranda are generally beneficial to defendants in FCA actions, it is less surprising that recoveries and enforcement activities were down for 2018. The impact of the memoranda will likely become more evident with time, including whether fiscal year 2019 proves to be another year characterized by lower total recoveries and declined enforcement activities.
