On February 22, 2024, the Department of Justice (DOJ) released its annual statistical report (Annual Report) regarding settlements and judgments obtained in the False Claims Act (FCA) and fraud matters for Fiscal Year (FY) 2023. Over the course of the fiscal year, which ended on September 30, 2023, the government recouped $2,689,447,914, a 20% increase compared to FY 2022 but well below the average annual recoveries over the last 15 years (approximately $3.6 Billion). Below are key takeaways from the Annual Report and what they mean for government contractors facing FCA claims in 2024 and beyond. For more details on this important topic, visit this link to register for the webinar “PilieroMazza Annual Review: What DOJ’s Annual FCA Report Means for Government Contractors.”
New FCA Matters on the Rise
In FY 2023, 1,212 new FCA matters—the most ever—were initiated, 500 by the government and 712 by whistleblowers (known as “relators” in the FCA context). The number of government-initiated matters increased by 64% compared to FY 2022. FY 2023 also saw the highest number of government-initiated matters in history, substantially more than the previous high watermark of 340 in FY 1987. Relator-initiated matters (known as “qui tam” suits) saw a modest increase of approximately 8% over FY 2022. The 712 new qui tam matters is the third-highest number in history, behind only FY 2013 and FY 2014.
Key Takeaways: The FCA remains the government’s primary vehicle for recovering funds obtained from the government by fraud or misrepresentation. FCA matters are rarely resolved within the fiscal year in which they are initiated. Thus, the substantial increase in new matters in FY 2023 means the public should expect the number of settlements and judgments to continue to increase over the next several years. The large number of new matters also indicates that both the government and relators are expanding their target field to assert claims against more companies.
Largest Number of Settlements and Judgments in History
FY 2023 saw 543 total settlements and judgments in fraud and FCA matters, the highest number of settlements and judgments in a single fiscal year in history. The vast majority of recoveries (over 86%) associated with those settlements and judgments arose out of qui tam actions. In most instances, relators who initiate qui tam actions share in a portion of the recovery when such litigation is settled or proceeds to judgment. In FY 2023, relators received $349,634,900 in these actions or approximately 15% of the total qui tam recoveries for the year. The relator percentage of recovery generally fluctuates between 15% and 20% year over year, but the FY 2023 percentage was the lowest since 2012.
Key Takeaways: It is no surprise that the number of settlements in FY 2023 was the highest ever, given the consistent increase in newly initiated matters over the last five years. The number of settlements is likely to continue to increase in the next several years to correspond with the increase in newly initiated matters. Relator recoveries likely were reduced because FY 2023 recoveries largely came from qui tam actions in which the government intervened. When the government intervenes in a qui tam action, the relator is entitled to a smaller percentage of the overall recovery because the government maintains responsibility for the case. Do not expect the reduction in relator recoveries to dissuade whistleblowers from initiating qui tam actions, however, the opportunity for relators to share in an FCA recovery continues to serve as a strong incentive for individuals to blow the whistle.
Healthcare Fraud Remains A Primary FCA Focus
Healthcare fraud recoveries—including Medicare, Medicaid, and TRICARE fraud; violations of the physician Anti-Kickback statute; and settlements related to the Opioid Epidemic—continued to dominate the government’s overall fraud and FCA recoveries in FY 2023. Recoveries topped $1.8 Million for the year, which represents more than two-thirds of the overall recoveries. However, the total healthcare recoveries fell below $2 Billion for the third time in the last four years. Prior to that period, healthcare fraud recoveries had not dipped below $2 Billion since 2009. Notably, newly initiated healthcare fraud matters fell for the third straight year. Whistleblowers initiated fewer healthcare fraud matters in FY 2023 than in any year since 2009.
Over the course of the year, healthcare companies reached a number of eight-figure settlements in FCA cases that included allegations that a health insurance company submitted incorrect diagnosis codes to its Medicare Advantage Plan enrollees in order to increase Medicare payments; a long-term care facility billed for unnecessary services and procedures performed by unlicensed students; and healthcare providers that paid physicians above fair-market-value fees to induce those physicians to refer patients, among other cases.
Key Takeaways: While healthcare fraud was a major player in the government’s fraud and FCA recovery totals in FY 2023—and it will inevitably continue to be in the future—the fact that the number of newly initiated healthcare fraud matters is decreasing in recent years emphasizes that both the government and relators are focusing somewhat less on healthcare fraud and more on procurement-related and other types of fraud. Expect healthcare fraud settlement amounts to continue to slowly decrease over time as fewer matters are initiated and proceed through settlement or judgment.
One of the Largest Procurement Fraud Settlements Ever
Although the Annual Report does not track procurement fraud recoveries specifically, it does identify FCA recoveries from the Department of Defense (DOD), the Department of Health and Human Services (HHS) (the healthcare fraud recoveries identified above), and other agencies. Recoveries from the DOD and other agencies are often dominated by procurement fraud claims.
DOD recoveries reached approximately $552 Million in FY 2023, more than five times the recoveries in FY 2022, the third largest haul for DOD recoveries ever, and the largest recovery amount since FY 2006. Recoveries for other agencies (non-HHS and non-DOD) were approximately $320 Million in FY 2023, lower than each of FY 2021 and FY 2022.
Although the number of newly-initiated DOD FCA matters was generally in line with FY 2022, newly-initiated FCA matters from non-HHS and non-DOD agencies skyrocketed. A total of 702 new matters were initiated, compared to 426 in FY 2022, the previous fiscal year high.
In its press release, DOJ highlighted its $377 Million settlement with Booz Allen Hamilton Holding Corporation, which DOJ describes as “one of the largest procurement settlements ever.” The allegations against Booz Allen included claims that the company allocated costs associated with its non-governmental commercial and international contracts as indirect costs, thereby obtaining reimbursement from the government for non-governmental activities. DOJ also highlighted its settlement with LS3 Technologies, which paid a $21.8 Million settlement to resolve allegations that it billed the government twice for certain contract-related items.
Key Takeaways: As healthcare fraud recoveries and new matters slowly trend downward, procurement fraud recoveries and new matters increased. Government contractors, as prime targets of FCA investigations and whistleblower complaints, should be particularly vigilant in their compliance with regulatory, statutory, and contractual obligations to avoid becoming part of the FY 2024 report.
The FCA at the Supreme Court
Although not part of the Annual Report, the Supreme Court considered the FCA twice in FY 2023. As explained in a prior blog, on June 1, 2023, the Court decided United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc. In that consolidated case, the Court determined that an FCA-defendant’s subjective intent is a critical factor in deciding whether a defendant knowingly violated the FCA, a requirement for FCA liability.
Key Takeaways: The Schutte decision was widely seen as a win for whistleblowers because it will be more difficult for defendants to obtain early dismissal following the ruling. However, the case was not a total loss for defendants. The Schutte decision’s emphasis on subjective intent, however, gives well-meaning defendants an opportunity to avoid liability where their actions were taken in good faith and without knowledge of wrongdoing.
On June 16, 2023, the Court decided United States ex rel. Polansky v. Executive Health Resources. As explained in a recent blog, in that case, the Court held that a request by DOJ to dismiss a qui tam action should be considered in accordance with the standards set for Federal Rule of Civil Procedure 41. Although a relator’s interests should be considered, if the government offers a reasonable argument in support of dismissal, dismissal should be granted.
Key Takeaways: The Polansky decision was generally favorable for FCA defendants, as it affirmed DOJ’s ability to dismiss qui tam actions in appropriate circumstances. The decision offers an opportunity for FCA defendants to obtain dismissal of an action through alternative means by convincing DOJ that the suit is not in the government’s best interests, as opposed to the traditional means of motions to dismiss or motions for summary judgment. Polansky is notable for another reason. In a concurring opinion, Justice Clarence Thomas (joined by Justices Brett Kavanaugh and Amy Coney Barrett) called into question the constitutionality of the qui tam process, whereby a whistleblower may maintain a suit in the government’s name, even if the government does not intervene in the case. Look for this interesting constitutional issue to reach the Supreme Court within the next few years.
If you have questions about the Annual Report and potential impacts on your business or other FCA-related matters, please contact Matt Feinberg or another member of PilieroMazza’s False Claims Act or Audits & Investigations teams.
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