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DOJ Stats Show Dip in Fraud Recoveries in ’20, but Signs Point to Impending Rise in False Claims Act Litigation 

by Pablo J. Davis

Published: January, 2021

Submission: January, 2021

 



The U.S. Department of Justice (DOJ) has just released its annual statistical overview[1] of False Claims Act (FCA) and other fraud actions for Fiscal Year 2020 (FY2020)[2], and the numbers tell a mixed story. The total of just over $2.2 billion in settlements and judgments represents a decline of more than one-quarter in recoveries from FY2019,[3] likely reflecting workforce, logistical, and judicial impacts of the COVID-19 pandemic. At the same time, an all-time record number of new matters opened, coupled with dramatic waves of federal pandemic-related spending, suggest an imminent surge in FCA investigations and litigation is likely.


Trends in Recoveries


The decline in recoveries in FY2020 mirrors similar dips around previous economic downturns. The Great Recession saw recoveries decline by over half (55.7 percent) from FY2006 to FY2008, and a single-year decrease of 33.4 percent occurred from FY2001 to FY2002. By comparison, the 27.7 percent FY2020 decrease was somewhat less severe.


The DOJ’s statistics showed just over three-quarters (75.6 percent) of recovered funds, or $1.7 billion, came from qui tam actions—lawsuits initiated by private whistleblower plaintiffs, or “relators.” The overwhelming majority (88.6 percent) of those qui tam recoveries, in turn, came in actions where the DOJ intervened or otherwise pursued the action. The investigative and prosecutorial resources of the government are crucial: all told, recoveries in actions either initiated by, or joined by, the government accounted for 91.3 percent of all settlements and judgments in fraud cases in FY2020, and 92.4 percent in cases related to military procurement in particular.


Total awards to relators declined for the third time in the past four years, totaling $309.4 million in FY2020. Relative to all recoveries, however, the share going to relators reached its highest level since 2015, at 18.4 percent. A relator’s entitlement in an action is based on various statutory factors, and in most circumstances ranges from under 10 percent to as high as 30 percent of funds recovered.[4]


At 83.3 percent, health care fraud continued to account for the lion’s share of FCA recoveries, though declining for the second straight year from the historic high set in FY2018. Settlements and judgments relating to U.S. Department of Health and Human Services (HHS) contracts accounted for $1.86 billion.


Surge in New Matters and COVID-19 Spending


The number of new matters opened in FY2020 has no precedent in the 35 years covered by the DOJ’s fraud recovery statistics, which reach back to October 1986. Newly received referrals, investigations, and qui tam actions—the three categories of new matters—exceeded 900 for the first time, with the fiscal-year total of 922 representing an increase of 15 percent over FY2019. The previous high, 859, came in 2016.


Given the lengthy nature of investigation and litigation in FCA and other fraud cases, growing numbers of new matters are likely to be a leading—rather than immediate—indicator of increased litigation and recoveries to come. Within the overall increase in new matters in FY2020, matters opened by the government jumped a remarkable 68.9 percent.


Large-scale federal government expenditures pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), along with other pandemic-related spending, are widely expected to lead to a significant volume of alleged FCA fraud. Indeed, the jump in new matters in FY2020 may already be reflecting this trend. The DOJ has indicated it is keenly aware of the potential for fraud in obtaining or spending pandemic-related federal funds, a key point made by Principal Deputy Assistant Attorney General Ethan Davis in remarks to the U.S. Chamber of Commerce in June.[5]



[1] U.S. Department of Justice, Justice Department Recovers Over $2.2 Billion from False Claims Act Cases in Fiscal Year 2020 (Jan. 14, 2020), https://www.justice.gov/opa/pr/justice-department-recovers-over-22-billion-false-claims-act-cases-fiscal-year-2020; the statistical overview, DOJ, Civil Division, Fraud Statistics – Overview, October 1, 1986 – September 30, 2020, is linked from the press release, or can be accessed directly at https://www.justice.gov/opa/press-release/file/1354316/download. All statistics cited in this article regarding recoveries and matters opened are drawn or derived from data in the overview tables.


[2] Oct. 1, 2019–Sept. 30, 2020.


[3] The decline may be somewhat greater than these figures indicate, because beginning in October 2019, the figures for non-qui tam recoveries now include recoveries in matters separately handled by the U.S. Attorneys’ Offices when those recoveries have been reported to the DOJ’s Civil Division; previously, the Civil Division did not maintain data regarding settlements and judgments obtained by prosecutions carried out in U.S. Attorneys’ Offices. See Fraud Statistics – Overview, https://www.justice.gov/opa/press-release/file/1354316/download.


[4] 31 U.S.C. § 3730(d)(1)–(2).


[5] Speech to the Institute for Legal Reform, U.S. Chamber of Commerce (June 26, 2020), https://www.justice.gov/civil/speech/principal-deputy-assistant-attorney-general-ethan-p-davis-delivers-remarks-false-claims.


 



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