As the first DOJ fiscal year (mostly) under the Trump Administration flies past and we see round the bend to DOJ FY 2017’s end on September 30, the time has come to see how this year’s bout of DOJ versus Contractors is going as compared to last year. Subject to our usual flurry of methodological caveats, we count a little over $2 billion in recoveries spread out over 135 recoveries for the first nine months of FY 2017. At this time last year, DOJ had recovered $4.1 billion in 229 recoveries. If the match continues apace, without any last minute blockbuster FCA settlements, we predict FCA defendants will have paid roughly $2.7 billion across 180 recoveries by the end of FY 2017. That is well shy of FY 2016’s $4.8 billion recovered over 288 recoveries, and would leave FY 2017 with the lowest dollars recovered by DOJ since FY 2009.
Cumulative Dollars Recovered Each Month, FY 2016 v. 2017
All but two months of FY 2017 have seen fewer dollars recovered than in FY 2016. While DOJ has reeled in a greater number of recoveries in Q3 of FY 2017 than Q3 of FY 2016, that was not the case the previous two quarters. The size of the recoveries for FY 2017 has also been generally smaller than in FY 2016. A greater percentage of DOJ’s recoveries in FY 2017 have been for $1 million or less than in FY 2016. Moreover, DOJ has had far fewer welter-weight recoveries of between $1 million and $25 million, about the same number of middle-weight recoveries between $25 million and $250 million, and fewer heavy-weight recoveries above $250 million.
Number of Recoveries by Month, FY 2016 v. 2017
Broken down by industry, FY 2016’s heights seem out of reach for DOJ in the health care industry and the other industries. Only in the defense sector has DOJ’s matched last year, and that is largely attributable to one large settlement in May. In the health care sector, medical device providers, pharmaceutical companies, and other medical services providers have each paid less than half so far this year of what they paid in total last year. Only ancillary care providers like nursing homes appear on track to come close to last year. Lastly, DOJ’s rainmaker for FY 2016, mortgage banks, have had a quiet year, with only 14% of last year’s $1.6 billion in recoveries on the books so far.
Dollars Recovered by Industry, FY 2016 v. 2017
The natural question that follows these numbers is, “Why?” We can hazard a few guesses: The change to the Trump Administration might have slowed the processes for bringing, negotiating, and settling FCA cases within DOJ, and also might have altered DOJ’s priorities. (That said, the first quarter of DOJ FY 2016 was under the Obama Administration and there was not a clear jump in the numbers between administrations.) Another explanation might be that mortgage cases are drying up the further we get from the recession, and defense cases remain relatively slow as we get further from the hottest periods of the Iraq and Afghanistan Wars. As for health care’s apparent slump this year, we do not know of any specific explanation, and it might simply be a fluke.
The explanation for the overall decline that seems most likely to us is that Escobar came out at the end of Q3 of FY 2016 and led to a flurry of motions and appeals in the courts that have held up resolution of FCA cases in the numbers we typically see. A Westlaw search reveals about 23 court of appeals decisions, 95 district court decisions, and 132 appellate briefs citing Escobar about materiality and implied certification in the context of motions to dismiss or motions for summary judgment. If we are correct, we anticipate that FY 2017 recoveries will continue on their current trend and fall short of FY 2016, and that recoveries in FY 2018 may very well also be lower than what DOJ has come to expect as litigants continue to seek guidance from the courts on how Escobar should be applied across a wide range of issues and fact patterns.