On December 3, 2015 the United States Justice Department made its annual public disclosure of the financial results of False Claim litigation around the country.  The Department reported that it had collected more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year (FY) ending September 30, 2015.  See, here. This number was down from the record high of $5.7 billion collected in FY 2014, but continued a four year trend where the Department has recovered more than $3.5 billion annually under the False Claims Act. The Department also noted that, since January of 2009 (the beginning of this Administration’s time in office), its aggregate recovery has been more than $26 billion.

On the same day it released these results, the Department of Justice also reported that it had collected more than $23 billion in civil and criminal actions in FY 2015.  The total includes the amounts the Department collected as a result of False Claims litigation and captures all “monies collected as a result of Justice Department-led enforcement actions and negotiated civil settlements.  It includes more than $16.2 billion in payments made directly to the Justice Department and more than $6.8 billion in indirect payments made to other federal agencies, states and other designated recipients.”  See, here. 

Despite the dip in the total False Claims Act collections in FY 2015, it is clear that the Department of Justice, its prosecutors and its clients agencies, are seeing much success in False Claims litigation and in the criminal prosecution of offenders who have defrauded the Government itself.  Indeed, Principal Deputy Assistant Attorney General Benjamin C. Mizer was quoted in the Department’s False Claims Act press release and noted that the “False Claims Act has again proven to be the government’s most effective civil tool to ferret out and return billions to taxpayer-funded programs.”  A look behind the numbers reveals the risks confronting businesses and individuals who are regulated by the government or who do business in a government regulated industry.

Health Care Resumes Number One Position

Last year’s record numbers were pushed so high by claims and recoveries related to financial institution fraud associated with the financial crisis of 2008-2009.  Those recoveries relegated health care fraud to second place in the 2014 numbers.  However, this year health care fraud re-emerged as the number one source of False Claims recovery.  It accounted for $1.9 billion of the total civil take by the Department and played a significant role in the criminal arena as well. 

The Department’s False Claims report highlighted several types of investigations yielding recoveries this year:

• Kickback schemes involving patient referrals in one form or another accounted for nearly $600 million in recovery;
• Purposeful waste in administering drug therapy resulted in a settlement of more than $450 million;
• Hospitals collectively accounted for nearly $330 million in settlements and judgments in FY 2015, including one deal with more than 500 hospitals totaling more than $250 million for allegedly implanting cardiac devices in Medicare patients contrary to criteria established by the Centers for Medicare and Medicaid Services;
• Claims involving the pharmaceutical industry netted nearly $100 million in settlements and judgments and involved a range of drug use and drug prescription kickback schemes and schemes designed to underpay rebates,
• The skilled nursing home and rehabilitation industry was singled out as “fertile ground” for civil fraud and false claims actions based on cases involving deficient nursing services and billing for medically unreasonable and unnecessary rehabilitation therapy.

The Health Care Industry was also highlighted in the Department’s overall release covering criminal and civil cases.  Health care related investigations were a point of emphasis on the criminal side with Health Care Fraud Coordinators or units within each United States Attorney’s Office producing significant criminal prosecutions around the country.

The Dramatic Growth of Qui Tam Cases

Qui tam has been a growing feature of False Claims litigation for a number of years.  This tool allows a relator – that is a whistleblower – to bring a civil suit based upon some type of alleged fraud.  The relator seeks to vindicate the government’s interests, at least initially, and brings the suit in the government’s place.  The case is brought under seal, and the Justice Department is then provided an opportunity to take over the suit to its end.  If the government declines to proceed, the relator may pursue the claim on his own.  Success can yield a significant payout for the relators and their attorneys with or without government participation in the matter.   The Department’s December 3 report showed a dramatic shift in the role of qui tam suits over previous years.

According to Department of Justice statistics, qui tam cases (with or without government participation), recovered around $2.9 billion in FY 2015.  That accounts for more than 80% of the government’s annual recovery and points to the critical role that whistleblowers are playing in the False Claims arena.  Non-qui tam litigation (that is, litigation brought solely by the government in the first instance without the aid of relators) accounted for a “mere” $671 million in recoveries.

It is also clear that relators are less shy about proceeding without the government than in past years.  Since 2009, there have been nearly 4400 new qui tam actions filed in federal district courts.  But, until FY 2015 those suits had yielded a modest $130 million in the aggregate for relators where the Justice Department chose not to intervene.  By contrast, during those same years relators took home more than $390 million annually when the government joined the suit. 

But in FY 2015 the tables were turned.  Within the government’s $3.5 billion in False Claims Act recovery, it reported that more than $2.9 billion was secured as the result of qui tam actions.  And, more significantly, more than $1.1 billion of that recovery was found in cases in which the qui tam relator proceeded without government participation in the suit.  This number easily eclipses the previous record of about $175 million set in 2011.  And, not surprisingly, this produced a dramatic increase in relator awards in cases declined by the government.  In FY 2015 that amount jumped to more than $330 million and exceeded the relator recovery in cases in which the government did intervene for the first time ever.

The False Claims Act As A Tool

With the Justice Department posting numbers like the ones reported on December 3, it is clear that the False Claims Act will remain an important weapon in the Department’s arsenal.  But, these numbers don’t tell the whole story.  It is critical to remember that the False Claims Act numbers must be placed in context with the overall investigative effort being made at the federal and state levels.  The Department of Justice posted significant False Claims Collections in other regulated industries.  The numbers reported by the Justice Department’s civil division still pale in comparison to the much larger numbers collected by federal agencies and by prosecutors pursuing violators criminally.  Moreover, each state has developed a similar capability by operating investigative offices focusing on specific aspects of state provided or oversight services (i.e., Medicaid enforcement).

Regulated Industry Response

We can draw several conclusions from the information provided in the Department of Justice’s report:

• Despite recent predictions of reform or change, the False Claims Act is alive and well and producing significant financial results for federal investigators and prosecutors;
• The results achieved by the Justice Department over recent years suggest that False Claims litigation will continue to be the most important tool used by the Department within regulated industries;
• The qui tam “relator’s bar” is becoming more aggressive with increased success, and members of regulated industries must now, more than ever, consider the impact of whistleblower suits and how to prevent them;
• The “relator’s bar” feels less and less hampered by Department of Justice refusal to pursue qui tam matters;
• Members of regulated industries will face increased likelihood of becoming involved in a False Claims Act case (whether civil, criminal, or both) and the attendant costs associated with defending against those claims.

In light of the significant and increasing risks that False Claims Act litigation poses to regulated industries, Williams Mullen recommends several preventive steps:

• Companies in regulated industries must develop and adhere to a culture of integrity and strict compliance with the law.  Corner cutting and quick fixes must not be tolerated.  This is particularly important in an environment where your own employee may be the whistleblower who brings the qui tam action against you.
• Compliance with federal and state regulations and program requirements must be taken seriously and must result in the development of clear and enforceable policies and the comprehensive and regular training of personnel on those policies;
• Regular and rigorous auditing of programs interacting with and seeking reimbursement from government agencies and programs is essential;
• Use of outside consultants and counsel for the development and operation of compliance and auditing programs is increasingly important;
• Quick responses to findings of deficiencies, no effort to sweep problems under the carpet and no tolerance for a “we’ll fix it if they find it” mentality;
• Prompt reporting of significant problems (overpayments, etc.) to regulating agencies and programs when they are detected;
• Immediate consultation with counsel when a problem is detected and when investigators begin asking questions or seeking information from your organization in a manner that is separate from the normal interaction with agency regulators.  Often it is hard to determine when you are under investigation or are the subject of a qui tam action.  However, at the first sign of inquiry, you should involve experienced counsel to oversee your response and handle your interaction with prosecutors, civil attorneys representing the government, investigators and regulators.  With the Department of Justice reporting these levels of recovery, you can’t afford to take these issues lightly.

It is also important to note that the Department’s press statement emphasized its pursuit of and recovery from individuals in addition to corporations and businesses.  In its press release the Department referred to the Yates Memorandum issued on September 9, less than 30 days before the end of the fiscal year.  The Yates Memorandum attempted to recalibrate the Department’s approach to individual culpability and liability.  FY 2016 will provide the Department a full year under this policy pronouncement, and leaders and policy and decision-makers in regulated industries will find themselves facing greater individual scrutiny in the False Claims context.  For a fuller discussion of the Yates Memorandum, please see our analysis here.