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By Dr. Seth B. Whitelaw and William Sarraille[1]

The U.S. Department of Justice (“DOJ”) annually releases False Claims Act (“FCA”) statistics for the previous fiscal year.  Given the potential liability attached to FCA violations and the limited available guidance issued by the federal government to advise stakeholders of the government’s regulatory positions,[2] healthcare attorneys and compliance professionals pour over the data to glean insights on the government’s anti-fraud enforcement efforts and ways to improve their compliance programs.  However, uncovering those insights necessitates going beyond the highlights in the Justice Department’s press release and requires examining the underlying details, which we do here.

Key Points

  • Total recoveries were an impressive $2.68 billion, a 16.4% increase over the prior year, built on 543 resolutions with an average value of approximately $4.94 million.
  • Without a “blockbuster” resolution driving the FY 2023 aggregate total, the statistics reflect a high level of government and relator counsel activity, but at a lower resolution value.
  • Medicare Advantage fraud and abuse issues, including unsubstantiated diagnoses to support risk adjustment payments, emerged as an even more prominent area of the DOJ’s FCA focus.
  • Even though DOJ cited relatively small settlements and resolutions from FY 2023, it restated its prioritization of FCA matters involving “unnecessary services and substandard care.”
  • Although the summary involves less discussion of drug makers than in prior years, drug manufacturers were prominently referenced in the DOJ’s summary of its ongoing efforts to address the opioid epidemic.

Background on the FCA

Since its enactment in 1863 to combat fraudulent vendors supplying the Union Army,[3] the Federal False Claims Act (“FCA”) has become a potent tool in the government’s arsenal to address waste, fraud, and abuse in federal healthcare programs (e.g., Medicare, Medicaid, the Children’s Health Insurance Program, and the Veteran Administration’s Tricare Program).  The FCA provides a mechanism to recover funds paid by the government under circumstances that the government or a relator, acting on behalf of the government, contend were “false” or “fraudulent.”[4]  In addition to recouping the funds paid, the statute allows the government to impose fines of up to $27,894 per submitted claim and recover treble damages.[5]

Top Line Synopsis

All Categories

On February 22, 2024, the DOJ announced that the total FCA recoveries for FY 2023 exceeded $2.68 billion.[6] Although FY 2023 recoveries increased by 16.4%, fluctuations in the recovery amounts have remained in a narrow range since 2018 (see Figure 1).[7] This includes the recoveries in FY 2021 when adjusted for the record $3.03 billion in prescription opioid settlements.

The results for FY 2023 are particularly impressive because the aggregate total is not supported by one or more large resolutions that disproportionately contributed to the aggregate total.  Where the largest single resolution identified in the FY 2023 statistics was the $172 million resolution involving Cigna Group’s Medicare Advantage-based settlement, statistics for other years have been dominated by one or more resolutions with a disproportionate impact.  In addition to the opioid global settlement in FY 2021 reflected in Figure 1, the FY 2020 aggregate of $2.26 billion was significantly the product of a Novartis Pharmaceutical Corporation settlement of $591 million and an additional $39 million criminal forfeiture in a speaker program-related case.[8]

Figure 1: FCA Settlements & Recoveries by Fiscal Year (All Categories)

According to DOJ, the $2.68 billion recovered resulted from 543 resolutions, “the highest number of settlements and judgments in a single year.”[9] Again, this statistic shows the relative activity of both DOJ and relators’ counsel and emphasizes the aggregate’s impressive nature, driven by the number of resolutions rather than one or more large settlements.

The FY 2023 FCA settlements and recoveries averaged approximately $4.94 million due to the impact of a higher number of resolutions without any “blockbuster” contributor.  Compared to the FY 2022 average, the FY 2023 average reflects a decrease of $1.32 million ($4.94 million versus $6.26 million).

Healthcare

Like previous years, most FY 2023 FCA settlements and recoveries involved healthcare, approximately 1.81 billion or 68% of the total. The DOJ press release also noted that these figures excluded “additional amounts” recovered “for state Medicaid programs,” with that figure not provided.[10]

The FY 2023 healthcare settlements and recoveries of approximately $1.81 billion were slightly higher (+2.8%) than the prior year’s, at $1.76 billion. However, the healthcare settlements and recoveries were lower (-16.0%) than in FY 2021, when they were approximately $2 billion (Figure 2).

Figure 2: FCA Settlements & Recoveries by Fiscal Year (Healthcare)

Figure 3 highlights the relative contribution of healthcare settlements and recoveries compared to other FCA settlements and recoveries since FY 2010.

Figure 3: FCA Settlements & Recoveries, FY 2010-2023

The high level of healthcare contribution to the FCA totals in FY 2023 is not surprising, given that national healthcare expenditures (including Medicare, Medicaid, and other federal programs) topped $4.5 trillion in 2022, or 17.3% of the nation’s Gross Domestic Product (“GDP”). [11]  Nor is the FCA focus on health care likely to change, as the Centers for Medicare and Medicaid Services (“CMS”) project an average growth rate of 5.4% through 2031.[12]  Moreover, a pattern has emerged that, although FCA recoveries are declining, the contribution of healthcare recoveries to the total is increasing (Figure 4).

Figure 4: FCA Settlement & Recoveries Trend, FY 2010-2023 (*excludes FY 2021 opioid settlements)

Therefore, healthcare false claims will remain a DOJ priority in FY 2024 and beyond.  The DOJ’s press release reinforced that point, emphasizing that healthcare settlements and recoveries were the single largest contributors to the aggregate total.  DOJ also highlighted those settlements and resolutions involving “managed care providers, hospitals, pharmacies, laboratories, long-term acute care facilities, and physicians”.

Whistleblowers

The statistics also highlight the continuing importance of whistleblowers in the DOJ’s antifraud efforts.  When examining the types of new matters (new referrals, investigations, and qui tam actions) across all categories, almost 59% involved whistleblowers (712 of 1,212).[13] However, in healthcare FCA cases, that percentage increased to almost 79%.

Moreover, in FY 2023, whistleblower cases accounted for over 87% of the government’s healthcare recoveries ($1.58 of $1.81 billion).  Although the number of non-qui tam as compared to qui-tam new matters varies over time, whistleblower cases as a percentage of the total have remained remarkably consistent over the past four fiscal years (see Figure 5).  The high percentage of whistleblower cases in the total feeds industry concerns that whistleblower counsels substantially shape enforcement practices and positions, though they have no government authority.

Figure 5: Non-Qui Tam and Qui Tam New Matters by Fiscal Year

However, the impact of whistleblower counsel exceeds their role in generating cases.  Although responsible for 79% of cases in FY 2023, whistleblower settlements and recoveries in healthcare matters accounted for over 87% of the government’s total ($1.58 of $1.81 billion).  This percentage is a decline of 6% from FY 2022 (93% of settlements and recoveries in 2022 involved whistleblowers) but an 8% increase over FY 2020 (79% of settlements and recoveries in 2020 involved whistleblowers).  Thus, regardless of the specific percentage in a specific year, it is clear that DOJ continues to rely heavily on private plaintiffs for a large share of its FCA successes.

Focus Areas in Healthcare

In addition to providing the raw statistics for FY 2023, the Justice Department’s announcement outlined several areas of focus.  Except for the opioid epidemic, the recent announcement generally highlighted the same areas as the DOJ’s FY 2022 announcement.[14] However, the discussion of Medicare Advantage issues was markedly more prominent this year, as compared to the prior year, and the discussion of pharmaceutical manufacturers, which has eased in recent years, was reduced even further this year.   Notwithstanding the reduction in the relative discussion of pharmaceutical manufacturers, the DOJ summary still included a significant focus on drug makers in the context of a discussion of the DOJ’s ongoing enforcement efforts to address the opioid epidemic.[15]

Medicare Advantage

The press release clarifies that the first and most prominent focus area for DOJ under the FCA involves Medicare Advantage. To demonstrate that focus, DOJ highlighted its $172 million settlement with Cigna Group and a $22.5 million settlement with Martin’s Point Health Care, Inc.

The Justice Department’s discussion of the Cigna matter was unusually pointed.  For example, the DOJ stressed that Cigna “knowingly submitted and failed to withdraw inaccurate and untruthful diagnosis codes” collected from chart reviews.[16] It also accused Cigna of engaging in “home visits” that resulted in “improperly reported diagnosis codes” without a clinical basis.  DOJ asserted that Cigna engaged in these activities to increase its payments from the Medicare program.

In Martin’s Point Healthcare, DOJ alleged that the company “knowingly submitted inaccurate diagnosis codes … that were not supported by the patient’s medical records.”[17] Here again, the government asserted that the plan did so to increase Medicare reimbursements.

Beyond the pointed language about Cigna’s and Martin’s Point Healthcare’s alleged conduct, this press release is unusual in two additional respects.  First, although DOJ has discussed settlements in the past, making a single case that represents less than 10% of total recoveries a prime focus is atypical.  Second, the press release referenced other ongoing Medicare Advantage cases involving UnitedHealth, Independent Health, Elevance (formerly Anthem), and Kaiser.  Highlighting ongoing litigation is particularly unusual in a year-end summary like this, especially where the active cases are highly contested.  The extensive discussion of Medicare Advantage cases signals that this program will be a significant priority in future years.

Unnecessary Services and Substandard Care

DOJ used relatively small settlements involving Cornerstone Hospital Medical Center, Smart Pharmacy, Inc., and Saratoga Center Rehabilitation and Skilled Nursing Care ($21.6, $7.4, and $7.6 million, respectively) to make a point about an area of significant focus.

The Smart Pharmacy settlement has a drug overlay.  According to the government, the defendants were crushing aripiprazole tablets, an antipsychotic drug, and adding them to topical compounded pain creams to create an enhanced pain treatment.  However, the government contended that the use of aripiprazole in this fashion lacked a ”clinical basis,” and,  by doing so, the defendants had improperly increased their federal healthcare reimbursements,  as Medicare Part D and TRICARE reimburse pharmacies for ingredients in compounded drugs.[18]  Although charged with various FCA violations, including the inappropriate waiver of patient copays, the defendants were not charged with any federal Food, Drug, and Cosmetic Act violations.

The other cited examples of unnecessary and substandard care included Cornerstone Hospital Medical Center, a long-term acute care facility, which the government asserted “knowingly submitted claims for services performed by unlicensed and unauthorized students” and for services “not provided or effectively worthless.”[19]  DOJ alleged that Saratoga Center for Rehabilitation and Skilled Nursing Care and its operators and owners had delivered “worthless services to residents, resulting in medication errors, unnecessary falls, and … pressure ulcers”.[20]

Prescription Opioids

In its FY 2023 FCA activity summary, DOJ highlighted its intervention in an FCA case involving prescription opioids and Rite Aid.  The case, brought by three former Rite Aid employees, alleges that the pharmacy chain “knowingly dispensed controlled substances outside the usual course of the professional practice of pharmacy and without a legitimate medical purpose and billed government healthcare programs for the fraudulently dispensed prescriptions.”[21]  In June 2023, Rite Aid filed a two-part motion to dismiss the government’s action, but the case continues grinding through the courts.[22]

In addition, DOJ highlighted that it had submitted a proof of claim in the Endo Health Solutions, Inc. Chapter 11 bankruptcy action.[23] The government alleges there, as it previously had with Purdue Pharma, that Endo caused the submission of false and fraudulent claims in connection with the sale of opioids.  Specifically, the government asserted that Endo was responsible for false claims involving its opioid product, Opana ER.  The government alleged that Endo’s marketing efforts had resulted in “hundreds of millions of dollars in losses to federal health care programs” through its use of “an aggressive marketing scheme” that targeted high prescribers, including “many prescribers Endo knew were prescribing Opana ER or other opioids for non-medically accepted indications.”[24]

By highlighting these two cases, the Justice Department quite clearly signaled that it is not finished with its efforts to hold various parties, including opioid manufacturers, accountable.  However, the breadth of those efforts remains unclear, as this section of the summary, unlike the Medicare Advantage section, did not reference ongoing matters that have not been resolved.

Kickbacks and Other Healthcare Fraud

The recent DOJ press release also highlights numerous schemes involving kickbacks and healthcare fraud.  Of particular relevance to life sciences companies, several of the alleged schemes involved laboratory services and electronic health records (EHR).

The two EHR cases (Modernizing Medicine Inc. and NextGen Healthcare Inc.) involved allegations of kickbacks provided to the companies in exchange for their systems recommending specific products and services.  In many respects, these fact patterns are analogous to Purdue Pharma and Practice Fusion’s alleged scheme reported in 2020.[25] Although four years have elapsed since these earlier resolutions and the current settlements, the use of electronic health records systems remains a key area of DOJ focus, with significant exposure for life sciences companies.

Companies should take steps to ensure that arrangements with EHR providers receive appropriate compliance and legal review as a risk mitigation measure. In many ways, the risks identified in the EHR context might provide a window into the issues likely to materialize as artificial intelligence emerges.  Interestingly, the DOJ summary does not reference artificial intelligence (“AI”), and the fraud and abuse risk it is likely to generate.

The laboratory services cases generally center around kickbacks for referrals and false certifications, with a significant focus on imaging services.  The Modern Vascular case involved allegations of kickbacks to referring physicians for peripheral arterial disease services, including in the form of “the opportunity to invest in … office-based labs with the prospect of large monetary distributions.”[26] Cardiac Imaging, Inc. involved allegations of kickbacks to cardiologists in the form of “above-fair market value supervision fees” for cardiac imaging and PET studies.[27]  Carter Healthcare LLC focused on allegations of kickbacks “under the guise of medical directorships.”[28]  BioTelemetry Inc., in an example of a non-kickback-based case, was alleged to have submitted claims for heart monitoring services where those studies were “evaluated, in part, … offshore.”[29]

Conclusion

In many respects, the FY 2023 FCA statistics from the DOJ highlight continuing trends from previous years.  For example, healthcare remains the primary source of recoveries, which is unlikely to change in the foreseeable future.  DOJ’s summary reinforces the importance of making appropriate investments in compliance programs and compliance initiatives.

Likewise, whistleblower claims continue to generate the bulk of the government’s FCA recoveries.  Although preventing whistleblowers from raising claims is impossible, companies should redouble their compliance efforts to ensure that reports of potential misconduct are thoroughly investigated and remediated; where appropriate, the outcomes and actions taken are communicated to the reporters; and steps are taken to avoid perceived retaliation against those reporting potential misconduct.  These actions can help to reduce the chances that good-faith reporters will not pursue the issues they have raised in court.

Finally, where the conduct described by DOJ appears to resemble company activities, compliance professionals should review the specific press releases and other source documents to understand the context and the government’s specific concerns.


[1] Dr. Whitelaw is the Senior Fellow and Adjunct Professor of Life Science Compliance at Mitchell Hamline School of Law, the President & CEO of Whitelaw Compliance Group, LLC., and an Adjunct Professor at St. Joseph’s University, Haub School of Business.  Mr. Sarraille is the Founder of Sarraille & Associates, a regulatory, compliance, and policy consultancy, and an Adjunct Professor at the University of Maryland Francis King Carey School of Law.  The views expressed in this article are solely those of the authors and do not reflect those of any employers or clients.

[2] This problem is referred to as the issue of “regulation by enforcement”.  Although the Administrative Procedure Act contemplates that regulation that operates to change the substantive rights of stakeholders must, in the normal course, be the product of notice and comment regulation, those requirements are often honored only in the breach in the healthcare context.  5 U.S.C. Section 551, et seq. Federal law enforcement often “fills the gaps” present in federal regulation through its enforcement efforts.

[3] See James B. Helmer, Jr., False Claims Act:  Incentivizing Integrity for 150 Years for Rogues, Privateers, Parasites, and Patriots, 8 U. Cin. L. Rev., 1262, 1264-66 (2013).

[4] 31 U.S.C. §§ 3729(a-f); see also 31 U.S.C. § 3730(a).  The FCA also authorizes actions to collect funds owed to the government and fraudulently avoided, excluding taxes.  31 U.S.C. §§ 3729(a)(1)(G) and3729(c).

[5] 31 U.S.C. § 3729(a); see Civil Monetary Penalties Inflation Adjustments for 2024, 89 Fed. Reg. 9764 (Feb. 12, 2024).

[6] See Press Release, Off. of Pub. Affs., U.S. Dep’t of Justice, False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023 (Feb. 22, 2024), https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023 [hereinafter “DOJ Press Release”].

[7] See U.S. Dep’t of Justice, Civil Div., Fraud Statistics – Overview, Oct. 1, 1986 – Sept. 30, 2023, https://www.justice.gov/opa/media/1339306/dl?inline (last accessed Feb. 24, 2024) [hereinafter “DOJ Fraud Statistics”].

[8] The Cigna resolution contributed just 6.6% percent to the FY 2023 total, whereas the Novartis resolution, just using the FCA settlement figure, contributed 26.2% to the FY 2020 total, or more than four times the impact of Cigna to the respective aggregates.

[9] See DOJ Press Release, supra n. 6.

[10] See DOJ Press Release, supra n. 6.

[11] See Ctrs. for Medicare & Medicaid Srvs., NHE Fact Sheet, https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet (last updated Dec. 13, 2023).

[12] See id.

[13] See DOJ Fraud Statistics, supra n. 7.

[14] See DOJ Press Release, supra n. 6. But cf. Press Release, Off. of Pub. Affs., U.S. Dep’t of Justice, False Claims Act Settlements and Judgments Exceed $2 Billion in Fiscal Year 2022 (Feb. 7, 2022), https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-2-billion-fiscal-year-2022.

[15] The relative decline in rhetorical focus on pharmaceutical manufacturers does not, however, mean that DOJ and whistleblower counsel do not continue to be significantly focused on drug makers.  Indeed, in the Office of the Inspector General for the Department of Health and Human Services budget justification, released shortly after the DO=J FCA summary, OIG emphasized that the “high costs of prescription drugs” remained a primary area of focus.  `HHS-OIG, Fiscal Year 2025 Justification of Estimat3s for Congress, at 2 ((Mar. 2023).

[16] See DOJ Press Release, supra n. 6.

[17] See id.

[18] See Press Release, Off. of Pub. Affs., U.S. Dep’t of Justice, Two Jacksonville Compounding Pharmacies and Their Owner Agree to Pay at Least $7.4 Million to Resolve False Claims Act Allegations (June 15, 2023), https://www.justice.gov/opa/pr/two-jacksonville-compounding-pharmacies-and-their-owner-agree-pay-least-74-million-resolve.

[19] See DOJ Press Release, supra, at 6.

[20] Id.

[21] See Baron & Budd, Department of Justice Intervenes in Baron & Budd Whistleblower Lawsuit Against Rite Aid, BusinessWire (Jan. 13, 2023), https://www.businesswire.com/news/home/20230113005449/en/; see also Adam Ferrise, U.S. Justice Department intervenes in Cleveland whistleblower lawsuit that accuses Rite Aid of illegally distributing opioids, Cleveland.com (Jan. 2, 2023), https://www.cleveland.com/court-justice/2023/01/us-justice-department-intervenes-in-cleveland-whistleblower-lawsuit-that-accuses-rite-aid-of-illegally-distributing-opioids.html.

[22] See Memorandum of Law in Support of Rite Aid Corporation’s Motion to Dismiss, United States of America, ex. rel. White, et al. v. Rite Aid Corp., et al., Case: 1:21-cv-01239-CEF, Doc #: 57-1 (N.D. Ohio June 12, 2023); Memorandum of Law in Support of Rite Aid’s Omnibus Motion to Dismiss, United States of America, ex. rel. White, et al. v. Rite Aid Corp., et al., Case: 1:21-cv-01239-CEF, Doc #: 56-1 (N.D. Ohio June 12, 2023).

[23] See DOJ Press Release, supra n. 6.

[24] See id. On February 9, 2024, shortly after the release of the FY 2023 report, DOJ announced a global resolution with Endo International PLC and other Endo entities for $464.9 million, as well as $1.086 billion in criminal fines and $450 million in criminal forfeitures. See Press Release, U.S. Att’ys Off., S.D. N.Y., United States Reaches Settlement Of Law Enforcement, Tax, And Healthcare Cost Claims In Endo International Bankruptcy Case (Feb. 29, 2024), https://www.justice.gov/usao-sdny/pr/united-states-reaches-settlement-law-enforcement-tax-and-healthcare-cost-claims-endo.

[25] See Press Release, Off. of Pub. Affs., U.S. Dep’t of Justice, Electronic Health Records Vendor to Pay $145 Million to Resolve Criminal and Civil Investigations (Jan. 27, 2020), https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-145-million-resolve-criminal-and-civil-investigations-0.

[26] See DOJ Press Release, supra, at 6.

[27] Id.

[28] Id.

[29] Id.