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Recoveries and settlements in False Claims Act (FCA) cases by the U.S. Department of Justice (DOJ) appear lower thus far in FY 2020 than FY 2019, but enforcement may be poised to rise dramatically as it follows spending related to the pandemic recovery and federal stimulus efforts. In January 2020, DOJ <a href="https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019">announced</a> that it had recovered more than $3 billion from settlements and judgments in FCA cases in FY 2019, with the majority in health care, but also including a significant amount in procurement and grant related cases.

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Thus far in FY 2020, health care FCA recoveries appear lower than last year but remain significant, with several blockbuster settlements announced in July. In FY 2020, government contract related FCA recoveries also appear lower than last year, which may be a result of a temporary shift in enforcement resource priorities during the pandemic. To the extent that overall FCA recoveries are lower in FY 2020, they may well rise in future years as current enforcement efforts initiate new cases relating to the pandemic and follow stimulus spending with the assistance of new oversight entities.

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Since March, DOJ enforcement efforts have included immediate actions related to health care, the pandemic response and funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). These efforts included a DOJ task force focused on price gouging and hoarding of personal protective equipment (PPE), DOJ’s direction to U.S. Attorneys’ offices to prioritize and prosecute criminal conduct related to the pandemic, and initial enforcement actions relating 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

DOJ’s FCA recoveries in FY 2020 continue, as in recent years, to be based primarily 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 (<a href="https://www.justice.gov/opa/pr/novartis-pays-over-642-million-settle-allegations-improper-payments-patients-and-physicians">July 1 DOJ announcement</a>).

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 (<a href="https://www.justice.gov/opa/pr/indivior-solutions-pleads-guilty-felony-charge-and-indivior-entities-agree-pay-600-million">July 24 DOJ announcement</a>).

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 (<a href="https://www.justice.gov/opa/pr/universal-health-services-inc-and-related-entities-pay-122-million-settle-false-claims-act">July 10 DOJ announcement</a>).

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 (<a href="https://www.justice.gov/opa/pr/oklahoma-city-hospital-management-company-and-physician-group-pay-723-million-settle-federal">July 8 DOJ announcement</a>).&nbsp;

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.

This year’s health care-related settlements illustrate the active and pre-existing government enforcement efforts relating to health care spending that will continue during and following the pandemic crisis and stimulus responses, which have led to increased government spending in the health care field as well as increased oversight and enforcement to track that spending.

DOJ’s FCA Government Contract Recoveries in FY 2020

While this year’s settlements relating to government contracts appear lower than last year in total, they continue to 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.

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.

DOJ settlements also illustrate new enforcement initiatives in legal areas overlapping with the FCA such as antitrust.&nbsp; On April 8, 2020, DOJ announced that a South Korea-based company had agreed to pay $2 million to settle civil antitrust and FCA violations for involvement in a bid-rigging conspiracy that involved contracts to supply fuel to U.S. military bases in South Korea. DOJ had previously reached civil settlements totaling over $205 million relating to the conspiracy. According to DOJ, these settlements reflect “the important role of both . . . the Clayton Act and the False Claims Act to ensure that the United States is compensated when it is the victim of anticompetitive conduct.”

Also relating to antitrust issues, 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.

DOJ enforcement efforts also have focused on government contracts in the health care field. 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.

DOJ’s FCA enforcement efforts have also encompassed commercial item sales under government contracts. In December 2019, DOJ announced that it had intervened in a whistleblower suit filed against a major government contractor that manufactured armored vehicles for the U.S. military. The suit alleged the company violated the FCA by submitting fraudulent invoices to support inflated prices for commercial parts under its contract.

DOJ enforcement efforts have also encompassed foreign military sales (FMS) as these sales have increased in recent years. In November 2019, a company agreed to pay $2.8 million and give up $16 million in potential administrative claims to settle allegations that it violated the FCA by fraudulently obtaining a foreign military sales contract reserved for American companies. The settlement resolved allegations that the company presented false claims to the government certifying that it was performing work as the prime contractor when, in fact, the work was performed by its parent company, which was a foreign company.

According to DOJ’s January 2020 <a href="https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019">press release</a> summarizing FY 2019, FCA recoveries since 1986 had by then totaled more than $62 billion. DOJ’s FCA cases are driven each year primarily by whistleblower filings, although DOJ has recently taken a more proactive approach to dismissing certain relator 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.&nbsp; DOJ reported that 633 qui tam suits were filed last fiscal year, averaging more than 12 new cases per week.

As has usually been the case in the last decade, most recoveries were in the health care field. Of the more than $3 billion in total recoveries in FY 2019, $2.6 billion related to the health care industry, encompassing drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories and physicians.

DOJ’s January 2020 release stated that in addition to combating health care fraud, the FCA “helps to protect our military and first responders by ensuring that government contractors provide equipment that is safe, effective, and cost efficient; to protect American businesses and workers by promoting compliance with customs laws, trade agreements, visa requirements, and small business protections; and to protect other critical government programs ranging from the provision of disaster relief funds to farming subsidies.”

Recoveries in Procurement and Grant Related Cases in FY 2019

In its January 2020 press release, DOJ detailed more than $380 million in recoveries from procurement and grant related cases in FY 2019. DOJ also reported more than $250 million in recoveries relating to the Department of Defense (DOD), the highest level since 2015.&nbsp; Last year’s cases relating to procurements and grants included cases involving antitrust violations; defective products; labor mischarging; mail delivery times; negotiations with GSA; misrepresentations in small business eligibility; and grant applications.

DOJ detailed the following procurement fraud and grant settlements in FY 2019:

Five South Korea-based companies that supplied fuel to the U.S. military in South Korea “agreed to resolve allegations that they engaged in anticompetitive conduct targeting contracts to supply fuel” and “made false statements to the government in connection with their agreement not to compete.” DOJ announced the five companies paid over $162 million as part of the FCA settlements. These cases, among others, led DOJ to form the new inter-agency Procurement Collusion Strike Force.

An aluminum manufacturer entered into a $34.6 million settlement with DOJ to resolve its civil liability for “causing a government contractor to invoice NASA and the Department of Defense’s Missile Defense Agency (MDA) for aluminum extrusions that did not comply with contract specifications.” According to DOJ, several of the rockets used by NASA crashed and the payloads they carried were lost. The company also resolved related criminal claims arising from the same conduct.

A government contractor paid more than $27 million to resolve allegations related to the billing of labor hours on communications contracts with the U.S. Air Force.

Two airlines reached settlements with DOJ for $22 million and $5.8 million respectively to resolve allegations that they falsely reported the times they transferred possession of U.S. mail to foreign postal administrators and other recipients, under contracts with the U.S. Postal Service.

A software development company paid $21.57 million to resolve allegations that it provided misleading information about its commercial sales practices during contract negotiations with the General Services Administration (GSA). The company “allegedly provided false information concerning its commercial discounting practices for its products and services to resellers, who then used that false information in negotiations with GSA for government-wide contracts.”

The majority owner and former CEO of a Virginia-based defense contractor paid $20 million to settle “allegations that he fraudulently obtained federal set-aside contracts reserved for small businesses that his company was ineligible to receive.” DOJ noted that in order to qualify as a small business, “companies must satisfy defined eligibility criteria, including requirements concerning size, ownership, and operational control.” DOJ alleged that the CEO caused the company to falsely represent that it qualified as a small business concern. DOJ had previously resolved related claims against the company itself for $16 million.

DOJ also highlighted cases relating to grants. A major university paid $112.5 million to resolve “allegations that it submitted applications and progress reports that contained falsified research on federal grants to the National Institutes of Health (NIH) and to the Environmental Protection Agency (EPA).”

DOJ’s settlements each year highlight the value, from both a law enforcement and corporate perspective, of a robust corporate compliance program, which may be viewed as a mandatory requirement and best practice for government contracting and management of federal funds in general.

DOJ’s settlements in FY 2020 and 2019, as well as its annual recovery statistics, serve as additional reminders that FCA enforcement is constant, and that corporations must take proactive measures to ensure that their compliance efforts also remain constant, robust, and effective.

Peter Kocoras 312.998.4241 <a href="mailto:Peter.Kocoras@ThompsonHine.com">Peter.Kocoras@ThompsonHine.com</a>

Tom Mason 202.263.4168 <a href="mailto:Thomas.Mason@ThompsonHine.com">Thomas.Mason@ThompsonHine.com</a>

Joan Meyer 202.263.4115 312.998.4240 <a href="mailto:Joan.Meyer@ThompsonHine.com">Joan.Meyer@ThompsonHine.com</a>

Sarah M. Hall 202.263.4192 <a href="mailto:Sarah.Hall@ThompsonHine.com">Sarah.Hall@ThompsonHine.com</a>

Joseph R. Berger 202.263.4193 <a href="mailto:Joseph.Berger@ThompsonHine.com">Joseph.Berger@ThompsonHine.com</a>

or any member of our <a href="https://www.thompsonhine.com/services/government-contracts-2">Government Contracts</a> or <a href="https://www.thompsonhine.com/services/white-collar-criminal-practice-internal-investigations-government-enforcement">Government Enforcement</a> groups.

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DOJ’s False Claims Act Recoveries in Fiscal Years 2020 and 2019

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