Working for Justice

DOJ Has Released Its FY2017 “Fraud Statistics”: What the numbers tell us (and a few things they don’t reveal)

Posted January 5th, 2018 by in Whistleblower Law.

About two weeks ago, the U.S. Department of Justice issued a press release announcing more than $3.7 billion in settlements and judgments during fiscal year 2017[1] from civil cases brought under the False Claims Act – a federal law that rewards whistleblowers (called “relators”) who recover stolen taxpayer dollars from fraudsters.  The government’s press release attaches DOJ’s FY2017 “Fraud Statistics” charts, which document annual FCA recoveries over the past 30 years, since the Act was overhauled in 1986.  These charts not only provide overall year-by-year numbers, but they offer specifics regarding recoveries in the healthcare and defense industries – the arenas in which the government traditionally spends most of its dollars.  Whether we examine the numbers over time, or merely focus on the last fiscal year, DOJ’s fraud stats are striking.

DOJ reports that since FY1987, a total of about 17,000 cases have been filed under the federal False Claims Act.  Those cases have returned over $56 billion to the federal budget.  Most of those funds were recovered in recent years; in fact, for the eighth consecutive year, DOJ has reported FCA recoveries exceeding $3 billion – a true testament to the effectiveness of the law, which was further amended and strengthened in 2009 and again in 2010.  As remarkable as those numbers are, they do not tell the entire story.  Today, 30 states and the District of Columbia have enacted FCA laws of their own.  These state laws allow for coordinated, multi-state FCA cases that recover both federal and state Medicaid dollars.  DOJ’s fraud statistics do not include any of these recoveries.  Similarly, since DOJ’s statistics only discuss the government’s recoveries under the civil False Claims Act, related recoveries for criminal penalties and/or restitution are not included.  DOJ’s extraordinary $56 billion figure actually underreports the overall success of the FCA over the past 30 years.  What else do DOJ’s stats tell us?

1. Healthcare Fraud Still Predominates

When the False Claims Act was overhauled in 1986, the country was still reeling from reports of rampant wasteful military spending, including notorious accounts of the Pentagon paying $500 for hammers and $600 for toilet seats.  Correspondingly, most of the FCA cases filed in the first several years of the “modern FCA” focused on fraud within the defense industry.  But by the mid-1990s, healthcare fraud cases had taken over, and that change has remained constant ever since.  Since that time, between 200 and 500 healthcare fraud cases were filed annually, while fewer than 100 defense contractor fraud cases were filed each year.  The remaining cases involve other types of fraud, including frauds involving the government’s procurement of goods and services; frauds by financial institutions on government-backed loans; fraudulent applications for government grant funds; and frauds on other government programs.  Not only are more healthcare fraud cases filed than are other fraud cases, but also healthcare fraud cases have generated the greatest recoveries – more than $36 billion since 1987 and nearly $2.5 billion in FY2017 alone.  In fact, recoveries from healthcare fraud cases have exceeded $2 billion in each of the past eight years.  The past twenty years strongly suggest that the healthcare industry will continue to drive the government’s FCA recoveries going forward.

2. Whistleblowers Still Lead The Way

For the past two decades, the number of FCA cases filed by whistleblowers—called “qui tam” cases—has consistently dwarfed those filed by the Department of Justice itself.  Of the 17,000 FCA cases that have been filed under the modern Act, about 12,000 were filed by whistleblowers and their qui tam lawyers.  Last year, whistleblowers filed 674 FCA cases, compared to only 125 cases filed by the government.  Not surprisingly, the vast majority of FCA recoveries—about 93% last year—have come from cases initiated by whistleblowers.  DOJ’s press release notes:

‘Because those who defraud the government often hide their misconduct from public view, whistleblowers are often essential to uncovering the truth,’ said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division.  ‘The Department’s recoveries this past year continue to reflect the valuable role that private parties can play in the government’s effort to combat false claims concerning government contracts and programs.’

While DOJ’s fraud statistics do not reveal how often the government chooses to join whistleblowers’ cases and bring its own resources to bear, the numbers clearly show that, year after year, the overwhelming majority of recoveries come from whistleblower cases in which the government has intervened.[2]  Of the $3.7 billion recovered last year, more than $3 billion came from intervened whistleblower cases, while about $425 million came from cases whistleblowers and their whistleblower attorneys pursued on their own after the government declined to intervene; the remaining $265 million in recoveries came from cases the government initiated itself.  Overall, more than $40 billion of the $56 billion recovered came from whistleblower cases – with about $38 billion of that total coming from cases which the government joined.  Certainly, whistleblowers have been handsomely rewarded for their efforts, collectively receiving awards totaling more than $6.5 billion – about 16% of the $40 billion recovered as a result of their whistleblowing.  However, last year, whistleblowers received about $400 million in rewards, which was less than 12% of the $3.4 billion in recoveries their cases produced.  The numbers do not reveal why whistleblower awards paid last fiscal year dropped below the 15% minimum “finder’s fee” that generally applies.[3]

The FCA Transcends Partisan Politics

DOJ’s fraud statistics show that the goal of fighting fraud on taxpayer dollars resonates with Democrats and Republicans alike.  Notably, President Reagan signed the modern Act into law, and more recently, President Obama signed legislation that again substantially improved the statute.  Over the past three decades—and throughout the Reagan; George H.W. Bush; Clinton; George W. Bush; Obama; and now Trump Presidential administrations—the success of the FCA has remained constant, and the government’s recoveries have steadily increased.  As long as whistleblowers remain incentivized to expose fraud and level playing fields, the public-private partnership which the FCA encourages and fosters between private individuals and the Department of Justice will continue to thrive – regardless of politics.

Footnotes

[1] The federal government’s fiscal year runs from October 1 through September 30.

[2] Even if the government initially declines to intervene in a whistleblower lawsuit, the FCA permits the government to monitor the proceedings and to “intervene at a later date upon a showing of good cause.”  31 U.S.C. § 3730(c)(3).  As a result, the government often declines to intervene at the outset, but subsequently intervenes as cases get closer to settlement, which contributes to a very high success rate in intervened cases.

[3] Under the FCA, a successful whistleblower is generally entitled to a share of the government’s recovery from his/her qui tam lawsuit.  If the government intervened in the case, then the whistleblower’s reward will range from between 15% and 25% of the government’s recovery.  If the government declines to intervene in the suit, then that range moves to between 25% and 30% of the government’s recovery.  See 31 U.S.C. §§ 3730 (d)(1) and (2).  However, whistleblower rewards may drop below the 15% minimum under certain circumstances, including: (1) if the qui tam lawsuit was primarily based on information that had already been publicly disclosed – in which case the whistleblower’s reward is capped at 10% of the government’s recovery; (2) if the whistleblower actually “planned and initiated” the fraud that his/her qui tam lawsuit exposed – in which case the court is authorized to reduce (or even eliminate) the whistleblower’s reward, in its discretion; and (3) if the whistleblower has been criminally convicted in connection with the fraud he/she disclosed – in which case the whistleblower is ineligible for a reward.  See id. at §§ 3730(d)(1) and (3).

Sanford Heisler Sharp, LLP

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