Earlier this month, the U.S. Department of Justice (DOJ) announced that it recovered over $2.2 billion under the False Claims Act (FCA) in Fiscal Year 2022.[1] That is a steep drop from last year’s near-record $5.7 billion haul and the lowest annual recovery since 2008. That year-over-year decline, though, was exacerbated by a $3 billion mega-settlement with a pharmaceutical company that manufactures opioids (and several key individuals) in FY 2021. The net effect of that large settlement executed in early-FY 2021 was a bump for FY 2021 recoveries and an exaggerated decline in FY 2022 recoveries.[2] Take out that settlement, which accounted for more than half of the FY 2021 recoveries, and the FY 2022 recoveries are only about 15% lower than the FY 2021 numbers. Still, the long-term trends suggest a steady decline in recoveries over the last ten years.
Putting aside total recoveries, the data DOJ released provides indications that FCA enforcement activity remains robust. For example, DOJ’s press release announcing its FY 2022 recoveries (the “press release”) highlights that there were 351 settlements and judgments in FY 2022, the second-highest number in a single year. Moreover, there was a total of 948 new matters opened in FY 2022, which was a single-year record, and continues a recent trend of an uptick in cases. That said, as discussed below, a significant percentage of those new matters may be smaller-dollar cases involving pandemic relief fraud.
Total Recoveries Are Trending Down
In FY 2022, DOJ recovered $2,207,223,139 under the False Claims Act. That is about a 60% decline from the $5.7 billion recovered in FY 2020. Healthcare-related recoveries accounted for approximately 85% of the total FY 2022 settlements and judgments, which amounts to over $1.7 billion recovered. That is down slightly from the $2 billion in healthcare recoveries in FY 2021, not including the “unicorn” $3 billion opioids-related settlement, and the $1.9 billion in healthcare-related recoveries in FY 2020. Defense procurement fraud recoveries in FY 2022 totaled about $103 million, which is about 15% lower than the FY 2021 defense procurement recovery amount, but about 20% higher than the $88 million in defense-related recoveries in FY 2020.
Taking a longer view at DOJ’s statistics, it is clear that there has been a marked downward trend in annual recoveries over the last ten years. As demonstrated by the graph below, that trend was interrupted by the $3 billion mega-settlement in FY 2021, but gravity seems to have taken hold again with FY 2022 bringing the lowest total recovery in 15 years.
As demonstrated by the orange line in the graph above, annual recoveries have peaks and nadirs, with large settlements playing a disproportionate role in the total amount recovered in any single year. The blue line, though, reflects a three-year average recovery, which is meant to smooth out the spikes. That running average has gone from the low $4 billion range in the 2013-2015 timeframe to the low $3 billion range in the 2020s, demonstrating that (even accounting for aberrational years) recoveries have steadily trended downward about 25% in the past decade.
Of note, the data here reflect real dollars, not inflation adjusted ones. Given the rapid increase in federal spending from FY 2013 (total federal expenditures of $3.5 trillion[3]) to FY 2022 (total federal expenditures of $6.3 trillion[4]), one might expect a concomitant rise in FCA recoveries. But the opposite has occurred and DOJ does not acknowledge this decline in their press release, let alone provide an explanation. Instead, the press release highlights numerous individual settlements and judgments and the general increase in matters.
New Matters Are Trending Up
Looking beyond the decline in total recoveries, the rise in new matters foretells an increase in enforcement activity in the coming years. In FY 2022 there were 948 new FCA matters, comprised of 296 non qui tam matters and 652 qui tam matters. This is an almost 20% increase from the number of new matters in FY 2021 and the largest number of new matters in a single year since DOJ started publishing comprehensive statistics in 1988. As demonstrated by the graph below, the trend with respect to new matters is the opposite of the total recoveries trend, with a small, but perceptible increase in new matters over the last decade. Also clear in the chart below is the sharp rise in the last four years in new non qui tam matters as reflected by the green line. This demonstrates that DOJ’s years-long effort to be more proactive in identifying fraud schemes using sophisticated data mining tools, as opposed to merely responding to qui tam suits brought by whistleblowers, continues to pay dividends.
The Mix of New Matters is Changing
While the increase in new matters portends an uptick in enforcement activity and a likely increase in recoveries in the coming years, a closer look at the mix of new matters reveals that increase may be smaller than the rise in new cases suggests. As indicated in the graph below, the number of new healthcare and defense procurement cases in FY 2022 (464 and 66 respectively) are very much in line with the average number of annual new matters over the last ten years. What sticks out is the non-healthcare/non-defense (or what DOJ refers to as “other”) category (represented by the light blue line) which jumped from an average number of new matters in the mid-200s over the last decade to 418 in FY 2022. DOJ does not provide an explicit explanation for that sharp increase in “other” matters in its press release, but it is clear from recent statements by DOJ officials that that they have recently opened a number of new investigations relating to pandemic relief fraud, including many cases arising from Paycheck Protection Program (PPP) Loans attained, disbursed and forgiven under allegedly false pretenses. While this foretells an increase in PPP investigations and prosecutions, it may not lead to an accompanying sharp increase in recoveries as the average amount forgiven for all PPP loans was under $80,000.[5] Meaning the prospect for large settlements from PPP-fraud related cases is somewhat limited and that at least some of the new matters in FY 2022 will provide modest recoveries to the fisc.
Making Sense of the Cross Currents
Given the cross currents in the data, with long-term trends indicating declining recoveries but an increase in new matters (albeit some of those new “other” matters likely leading to smaller recoveries), predicting short- and medium-term trends in FCA recoveries is difficult. That said, the number of new matters suggest that investigation activity will remain vigorous, and businesses should be prepared for more robust enforcement as promised by the Biden campaign and administration.[6]
Turning to DOJ’s substantive priorities for FCA enforcement, the press release highlights newer areas of interest as priority matters, such as Medicare Part C, pandemic-related fraud and cybersecurity, but also lists recoveries in traditional “bread and butter” areas such as kickbacks, medically unnecessary and substandard care and protecting troops and first-responders as priority areas. The press release also notes DOJ’s “commitment to use the False Claims Act to deter and redress fraud by individuals as well as corporations.” Noting that individual accountability “deter[s] future fraud, incentivize changes in both corporate and individual behaviors, ensure[s] that the proper parties are held responsible, and promote the public’s confidence in our justice system.”
Bottom line, clients should expect increased enforcement activity in the next two years. But the sting of any individual settlement or judgment may not be as harsh as those from ten years ago.
[1] False Claims Act Settlements and Judgments Exceed $2 Billion in Fiscal Year 2022 | OPA | Department of Justice
[2] Analysis of DOJ’s 2021 FCA Statistics and the Trends Therein | Subject to Inquiry
[3] Federal Spending by the Numbers, 2013: Government Spending Trends in Graphics, Tables, and Key Points | The Heritage Foundation
[4] Federal Spending | U.S. Treasury Fiscal Data
[5] Update: 11.5 million PPP loans were forgiven. Here’s why. | Pandemic Oversight
[6] See, e.g., Remarks of President Joe Biden – State of the Union Address, February 7, 2023 (“We’re protecting seniors’ lives and life savings by cracking down on nursing homes that commit fraud, endanger patient safety, or prescribe drugs they don’t need”; “Before I came to office many inspector generals who protect taxpayer dollars were sidelined. Fraud was rampant. Last year, I told you the watchdogs are back. Since then, we’ve recovered billions of taxpayer dollars. Now, let’s triple our anti-fraud strike forces . . . . For every dollar we put into fighting fraud, taxpayers get back at least ten times as much.”)
