Last week, the U.S. Department of Justice (DOJ or Department) announced that it recovered over $5.6 billion under the False Claims Act (FCA) in Fiscal Year 2021.[1] That is a massive headline haul that is second only to the $5.7 billion recovered under the FCA in FY 2014, when there were $3.1 billion in settlements with large banks and other financial institutions alleged to have made false statements to federally insured mortgage and loan programs. The FY 2021 recoveries are similarly inflated by a single $3 billion settlement. As indicated in our review of the 2020 FCA statistics, a $3 billion settlement with a pharmaceutical company that manufactures opioids (and several key individuals), was finalized three weeks after the end of FY 2020, on October 21, 2020. The net effect of this mega-settlement executed in early-FY 2021 was a slightly-deflated FY 2020 total recovery and a corresponding bump for FY 2021 recoveries.[2] Take out that settlement, which accounted for more than half of the FY 2021 recoveries, and the 2021 numbers look fairly pedestrian—slightly higher than FY 2020 recoveries but about 20% lower than the average recoveries from the last five years. Though the large wave of enforcement activity that many predicted would result from the change in administration and the massive spending associated with pandemic-relief efforts has yet to materialize, that may still occur once a new head of DOJ’s Civil Division is nominated and confirmed, and pandemic relief fund-related investigations mature.
Top Line Numbers
In FY 2021 DOJ recovered $5,650,026,663 under the False Claims Act. That is more than double the $2.3 billion recovered in FY 2020. Healthcare-related recoveries accounted for almost 90% of the total FY 2021 settlements and judgments amount with over $5 billion recovered in healthcare matters. This is the largest annual healthcare-related recovery on record and more than double the average amount recovered in the last five years. Again, though, the FY 2021 healthcare recoveries are inflated by the massive $3 billion settlement with an opioid manufacturer. Take out that “unicorn” settlement, and the remaining healthcare recoveries total only $2 billion, a slight uptick from the $1.9 billion in healthcare recoveries in FY 2020 but about 20% below the average $2.5 billion recovered per year in the preceding five years. Defense procurement fraud recoveries in FY 2021 totaled about $120 million, which is about 50% higher than the FY 2020 defense procurement recovery amount but is slightly lower than the $150 million per year average defense-related recovery from the preceding five years. $463 million was recovered in all other categories in FY 2021, a roughly 50% increase from FY 2020 but about 40% off the average recovery from the last five years.
All told, the FY 2021 recoveries are more of a mixed-bag than the near-record setting total recovery suggests. Putting aside the blockbuster $3 billion settlement, the FY 2021 recoveries were slightly better than FY 2020’s unusually low numbers, but still off from the averages from the preceding half-decade.
The Data Behind the Financial Numbers
Looking beyond the dollars recovered, much can be gleaned from the number of new matters opened last year. The FY 2021 new matter data is essentially the mirror image of the dollar recoveries—the FY 2021 new matters are slightly below the FY 2020 numbers but about the same as the average of the preceding five years. In FY 2021, 801 new FCA matters were opened, including 598 qui tam matters brought by whistleblowers and 203 non qui tam matters initiated by DOJ. That is down about 15% from the total matters opened in FY 2020, but in line with the average for the preceding five years. The 203 non qui tam cases initiated by DOJ is down from the 259 in FY 2020 but is 30% higher than the average number of non qui tam matters opened in each of the last five years, suggesting that the concerted, years-long effort at DOJ to be more proactive in identifying fraud schemes using artificial intelligence and sophisticated data mining tools, as opposed to merely reacting to qui tam suits brought by whistleblowers, continues to pay dividends. Correspondingly, recoveries in non qui tam matters, which are higher on average than recoveries in whistleblower-initiated matters, should increase in the forthcoming years as many of these new matters turn into settlements and judgments.
Beyond the Numbers
FY 2021 was a transition period for DOJ and the mixed-bag FCA recoveries reflect that. There was a change in administration and DOJ’s Civil Division, whose Civil Fraud Section prosecutes FCA cases, still does not have a nominated head, let alone a confirmed one. Numerous U.S. Attorney’s Offices, which also play a pivotal role in investigating and prosecuting FCA matters, also lack confirmed appointees. Given this context, it is not surprising that the FY 2021 recoveries and new matters (aside from the mega-settlement) were somewhat static and do not provide too many data points for making broad pronouncements about the key trends in fraud enforcement over the next few years. That said, as the Biden Administration makes progress in staffing its sub-cabinet positions, its investigative priorities will become clearer and the increased enforcement it promised will likely start to come to fruition and lead to higher recover over the next few years. DOJ’s press announcement telegraphed that among those enforcement priorities are:
- Combatting the opioid epidemic – Despite receding somewhat in the headlines, the opioid epidemic continues to harm and kill growing numbers of people each year and ravage communities. Over 75,000 Americans died from opioid overdoses in the 12-month period ending in April 2021.[3] An almost 40% increase from the prior 12-month period. DOJ committed to continue utilizing its fraud enforcement tools “against the parties responsible for triggering and fueling the opioid epidemic” in an effort to “address this crisis.” The aforementioned $3 billion settlement is certainly demonstrative of that commitment and further settlements with the numerous entities in the opioids supply chain are likely.
- COVID-related fraud enforcement – DOJ’s press release identified as a priority area for enforcement fraud related to the historic amounts of emergency funding provided to individuals, businesses and state and municipal governments to address the impact of COVID. While DOJ has made some “big -splash” pronouncements regarding its “unprecedented” enforcement efforts to combat COVID-related fraud[4], to date the fruits of that activity have been mainly in the criminal realm. Last March, DOJ announced that it had criminally charged almost 500 individuals allegedly involved in COVID-fund schemes and seized over $580 million in tainted loan proceeds.[5] While the DOJ has announced a handful of FCA settlements related to abuse of COVID funds, the settlement amounts were in the five or low-six figures. That said, DOJ has made clear it intends to use “numerous civil tools to address fraud in connection with CARES Act programs,” including the FCA. DOJ also indicated that “whistleblower complaints have been on the rise as unscrupulous actors take advantage of vulnerabilities created by the COVID-19 pandemic and the new government programs disbursing federal relief, and whistleblower cases will continue to be an essential source of new leads to help root out the misuse and abuse of taxpayer funds.”[6] Given these statements, and the usual duration of an FCA investigation, which can take years, a sharp increase in COVID-related FCA settlements is likely over the next several years.
- Cybersecurity – Last October, DOJ announced a new Civil Fraud Cyber Initiative to “combine the department’s expertise in civil fraud enforcement, government procurement and cybersecurity to combat new and emerging cyber threats to the security of sensitive information and critical systems.”[7] As indicated in a prior post[8], The DOJ initiative provides that the Department will use its power under the False Claims Act (FCA), including through support for qui tamwhistleblowers, to increase enforcement of cybersecurity-related fraud by federal contractors and grant recipients. DOJ’s press release announcing its FY 2021 recoveries reiterated that commitment: “Civil enforcement plays an essential role in the department’s cyber defense efforts. The department will pursue misrepresentations by companies in connection with the government’s acquisition of information technology, software, cloud-based storage and related services designed to protect highly-sensitive government information from cybersecurity threats and compromises.” This is a novel use of the FCA and how exactly (and to what extent) the FCA will be brought to bear against entities that are themselves victims of bad actors remains to be seen.
[1] Justice Department’s False Claims Act Settlements and Judgments Exceed $5.6 Billion in Fiscal Year 2021 | OPA | Department of Justice
[2] Analysis of the DOJ’s 2020 FCA Statistics and the Trends Therein | Subject to Inquiry
[3] Drug Overdose Deaths in the U.S. Top 100,000 Annually (cdc.gov)
[4] COVID-19 Fraud Surge: Criminal Enforcement of Pandemic-Related Fraud Reaches “Unprecedented Pace,” DOJ Warns | Subject to Inquiry
[5] Justice Department Takes Action Against COVID-19 Fraud | OPA | Department of Justice
[6] Id.
[7] Deputy Attorney General Lisa O. Monaco Announces New Civil Cyber-Fraud Initiative | OPA | Department of Justice
[8] Department of Justice Announces Increased FCA Enforcement Through New Civil Cyber-Fraud Initiative | Subject to Inquiry
