Key Notes:

  • DOJ released its annual FCA statistics on December 21, 2017.
  • DOJ reported $3.7 billion in FCA recoveries in FY 2017.
  • FY 2017 marks eight consecutive years of FCA recoveries exceeding $3 billion each year.

The Department of Justice recovered more than $3.7 billion in False Claims Act civil case settlements and judgments in FY 2017, according to a press release accompanied by annual statistics on FCA recoveries issued by DOJ on December 21, 2017. According to DOJ’s statistics, the $3.7 billion recovered under the FCA in FY 2017 marks eight consecutive years of FCA recoveries exceeding $3 billion. DOJ’s press release notes that recoveries now total more than $56 billion since 1986, when the civil FCA was significantly strengthened by statutory amendments. The press release and statistics demonstrate that FCA enforcement remains a high priority for DOJ under the new administration.

FY 2017 represents a significant year and continuing trend for qui tam cases (initiated by whistleblowers) in particular. In its press release, DOJ announced that of the $3.7 billion recovered in FY 2017, $3.4 billion resulted from lawsuits filed under the FCA qui tam provisions, and that during the same period, the government paid out $392 million to qui tam relators (whistleblowers). According to the more detailed DOJ statistics, there were 674 new qui tam matters (which include referrals, investigations and qui tam actions) and an additional 125 new non-qui tam matters initiated in FY 2017. The statistics show that these numbers are fairly close to the averages over the past 10 years and that recent trends in recoveries driven by whistleblower lawsuits over the past decade can be expected to continue.

Fraud Statistics Overview

DOJ’s press release attaches annual statistics presented in several spreadsheets, including its “Fraud Statistics – Overview,” which summarizes settlements and judgments for the 31 years since FY 1987. This year’s overview spreadsheet contains significant adjustments to statistics from previous years.

Although some numbers have been revised downward, the overview shows that the total recoveries in FY 2017 of just over $3.7 billion reflect a remarkable string of eight straight years of recoveries exceeding $3 billion each year since FY 2010. Prior to that, an annual recovery greater than $3 billion had occurred only once, in 2006. The statistics indicate that the FY 2017 $3.7 billion figure was the fourth highest total, with higher numbers in 2012, 2014 and 2016 (years that also saw unusually high numbers of recoveries in non-qui tam cases and in cases related to housing, mortgages and the financial crisis).

Statistics for Qui Tam Cases; Impact of Whistleblowers and DOJ Intervention

The statistics released by DOJ also indicate that the total recovery in qui tam cases in FY 2017, just over $3.4 billion, was the second highest ever (after FY 2014), and therefore FY 2017 reflects continued success by DOJ in FCA cases initiated by whistleblowers. The statistics show that total recoveries in qui tam cases exceeded $2 billion for the first time in 2010 and have remained higher than that level since then. Thus, FY 2017 also marks eight straight years of total recoveries above $2 billion in qui tam cases.

In FY 2017, the total recovery in qui tam cases where the U.S. intervened was just over $3 billion — the third highest figure in the statistics after 2014 and 2012. The current statistics reflect that since 2009, this figure has been above $1.8 billion, reaching a high of about $4.4 billion in 2014, with an average of about $2.75 billion per year since 2009. In FY 2017, in cases where DOJ declined intervention, total recoveries were about $426 million, the second highest figure in the statistics, reflecting greater success for relators even when the government did not intervene to support them.

The DOJ statistics reflect that the majority of recoveries over the past 30 years have occurred in qui tam cases where the U.S. intervened “or otherwise pursued.” According to the statistics, since FY 1987, these intervened cases led to more than $38 billion in recoveries, compared to just over $2 billion in qui tam cases where DOJ declined to intervene. During that same period, about $15.6 billion in recoveries resulted from non-qui tam cases (those initiated directly by the government).

Statistics for Non-Qui Tam Cases

In FY 2017, the amount recovered from non-qui tam cases was relatively low — about $266 million. The figure was about $1.8 billion for FY 2016, which may reflect significant settlements last year relating to the housing industry and financial crisis, as noted above. DOJ generally has more control over cases without qui tam relators, and this year’s figure may in part also reflect a greater willingness by DOJ to settle cases initiated by the government.

According to DOJ’s statistics, in FY 2017, the amount of relator share awards going to whistleblowers in cases where the U.S. intervened was $349 million, while only $43 million went to relators in cases that DOJ declined. The total amount awarded to relators in FY 2017 — almost $393 million — while high, is the lowest figure since FY 2009. This may partly reflect the change in administrations and higher hurdles imposed by DOJ on the payments of settlement shares to qui tam relators. It remains to be seen whether this trend continues and how it may affect the course of future qui tam cases.

The statistics show the amount of relator share awards goes primarily to whistleblowers in cases where the U.S. intervened (or “otherwise pursued”). In these intervened cases, since FY 1987, relators have received just over $6 billion, but in cases where the U.S. declined intervention, relators received only about $432 million (making the total during that period about $6.5 billion for relator awards).

Department of Defense Statistics

DOJ’s press release attaches a spreadsheet with specific statistics for the Department of Defense (cases in which DOD is the primary “client agency”). Although there are no separate DOJ statistics summarizing all procurement cases, the DOJ numbers for DOD are of particular importance for the procurement field because DOD is responsible for the greatest share of government procurement spending.

In FY 2017, the total recoveries in DOD cases were about $220 million, including about $208.6 million attributable to qui tam cases where the U.S. intervened. The total in qui tam cases, including non-intervened cases (just over $209 million), was the highest for DOD since 2010. The number of new matters in non-qui tam DOD cases, 19, was the highest since 2011. But the number of new matters in qui tam DOD cases, 28, was the lowest in the 30 years since 1988. There may be many possible explanations for this trend of the past few years, but presumably they include a measure of success for DOD anti-fraud programs, such as the mandatory disclosure program.

Since FY 1987, total FCA recoveries involving DOD have totaled about $5.8 billion, including about $2.5 billion in non-qui tam cases, $3 billion in qui tam cases where the U.S. intervened and $202 million in qui tam cases where DOJ declined to intervene. During that period, there were 1,343 non-qui tam matters and 1,572 qui tam matters involving DOD, and relator share awards totaled about $549 million. While high, these numbers have historically been overshadowed by the numbers for recoveries in the health care industry, as noted below.

Health and Human Services Statistics

DOJ’s press release also attaches a spreadsheet with specific statistics for the Department of Health and Human Services (HHS), which administers Medicare and Medicaid. In FY 2017, the total recoveries in HHS cases were $2.477 billion. As noted in DOJ’s press release, this figure has remained above $2 billion since 2010. The figure for FY 2017 includes $2.064 billion in qui tam cases where the U.S. intervened, $380 million where DOJ declined intervention and only $32 million in non-qui tam cases. The number of new matters in non-qui tam cases was 53, and in qui tam cases, there were 491 new matters, reflecting a continuous stream of new qui tam cases in the health care field. Since FY 1987, FCA recoveries involving HHS have totaled just over $30 billion.

Other Fraud Statistics

DOJ also maintains a spreadsheet with statistics for “other” cases that do not involve DOD or HHS as the primary client agency (these may include, for example, recoveries in the banking, finance and education areas). In FY 2017, the total recoveries were just over $1 billion, including about $783 million in qui tam cases and $222 million in non-qui tam cases. There were 53 new matters in non-qui tam cases and 155 new qui tam matters. Since FY 1987, FCA recoveries in these cases have totaled about $13.9 billion.

Recoveries Remain Highest in Health Care and Housing Industries

According to the DOJ press release, “[O]f the $3.7 billion in settlements and judgments, $2.4 billion involved the health care industry, including drug companies, hospitals, pharmacies, laboratories, and physicians. This is the eighth consecutive year that the department’s civil health care fraud settlements and judgments have exceeded $2 billion.”

DOJ also reported high recoveries in housing and mortgage fraud in FY 2017, totaling over $543 million, according to the press release. Due to enforcement related to the financial crisis, recoveries in this area have varied widely from year to year, including last year, when DOJ announced $1.6 billion in housing and mortgage recoveries. Although many major cases relating to the financial crisis have been settled, housing, mortgages and financial institutions can be expected to remain a continued focus of DOJ’s enforcement efforts.

Focus on Procurement Fraud

While the statistics for DOD cases and recoveries are much lower than in the health care and housing areas, DOJ continues to focus separately on procurement cases each year. In its press release, DOJ announced that in FY 2017, “the department aggressively pursued a variety of procurement fraud matters.”

DOJ highlighted a global settlement with a Kuwaiti company, which paid $95 million to resolve civil fraud claims and agreed to forgo its own administrative claims against the U.S. seeking $249 million in additional payments under military food contracts. DOJ had alleged that the company “knowingly overcharged [DOD] for locally available fresh fruits and vegetables supplied to U.S. soldiers in Kuwait and Iraq by failing to disclose and pass through discounts and rebates it obtained from suppliers, as required by its contracts.”

DOJ also highlighted two cases involving an alleged failure to follow quality standards in the nuclear industry. The companies involved agreed to pay $125 million to resolve allegations that they “charged the Department of Energy (DOE) for deficient nuclear quality materials, services, and testing” and improperly used federal contract funds to lobby Congress and other federal officials. Another company agreed to pay $4.6 million to resolve allegations that it “knowingly failed to perform required quality assurance procedures and supplied defective steel reinforcing bars (rebar) in connection with a contract to construct a DOE nuclear waste treatment facility.”

DOJ also highlighted a procurement case involving the General Services Administration, in which a company agreed to pay $45 million to resolve allegations that it “made false statements and claims in the negotiation and administration of a [GSA] contract for software licenses and maintenance services.” The settlement resolved allegations that the company:

provided false information to the GSA about the discounts it gave commercial customers for its software licenses and maintenance services during contract negotiations and failed to provide government customers with additional discounts when commercial discounts improved.

The allegations summarized in DOJ’s press release are typical of the type of FCA allegations routinely brought against government contractors and include broad allegations consistent with implied certification theories. DOJ’s press release signals that its focus on procurement cases will continue, encompassing DOD, DOE, GSA and other civilian agencies, in addition to the many other areas and industries subject to the DOJ’s FCA enforcement.

Regulated Industries Can Expect FCA Enforcement in Diverse Areas

In its press release, DOJ also highlighted the diverse nature of its FCA recoveries:

In addition to combatting health care fraud, the False Claims Act serves as the government’s primary civil remedy to redress false claims for government funds and property under government programs and contracts relating to such varied areas as defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs.

Based on the most recent DOJ statistics, it can be expected that regulated industries in these diverse areas will see another year of active DOJ enforcement and another year of total FCA recoveries greater than $3 billion in FY 2018.

Implications for Mandatory Disclosure

With eight consecutive years of FCA recoveries exceeding $3 billion, including recoveries in qui tam cases above $2 billion each year, there is significant enforcement pressure added to the Federal Acquisition Regulation’s Mandatory Disclosure Rule (MDR). Government contractors face the reality that if they do not detect and disclose potential FCA violations, whistleblowers may do so for them. Government contractors also have the opportunity to disclose potential violations in a manner that can prevent additional violations and that is consistent with the FAR, their contracts and good corporate citizenship.

The MDR, added to the FAR in 2008, requires government contractors to disclose certain potential violations of law, including “credible evidence” of a violation of certain criminal laws or the civil FCA. FAR clause 52.203-13, “Contractor Code of Business Ethics and Conduct,” implements the MDR in all federal contracts and subcontracts that are expected to exceed $5 million with a performance period of 120 days or more. FAR 52.203-13 also requires (with exceptions for small businesses and commercial items) the contractor to establish an ongoing business ethics awareness and compliance program and an internal control system, with related standards set out in the clause.

Best practices require robust compliance with the MDR, the FAR, and statutory, regulatory and contractual requirements, as well as the company’s code of business ethics and conduct. DOJ’s annual FCA statistics provide an annual reminder and added incentive for robust corporate compliance efforts in 2018 and beyond.