The Growth of the False Claims Act in 2021

Bill Nettles – Law Office of Bill Nettles – https://billnettleslaw.com/

In January 2021, President Biden was sworn into office. A new administration means new staff, new bills being introduced, and countless other changes. Amongst these changes, the False Claims Act and its enforcement are being discussed as an unprecedented year moves forward. 

The False Claims Act, or FCA, is a federal statute setting criminal and civil penalties for falsely billing the government, over-representing the amount of a delivered product, or under-stating an obligation to the government. The Department of Justice (DOJ), Attorney General, or private individuals in a qui tam proceeding are responsible for enforcing the FCA. What has been the most enforced in the previous fiscal year—and what future trends of FCA enforcement will look like—are all current topics of interest. 

In the years between 2017 and 2020, FCA enforcement was the most active period in the act’s history (as measured by the number of open claims). This trend is said to have no signs of slowing as we enter a new fiscal year with a new president. Over the previous four years, the DOJ recovered approximately $11.4 billion in judgments and settlements, making it the third highest amount recovered in a four-year term. 

 

The 2020 Fiscal Year 

In 2020, approximately $2.2 billion was recovered by the DOJ, becoming the lowest total recovered since 2008. Additionally, it marked a decrease of over 27%, from approximately $3.08 billion recovered in the 2019 fiscal year. At face value, these numbers seem to indicate that FCA enforcement has dramatically decreased. Even recoveries from the healthcare industry—usually a very reliable source of collections and historically the top target for the FCA—were down to $1.86 billion in the 2020 fiscal year from $2.6 billion in 2019. However, looking past the initial recovery numbers, there was a substantial increase in the total number of new FCA matters filed: from 786 new matters filed in 2019, to 922 new matters docketed in 2020. 

Despite the decrease in 2020 FCA recoveries, the increased number of 2020 filings and the recoveries after the close of the 2020 fiscal year indicate that the FCA has continued its enforcement and investigative focus. Efforts to utilize the FCA to root out fraud against the government are steadily growing, and it is very likely that vigorous FCA enforcement will go into 2021 and beyond. 

The decrease in total FCA recoveries in the 2020 fiscal year was not due to a lack of interest in pursuing FCA initiatives. Instead, the reduced recoveries can likely be attributed to the challenges brought on by the global pandemic. These challenges include business closures and regulations related to the coronavirus pandemic, delays in proceedings, and impediments to conducting investigations. Many of these claims were likely pushed beyond the 2020 fiscal year into the current fiscal year. 

 

The FCA and Healthcare

The Biden Administration will likely follow previous trends of FCA regulation and enforcement. FCA enforcement is usually dedicated to a few industries, the largest being healthcare. During the period between 2017 and 2020, the healthcare industry made up about eighty percent of the total claims. 

With recent developments, a special interest and emphasis has arisen on addressing the opioid crisis. Since the FCA was deployed to combat the crisis, a number of high-profile settlements were discovered with pharmaceutical companies involved in practices that encourage physicians to prescribe their opioid products.

The False Claims Act is believed to be a vehicle in combating schemes that contribute to rising drug prices as well. Some of these cases have included claims against pharmaceutical companies that allegedly cover the co-payments of Medicaid beneficiaries in violation of the Drug Rebate Statute. The DOJ has also pursued recent claims against pharmacies allegedly inflating drug prices reimbursed by federal programs. 

 

Cybersecurity

In addition to maintaining a watchful eye on the healthcare industry, a large part of enforcement is believed to be dedicated to cybersecurity threats. The Department of Justice seems to have a particular interest in cybersecurity as an industry for pursuing new FCA claims. 

The recent damage from the Solar Winds hack brought these threats to light, as firms now look to make their security tighter than ever. Firms should be focused on ensuring their cybersecurity systems and controls are sufficiently robust. Managing technological and cyber risks was a key focus in January 2020 and will likely continue moving forward. 

The appointment of Lisa Monaco as Deputy Attorney General strongly indicates that cyber security investigation and enforcement represents an area of particular concern to the Biden Administration. 

 

The Coronavirus Pandemic

The global coronavirus pandemic has created a new set of challenges in many industries. In regards to FCA enforcement, it is expected that there will be a dramatic increase in FCA claims for COVID-19 business and relief-related fraud. The unprecedented increase in government relief for businesses in the form of PPP loans (amongst other forms of relief) is believed to have created a great number of opportunities for fraud. 

 

Market Abuse

Market abuse has been a topic of discussion during the global pandemic. The risks of market abuse have been undoubtedly heightened even prior to the pandemic. Market abuse risk surveillance is more important now than ever during the new work from home environment. This has given the FCA reason enough to set its focus on market abuse, which is expected to continue in the future. The expectations the FCA will require firms to do include: 

• Continuously update market abuse risk assessments brought about by changes to working environments.
• Consider the changing nature of what constitutes inside information–for example, knowledge of whether a company has utilized the furlough scheme.
• Regularly review insider lists.
• Update policies, refresh training, and put in place rigorous oversight processes reflecting the new environment.

 

Enforcement Strategies 

A recent tactic of the DOJ in enforcing the FCA has been to actively seek dismissal of frivolous qui tam claims under 31 U.S.C. § 3730(c)(2)(A). This approach is in large part due to the “Granston Memo” issued by the previous Director of the Fraud Section Michael Granston in 2018. In his memo, he indicated that government attorneys handling FCA claims should seek a dismissal of qui tam actions if it is in the best interest of the government. 

There are certain factors that one must consider for a dismissal to be beneficial to the government, including the government’s interests in curbing meritless qui tams, preventing parasitic or opportunistic qui tam actions, and preserving government resources. Since the release of this memo, the number of cases dismissed under these terms has more than doubled. 

The Biden Administration has not made any official comments on the efficacy of this strategy and if it plans to continue to use it. However, the administration’s priorities have since seemed very closely aligned with, and conformed to, previous Department of Justice priorities that were addressed in Mr. Granston’s memo. President Biden released The Biden Plan to End the Opioid Crisis during his campaign, which demands accountability from those he believes responsible for the opioid crisis, including pharmaceutical companies. 

President Biden’s plan indicates that under his administration, he will direct the DOJ to continue to take actionable steps within the healthcare industry that have allegedly caused the opioid crisis to become a top enforcement priority. This strategy seems to closely mirror the FCA’s actions that are already underway with the DOJ in the last four years. 

 

Other Industries Targeted by the FCA

Although these industries are the primary focus of FCA enforcement, they are not the only ones being targeted. The FCA and DOJ are expected to expand the industries targeted for investigation and enforcement. This expansion is reflected in the FCA recoveries secured by the DOJ in cases involving the following alleged schemes: 

• Bid-rigging in an auction to purchase nonperforming loans from the U.S. Department of Energy; 
• Fraudulent billing of inflated labor hours and purported work performed to construct and maintain a waste treatment plant;
• Improper reporting in connection with National Institutes of Health-funded research grants for time spent on non-grant-related activities;
• Improperly obtaining Federal Housing Administration insurance for a mortgage to develop a hospital and using loans in violation of FHA requirements; and
• False claims for reimbursement by state agencies in connection with their administration of the Supplemental Nutrition Assistance Program, previously known as the Food Stamp Program.

The Department of Justice shows no slowing down in the coming year in enforcing claims made to the FCA. Under the Biden Administration, it is clear that many industries will be targeted and enforcement will remain a top priority. Thus, companies and individuals must remain on high alert to minimize the risk and likelihood of being targeted by the FCA.