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False Claims Act Statistics, News & Analysis

  • 20
  • December
  • 2016

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Silver Linings for FY16: DOJ FCA Stats Tough on Pharma and Banks, but Defense Pipeline Narrowing

The Department of Justice released its annual FCA recovery statistics on Wednesday, touting over $4.7 billion in settlements and judgments for fiscal year 2016. Just after the numbers were released, on Lincoln’s Law Blog (LLB) we explored how these results compared to our projections, noting where our numbers deviated from DOJ’s and why. Now that the data sets have been updated and we have had a few days to reflect, today’s post takes a closer look at the numbers as a whole, how they fit into the big picture of FCA recoveries over the years, and what it could mean for FCA enforcement going forward.

Total Recoveries "Up and to the Right" – However Slightly

Generally speaking, FCA recoveries have been increasing each year since the 1986 amendments (which greatly – by design – eased the path to recovery for relators and the government), and also experienced a noticeable boost from the passage of Federal Emergency Relief Administration (FERA) in 2009. Yet the increase is uneven, punctuated by fits and starts of recoveries attributable to single blockbuster settlements in certain years – this year being no exception with the $1.2 billion Wells Fargo matter. Even with that boost, however, FY16 still came in at only the third highest year of the past five. Does this mean that recoveries have plateaued, with average recoveries hovering around or under the $4 billion mark? Time will tell, as likely there will be ever-increasing pressure, particularly in a new administration, for DOJ to justify the expenditure of resources on the civil fraud side. Further, the Yates Memo’s directives to pursue individual corporate wrongdoing and increase information sharing across the criminal and civil divisions may spur enforcement to new heights. The increase in penalties earlier this year (with another likely to come in January) is also sure to contribute to a growing recovery amount, even absent any change in DOJ tactics.

FCA_Total Recoveries_121916

Individuals Beware

The Yates Memo’s bite has already been felt as FCA recoveries from individual defendants have now become a category unto itself on the annual DOJ brag sheet. This year DOJ listed just over $47 million in recoveries from specific individuals in its press release. Strangely, that number includes a $4 million criminal restitution from defendant Jacob Kilgore. It is unclear why this recovery is included in DOJ’s total amount for FCA in FY16, which supposedly is limited to “settlements and judgments from civil cases.” If included by design, and not in error, the inclusion of criminal recoveries in the annual statistics could have a significant skewing effect on the overall numbers going forward.

Defense Recoveries Difficult to Define

Defense FCA recoveries are perhaps best characterized as “erratic.” The 10-year look-back demonstrates a landscape of peaks and valleys seemingly unaffected by the statutory amendments that served as signposts for the overall numbers. This year the field of defense recoveries contributed just $122 million to the overall total, less than half of last year’s recoveries – yet roughly double the annual recoveries for the two years preceding.


In order to discern any trends here, we look not to the dollar amount of recovery, but rather to the number of cases and investigations in the pipeline. According to DOJ’s numbers, there were only 39 new defense matters opened in FY16 (only 8 of which were direct, the remainder brought by relators). This is the lowest number in recent years, and reflects a general downward trend. In FY15 DOJ reported 43 new defense matters, 53 in FY14, 90 in FY13 and 75 in FY14. The decrease may reflect the military wind-down in Iraq and Afghanistan, though cases and investigations stemming from these military procurements could yet take several more years to resolve into recoveries. Further, increased military activity from large defense programs – and President-elect Trump’s promises to increase military spending – could signal tandem increases in FCA enforcement in this sector going forward.

Cases and Investigations Initiated Across All Categories

This decrease in defense sector cases bucks the overall trend, which has been fluctuating between 800-850 new matters initiated across all categories each year since 2012. The initiation of new matters hit an uncharacteristic nadir in FY15 with only 749 matters initiated, but otherwise there has been no consistent downward movement across the board. The pipeline of FCA matters therefore remains full – and given that years elapse between a case’s filing and its resolution, there is unlikely to be any significant fall-off in FCA enforcement in the next several years at least.

FCA_Total New Cases_121916

Health Care Recoveries Still Hard Hitting

As is now tradition, health care recoveries carried the lion’s share in FY16 by accounting for $2.6 billion of the year’s total. That eclipses last year’s recoveries by $500 million but is roughly on par with the two years preceding that. As reported by DOJ, the largest recoveries came out of the pharmaceutical and medical device industry, which together account for $1.2 billion. By our measurements, one can also identify concentrations of health care recoveries on a geographic scale – close to $1 billion of the total originated from the District of Massachusetts alone, spread out across 16 recoveries including the Wyeth and Pfizer Inc. medical device settlement highlighted in DOJ’s press release. The Southern District of New York pulled in another roughly half a billion dollars, making the northeastern region a heavy hitter for health care recoveries in FY16 (for more information about the geographic distribution of recoveries this year, see our detailed post about it here).

The magnitude of these recoveries should come as no surprise, particularly since the Affordable Care Act amended the FCA in 2010 to make it easier for whistleblowers to bring suit and to expand liability for health care violations. And unlike the other categories of recovery, health care spending is an entitlement program that is not particularly affected year-to-year. We as a nation continue to spend more on health care than any other in the world, and absent broader reform, FCA recovery in this sector is likely to remain robust.


"Other" Recoveries Holding Their Own

In FY16, $2.04 billion was recovered in the remaining bucket of “other” cases – that is, everything that is neither defense nor health care. Of that total, $1.6 billion comes from the mortgage industry and the vast majority comes from the single $1.2 billion Wells Fargo settlement. Aside from mortgage-related FCA cases, other notable recoveries also included the energy sector ($82.6 million alone from BP Exploration and Production Inc. for the Deepwater Horizon disaster) and education.

It is possible that as years pass from the 2007 mortgage “meltdown,” the flow of blockbuster settlements in this sector will dry up. However, DOJ (and the relator bar) likely will look far afield to try to keep this sector robust. For example, recoveries in the education sector from for-profit colleges are poised somewhat to fill the vacuum: in FY16 there were $79 million in recoveries here, and it appears to be picking up momentum as there are numerous education cases in progress now. Cases featuring eligibility conditions for federal education grants are at the forefront of litigation post-Escobar and could result in sizable recoveries for the government. Other sectors that receive grant funding outside of health and defense are poised for similar enforcement. Nevertheless, unless there is a major “bail out” as there was in the mortgage sector, it is hard to imagine multi-billion dollar recoveries in this sector in the years to come (unless there are still other blockbuster mortgage-related cases remaining in the pipeline).


So, What’s Next? 

With a new administration coming in January, it is natural to speculate as to the future of FCA enforcement. President-Elect Trump ran on a platform grounded in great part on a promise to repeal the Affordable Care Act. If such a repeal does come to pass, and were to include the FCA amendments as well, much of the ground gained in health care recoveries could be thrown out with the bath water. It is also no secret that Mr. Trump campaigned strongly on a business-friendly platform, which some speculate could result in a different set of priorities for DOJ going forward.

Thus far, we do not see it quite this way. FCA enforcement has historically been a relatively non-partisan matter, with support on both sides of the aisle (after all, long-time Republican Senator Charles Grassley has long been a champion of vigorous FCA enforcement). This is one reason that Senator Jeff Sessions – the President-Elect’s selection for Attorney General – is a bit of an FCA cypher. On the one hand, Senator Sessions was one of only three senators to refrain from voting for or against FERA, making him some small mystery on a topic upon which virtually the entire Congress had voiced an opinion. Yet, he also has advocated for health care fraud task forces in the past, and has been vocal about his desire to see FCA investigations concluded quickly and efficiently, as opposed to remaining under seal indefinitely. On the whole, given that the FCA continues to net the U.S. Treasury billions of dollars per year (and given the Commercial Litigation Branch Fraud Section has now amassed a small army of attorneys), we do not see it likely that Attorney General Sessions will put any considerable brakes on the FCA train.

Whatever the future holds, we will be here tracking it in real time on LLB. So continue to check back with us regularly to see what’s new, and watch the recoveries ticker continue its inevitable climb “up and to the right.”

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