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Federal Market Intelligence for Small Business |
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Column: Eight Key Takeaways from DOJ’s Report on Fraud and the FCABy Matthew E. Feinberg, partner, and Annie B. Hudgins, associate, PilieroMazza PLLC“It was the best of times, it was the worst of times . . . .” Charles Dickens’ famous words from “A Tale of Two Cities” may have been echoing at the Dept. of Justice in recent weeks. On Feb. 7, DOJ issued its annual report on fraud and False Claims Act (FCA) recoveries for fiscal 2022. While $5.6 billion was recovered the previous year, the new report disclosed what the government might consider a disappointing $2.2 billion in settlements and judgments from civil cases involving fraud and the FCA in fiscal 2022. The $2.2 billion is the lowest amount recovered since fiscal 2008 and represented an almost 60% drop over the course of a single year. The low dollar figure does not tell the whole story, however. Fiscal 2022 was an interesting year for the FCA, and government contractors should note a few key takeaways from DOJ’s annual report to understand key trends for the future of the FCA. All years following are fiscal years. Low Recovery Numbers The sharp drop-off in recoveries from 2021 to 2022 is staggering, to be sure. Indeed, in context, the numbers were even lower than they appeared. DOJ recovered $843.8 million from a single whistleblower case against pharmaceutical company Biogen Inc. mere days before the end of the fiscal year. A delay in that settlement by just a couple of weeks would have dropped DOJ’s recoveries below $2 billion for the first time in 14 years and represented the lowest amount of recoveries since 2004. Biogen Whistleblowers Incentives The Biogen case is Exhibit A for how whistleblowers (referred to as relators for FCA matters) can cause serious damage to companies under the FCA. According to the pleadings in the Biogen litigation, relator Michael Bawduniak was purportedly demoted from his position at Biogen for attempting to stop the company’s alleged practice of issuing kickbacks to physicians. He left Biogen in 2012 and filed a qui tam complaint in federal court in Massachusetts. The U.S. declined to intervene in the litigation. After 10 years of litigation, the case settled for $843.8 million. For his role as whistleblower, Bawduniak received 29.6% of the total recovery, or roughly $250 Million. Although Bawduniak’s recovery is not indicative of what a whistleblower would receive in the average FCA matter, it is emblematic of the incentives whistleblowers may receive for making allegations of FCA violations. Number of Settlements Given the significant dip in the amount of total recoveries, it is no surprise that DOJ focused its announcement of the report on the 351 settlements and judgments in civil fraud and FCA cases in 2022, the second highest number of settlements and judgments ever in a single year. Such aggressive enforcement activity is an indicator that the FCA remains the most important mechanism for the government to recover public funds obtained by fraud. Increase in Newly-Initiated Matters FCA matters can begin in one of two ways: a whistleblower may file a qui tam action in federal court or the government may initiate its own suit or investigation. In 2022, a total of 948 new matters were initiated, the most since DOJ began publishing statistics in 1987. DOJ initiated 296 matters of its own, the highest number since 1993. And qui tam relators initiated 652 new matters, which is roughly consistent with the pace set between 2010 and 2021. In other words, DOJ’s FCA enforcement activity shows no sign of slowing down in the future. Healthcare Dominated FCA Unsurprisingly, healthcare fraud remains the leading source of recoveries for DOJ, accounting for approximately 80%, or $1.76 billion, of the total $2.2 billion recovered. In addition to the Biogen settlement, DOJ reached a number of 8-figure settlements with healthcare companies based on allegations of Medicaid fraud, unnecessary services and substandard care, and kickbacks. However, like total recoveries, healthcare fraud recoveries fell to their lowest levels since 2009 and fell below $2 Billion for the second time in three years. Small GovCon Fraud Recovery Over the last several years, DOJ increased its focus on fraud committed by government contractors, particularly small businesses who receive set-aside contracts despite not being eligible for them. In 2022, DOJ obtained a $48.5 million settlement with TriMark USA LLC resolving allegations that the government contractor used a sham small business to win set-aside contracts while a large business performed most of the work. The settlement is indicative of DOJ’s aggressive stance toward businesses that obtain small business and other set-aside contracts for which they are not eligible. COVID-19 Fraud Claims COVID-19 fraud recoveries were not significant in 2022. DOJ recovered approximately $6.8 million in 35 FCA matters during the fiscal year. But that is just the beginning of DOJ’s enforcement activity. During early 2022, DOJ announced it would focus heavily on addressing COVID-19 fraud. In September 2022, DOJ announced it established COVID-19 Fraud Strike Force Teams based out of Los Angeles, Sacramento, Miami, and Baltimore. Because FCA matters can take years to proceed from start to conclusion, it is no surprise that significant recoveries have not yet materialized. However, COVID-19 enforcement is expected to increase exponentially in 2023 and beyond. FCA in the Supreme Court Two major FCA cases reached the Supreme Court in 2022, and the decisions in those cases, which will be issued this term, could have an oversized impact on FCA litigation in the future. In United States ex rel. Polansky v. Executive Health Resources, Inc., the Supreme Court will decide the scope of the government’s authority to dismiss qui tam cases in which the government previously declined to intervene. And, in United States ex rel. Schutte v. SuperValu Inc., the Supreme Court will decide whether and when an FCA defendant’s subjective understanding and perceptions about the lawfulness of its conduct are relevant to whether that defendant “knowingly” committed a violation of the FCA. Conclusion Even in a year when overall FCA recoveries were low, DOJ’s annual report, as well as the attention the FCA is receiving at the Supreme Court, serve as important reminders that government contractors should seek to avoid costly and damaging FCA and fraud-related litigation by developing a clear understanding of their obligations, representations, and certifications to the government, and implement robust audit procedures to ensure accurate claims for payments are made to the government. If you have questions about the FCA or are the subject of an FCA investigation or lawsuit, please contact Matt Feinberg or Annie Hudgins, the authors of this blog, or another member of PilieroMazza’s False Claims Act or Audits & Investigations practice groups (http://www.PilieroMazza.com). This column was reprinted with permission.
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