Recoveries and settlements in False Claims Act (FCA) cases by the U.S. Department of Justice (DOJ) have accelerated in recent months and appear to be poised to rise dramatically as DOJ follows spending related to the pandemic recovery and federal stimulus efforts and bring additional resources to bear. Thus far in FY 2020 (which closes at the end of this month), health care FCA recoveries take up the lion’s share of these recoveries, although other types of federal spending have also led to significant recoveries.
Since March, DOJ enforcement efforts have resulted in quick actions related to health care, the pandemic response, and funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). DOJ has launched a task force focused on price gouging and hoarding of personal protective equipment (PPE), and DOJ has directed U.S. Attorneys’ offices to prioritize and prosecute criminal conduct related to pandemic spending, including fraud connected to the CARES Act’s Paycheck Protection Program.
The CARES Act created additional oversight authority residing with the Special Inspector General for Pandemic Recovery (“SIGPR”) and the Pandemic Response Accountability Committee (“PRAC”) composed of federal Offices of Inspector General. These new enforcement entities will provide additional oversight of federal funds to prevent and detect fraud, waste, abuse and mismanagement, which in turn may lead to additional enforcement actions by DOJ.
DOJ’s FCA Health Care Recoveries in FY 2020
As in recent years, a majority of DOJ’s FCA recoveries in FY 2020 have been in the health care field. Several of the year’s largest settlements were announced in July, as stated by DOJ:
- A pharmaceutical company agreed to pay more than $642 million in settlements, resolving claims that it violated the FCA regarding the company’s alleged illegal use of foundations as conduits to pay the copayments of Medicare patients, and alleged payments of kickbacks to doctors (July 1 DOJ announcement).
- A health care company and its parent companies agreed to pay a total of $600 million to resolve criminal and civil liability associated with the marketing of an opioid-addiction-treatment drug (July 24 DOJ announcement).
- A major health services company and related care centers agreed to pay $122 million to resolve allegations of billing for medically unnecessary inpatient behavioral health services and paying illegal inducements to federal healthcare beneficiaries (July 10 DOJ announcement).
- A specialty hospital in Oklahoma and a related management company and physician group agreed to pay $72.3 million to resolve allegations of improper relationships between the hospital and the physicians group, in violation of the Stark Law or “physician self-referral law,” resulting in violations of the FCA (July 8 DOJ announcement).
DOJ announced additional multimillion-dollar settlements in the health care field throughout the year. For example, on September 9, 2020, DOJ announced that a West Virginia hospital agreed to pay $50 million to resolve allegations concerning the Stark Law and Anti-Kickback Statute. And, in April, two testing laboratories agreed to pay $43 million and $41 million respectively to resolve allegations of medically unnecessary tests.
DOJ also reached settlements in the nursing home industry, which will face new scrutiny relating to the pandemic response and pre-existing DOJ initiatives. On July 13, 2020, DOJ announced that a nursing home management company and 27 affiliated facilities had agreed to pay $16.7 million to resolve allegations that they submitted false claims to Medicare for rehabilitation therapy services that were not reasonable or necessary. In April and February, health services companies agreed to pay $10 million and $9.5 million respectively, to resolve similar allegations.
On April 6, 2020, DOJ announced that a biopharmaceutical company based in Georgia that manufactures human tissue grafts would pay $6.5 million to resolve allegations that it submitted false commercial pricing disclosures to the U.S. Department of Veterans Affairs (VA). On March 12, 2020, DOJ announced that a Cincinnati-based company would pay $1.85 million to resolve allegations that it failed to schedule veterans’ medical appointments in a timely manner at two outpatient clinics, resulting in the submission of false claims to the VA.
Finally, earlier this month, DOJ announced a $10 million recovery from The Scripps Research institute, which settled claims that it had improperly charged NIH-funded research grants for time spent by researchers on non-grant related activities, including writing new grant applications.
DOJ’s FCA Government Contract Recoveries in FY 2020
This year’s settlements relating to government contracts illustrate the many enforcement perils to companies that violate laws or regulations during their performance of government contracts. For example:
Contract Specifications and Substandard Materials
On June 16, 2020, DOJ announced that a company had paid $10.9 million to resolve allegations it had sold substandard steel components for use by other contractors on U.S. Navy vessels and that a company employee had falsified test results for the components.
On September 10, 2020, DOJ announced that an asphalt contractor had agreed to pay $4.5 million to settle claims that it violated the FCA by misrepresenting the materials in the asphalt mix that it was using to pave federally funded roads in Indiana. These settlements illustrate the potential application of the federal FCA when substandard materials are provided in the federal supply chain, or whenever federal funds are involved.
Enforcement efforts relating to disaster relief and government actions in response to the current pandemic may be expected based on similar enforcement that has followed past disaster recovery funding. On June 3, 2020, DOJ announced that it had intervened in a whistleblower lawsuit against an engineering company and certain disaster relief applicants, alleging that they submitted false claims to the Federal Emergency Management Agency (FEMA) for the repair or replacement of facilities damaged by Hurricane Katrina. DOJ announced that a university in Louisiana had agreed to pay $12 million to resolve related allegations.
Small Business Contracting
DOJ settlements each year also illustrate the perils to companies that violate small business contracting rules. On June 2, 2020, DOJ announced that a Tulsa, Oklahoma-based construction contractor had agreed to pay $2.8 million to settle allegations that it had improperly obtained federal set-aside contracts reserved for disadvantaged small businesses. And, on May 27, 2020, DOJ announced that an Illinois construction company had agreed to pay $1 million to resolve allegations that it had misrepresented its use of a small disadvantaged business to obtain a federally-funded construction contract.
Collusion and Bribery
In January 2020, several companies agreed to pay $29 million to resolve allegations that they violated the FCA by colluding to rig the bidding of an auction to purchase a U.S. Department of Energy’s non-performing loan to other companies. The government alleged that the defendants exerted pressure on the two other competing bidders to suppress their bids during the live auction.
And earlier this month, on September 15, DOJ announced that QuantaDyn Corporation and its CEO resolved criminal and False Claims Act liability from allegations that they engaged in a bribery scheme to steer government contracts for training simulators to the company. The company paid nearly $38 million in restitution, and its CEO separately paid $500,000 to resolve his personal FCA liability.
The Value of Corporate Compliance
The False Claims Act is a potent weapon for the government in its policing federal spending, contracts and grants. A final tally of DOJ’s FCA recoveries for the fiscal year will not be available for some time, but as of the end of the last fiscal year DOJ reported that FCA recoveries since 1986 totaled more than $62 billion. Each year, DOJ’s FCA cases are driven primarily by whistleblower filings. In January 2020, DOJ reported that of the $3 billion in recoveries in FCA cases in FY 2019, more than $2.1 billion were from lawsuits filed by relators under the FCA’s qui tam provisions, and during the same period, the government paid out $265 million to whistleblowers. DOJ reported that 633 qui tam suits were filed last fiscal year, averaging more than 12 new cases per week.
DOJ’s settlements each year highlight the value, from both a law enforcement and corporate perspective, of a robust corporate compliance program. Such a program is mandatory for anyone involved in the receipt of federal funds. FCA enforcement is constant and corporations must take proactive measures to ensure that their compliance efforts also remain constant, robust, and effective.