The U.S. Department of Justice (DOJ) recently issued its annual press release summarizing fraud-related recoveries from False Claims Act (FCA) matters in the prior fiscal year. While the headline number for FY 2020 of $2.2 billion in settlements and judgments involving fraud and false claims against the government is down about $900 million from the average annual recoveries over the prior three years, a deeper look at the underlying statistics and macro trends suggests an upswing in False Claims Act matters, particularly non qui tam (whistleblower) cases, and suggests that an increase in government fraud-related recoveries are likely in future years.
Two factors that were unique to 2020 and not indicative of a longer-term downward trend in FCA prosecutions were likely key drivers of the lower value of FCA recoveries. The $2.2 billion in FCA-related settlements and judgments recovered in FY 2020 represent a significant decrease from FY 2019 and the prior five years of such settlements and judgments. Healthcare fraud related civil recoveries were $1.9 billion in FY 2020, a decrease of around 25% from the prior 3-year average of approximately $2.4 billion per year. As indicated in the press release, these are strong numbers “in the face of a nationwide pandemic” that caused significant interruptions to operations, delayed courtroom proceedings and hindered investigators’ ability to conduct witness interviews and take oral testimony. Also distorting the statistics were two large settlements highlighted in the DOJ press release that did not become effective until early-FY 2021. The first, a $3 billion settlement with a pharmaceutical company (and several individuals), which manufactured opioids, was finalized three weeks after the end of FY 2020, on October 21, 2020. The second, a $600 million settlement ($300 million of which was paid to resolve civil allegations) with a pharmaceutical company that sold an opioid addiction treatment drug, was reached in July 2020, but did not become effective until November 2020. The net effect of the pandemic-related delays and these two large settlements executed in early-FY 2021 is a slightly-deflated FY 2020 total recovery. A corresponding bump for FY 2021 recoveries is likely though the longer-term indicators suggest a durable uptick in FCA activity.
Several trends gleaned from the statistics that DOJ published with its annual press release, as well as two important political macro-factors that tend to cause an increase in fraud-related prosecutions, suggest that FCA recoveries are likely to climb in future years. In terms of the statistics, more informative than the top-line recovery numbers, which tend to fluctuate from year-to-year due to a handful of large “blockbuster” settlements, are the new matter numbers, which are usually more stable from one year to the next. That was not the case in FY 2020, however, which saw significant increases in new matters, particularly non qui tam investigations initiated by the government. In FY 2020 there were 922 new matters, an increase of almost 20% over the prior 3-year average of 796 new matters per year. 573 of those new matters in FY 2020 were healthcare–related, a roughly 10% increase from the prior 3-year average of 521 new healthcare matters per year. Of note, the majority of those increases were attributable to a sharp growth in non qui tam matters, which totaled 250 in FY 2020, an almost 80% increase over the prior 3-year average of 140 new non qui tam matters per year. The growth was even more pronounced for healthcare related non qui tam matters, which climbed to 117, up a whopping 205% from the prior 3-year average of 57 new healthcare non qui tam matters per year.
This increase in government initiated non qui tam investigations follows a concerted, years-long effort at DOJ and its client agencies to be more proactive in combatting fraud using sophisticated data mining tools, as opposed to merely reacting to qui tam suits brought by whistleblowers. This has particular significance for clients as non qui tam matters have a significantly higher average recovery than qui tam matters. For example, from 2017-2019, the average recovery per new qui tam matter was about $3.8 million, while the average recovery per new non qui tam matter was about $4.6 million, a 20% difference. (The net recovery for the government is even greater in non qui tam matters since DOJ does not need to pay a relator share in those cases.) Given the increase in new matters, particularly government initiated ones, clients should expect to see an uptick in FCA prosecutions and recoveries in the next few years.
Also likely to increase recoveries in the next few years are two overriding political factors. The first is the recent change in administration with the attendant promise of increased enforcement efforts. Historically, fraud enforcement activity tends to tick up after a Democratic administration replaces a Republican one. Indeed, the Biden administration through its early picks to lead the SEC and CFPB has telegraphed its intent to crack down on corporate fraud. The second macro-factor likely to drive up fraud-enforcement prosecutions and recoveries is the spending associated with the COVID-19 pandemic, particularly in the healthcare sector. Past crisis-driven spending has led to increased FCA activity and recoveries in subsequent years. That trend is likely to be magnified in the coming years since the COVID-related relief programs have somewhat vague qualification requirements. Moreover, the Corona Virus Aid, Relief, and Economic Security Act (CARES Act) itself created oversight and enforcement mechanisms that raise risks for businesses that participated in those programs.
Beyond the overall likely increase in FCA cases and recoveries in future years, DOJ has identified several specific priority areas of healthcare enforcement. Those include:
- Opioids– The opioid epidemic continues to inflict significant harm on the country. According to the Centers for Disease Control and Prevention (CDC), there was a 38% increase in opioid-related overdose deaths in the 12-months ending in May 2020, as compared to the prior 12-month period. COVID-19 and the resulting disruptions to daily life has accelerated those trends. DOJ enforcement activity has likewise increased and as indicated by recent settlements and news articles, the focus is expanding beyond those entities in the supply chain (manufacturers, distributors, pharmacies) to include companies with a tangential connection to the sale and distribution of opioids, such as electronic medical record companies and consulting firms. For example, the DOJ press release highlighted a $145 million settlement in FY 2020 with a health information technology developer that allegedly accepted kickbacks in exchange for implementing alerts in its software designed to prompt providers to increase certain prescriptions. In another more recent example, just last week a consulting firm reached a $600 million settlement agreement with 49 states related to sales and promotion advice provided by the firm to several opioid manufacturers.
- Elder Care– Long running efforts at DOJ to combat elder fraud and abuse, particularly that committed by nursing home and at-home care providers, are likely to be bolstered by the combination of pandemic-related funding given to elder-care providers as well as the increased scrutiny arising from the high COVID-19 case and death counts associated with nursing homes and their patient populations. This increased enforcement risk comes at a time when nursing homes are being heavily impacted by higher costs to combat the spread of COVID-19 in their facilities and lower occupancy rates.
- Medicare Part C– Enrollment in Medicare Part C continues to climb, with almost a third of current Medicare beneficiaries opting out of traditional fee for service Medicare Parts A and B in favor of Medicare Advantage Organization (MAO) plans. In 2019, payment to MAOs totaled approximately $250 billion. DOJ has reached several major FCA resolutions with MAO plans and Part C providers in recent years and communicated recently that it expects more to come in the near future. DOJ also has pending suits or open investigations against several of the largest MAO plans and continues to aggressively pursue risk-sharing providers alleged to have submitted false diagnoses, thereby artificially inflating reimbursement from Medicare.
Please contact the authors if you have any questions about these trends and their potential impact on your business.
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