Digging Into FCA Stats: Part 3 – Litigation’s Return on Investment

Litigation associate Ralph C. Mayrell published this three-part series on the False Claims Act in Law360, Digging Into FCA Stats.

Every year, the U.S. Department of Justice issues a press release touting the billions it recovered from health care providers, government contractors, and others through lawsuits and investigations brought pursuant to the False Claims Act. FCA practitioners race to report those statistics and read the tea leaves.

But the DOJ’s annual press release lacks details that in-house counsel need to evaluate and budget for FCA litigation risk. It also does not reveal changes in how FCA cases are being litigated or the costs FCA cases impose on defendants.

This three-part article looks beyond the billions of dollars in aggregate recoveries to provide detailed statistics about the trajectory and outcome of the typical FCA case, using data obtained from the DOJ’s internal system for tracking FCA cases. We obtained this data by submitting a Freedom of Information Act to the DOJ.

The data includes unsealed cases that were resolved — i.e., dismissed, settled or taken to judgment — between January 2009 and June 2020, combined with case information from the Federal Judicial Center’s Integrated Database of Civil and Appellate Cases. This data makes it possible to answer questions about the course and outcome of the typical FCA case.^[1]

The first article addresses factors that affect in-house budgeting for FCA litigation: How long do FCA cases typically take to litigate? How often do FCA defendants prevail and do the odds change as cases progress? And how much do defendants pay to end FCA cases?

The second article discusses FCA litigation trends over the past decade: Has the DOJ decided to intervene and take over litigation in qui tam cases brought by private relators more or less often? Are cases taking more or less time to litigate after they are unsealed? Are defendants prevailing more or less often? Are defendants that settle paying more or less to resolve their cases?

The third article evaluates the outsized cost of FCA cases that the government leaves to private relators to pursue: How often do those cases end in recovery, and how much do defendants pay? How much time do defendants and courts collectively devote to these cases? And what is the government’s return on investment?

How much time do defendants collectively devote to FCA cases?

Only 7% of the government’s recovery from qui tam cases over the past decade came from declined cases, and in the declined cases in which relators managed to recover anything, 60% of the time it was for $1 million or less. Yet declined qui tam cases make up the bulk of FCA cases and the lion’s share of litigation effort for defendants and courts.

One measure of the cost to industry of FCA litigation, and of declined qui tam cases specifically, is how much time defendants spent litigating these cases. In the past decade, the data shows that defendants collectively spent 18,886 years involved in FCA cases from the time the complaint was filed to some form of resolution, whether settlement, judgment for the government, or dismissal.

Most of that time — about 17,270 years — was for qui tam cases. Of that, nearly a third, about 6,000 years, were for time spent after the qui tam cases were unsealed and transitioned from sealed investigations to unsealed civil litigation. And of that, 4,862 years related to declined qui tam cases. That is a tremendous amount of time that defense contractors, health care providers and others devoted to FCA litigation.

How much effort do courts spend on FCA cases?

Just like parties, courts are burdened by declined FCA cases. By combining the data from the DOJ FOIA request with the Federal Judicial Center’s integrated database of all civil and appellate cases, it is possible to obtain some visibility, albeit limited, into what work courts are having to do to resolve these cases.^[2]

One metric of the courts’ effort is how many cases were closed at least once based on a court’s decision on a motion to dismiss or motion for summary judgment: At least 490 cases — four-fifths of which were declined cases — were resolved on a motion. The DOJ reported recovering nothing for most of those cases.

And this likely understates the actual burden of motions practice because it reflects only the motions that were ultimately dispositive. Westlaw Edge legal analytics show that for all FCA cases in that database, courts decided nearly 1,900 motions to dismiss in the 2009 to mid-2020 period (nearly 60% for defendants), and nearly 300 summary judgment motions (about 50% for defendants).

Another measure of work for the courts is trials. Trials of FCA cases are extremely rare and extremely time-consuming for courts. And, as it turns out, despite the workload trials impose on the parties and the court, relators rarely prevail. Using the combined DOJ FOIA and IDB data, there were 33 jury trials for qui tam cases, 28 of which were declined qui tam cases. Relators obtained recoveries for the government in only four of those declined qui tam cases that went to trial.

The burden of the FCA cases also falls on appellate courts. In the combined DOJ FOIA and IDB data, 422 of the cases were appealed, many more than once. Of those appeals, 87% (or 367 cases) were declined qui tam cases, and it appears, to the extent data is available, that two-thirds of those cases ended in affirmance. Moreover, 90% of declined qui tam cases that were appealed ended in no recovery for the government.

What is the return on investment?

The majority the time spent by industry and courts litigating FCA cases is devoted to cases that are eventually dismissed, whether on a motion by the defendant or, rarely, the government, or voluntarily by the relators.

In qui tam cases that are unsealed and litigated past the first month after unsealing, two-thirds of the time was spent on cases that ended in dismissal rather than recovery for the government. That ratio is worse still for declined cases, where 80% of the time (3,700 years) spent on cases after they were unsealed was for cases in which the government recovered nothing. In those cases, nobody benefited.

The return on investment for society and the government from the pursuit of declined qui tam cases is questionable. For every year a declined qui tam case was pending, and presumably litigated, after unsealing, the government recovered on average only $700,000. And for every year these cases were pending from complaint to resolution, including when they were under seal, the government recovered only $326,000.

By contrast, for intervened cases that continue beyond the first month after they were unsealed, the return on investment for the government was $19.6 million per year after unsealing, and for direct cases $5.8 million was recovered per year after the case began.

The poor return on investment for declined cases varies significantly by the client agency. For declined qui tam claims in health care cases, the average recovery per year of active litigation is $1.2 million. By contrast, for declined cases outside of health care, the return on investment plummets to $161,000 per year.

Conclusion

The policy behind the FCA is meant to encourage whistleblowers to bring forward allegations of fraud and to create incentives for relators to pursue litigation that the government decides is not worth its own effort.

While certainly there are high-profile examples of very large recoveries in declined qui tam cases, the lack of recoveries for most declined cases suggests that most of the time, when the DOJ declined to intervene, it did so for good reason: Those cases were weak. Yet relators and their counsel have an incentive to keep pushing for a payday, and so hundreds of these cases are litigated far longer than they should be at great expense, only to fail to recover any substantial recovery.

The DOJ, in the so-called Granston Memorandum^[3] in 2018, said that it intended to more carefully police weaker qui tam cases by using its dismissal power. Last December, Deputy Attorney General Michael Granston in a speech before an American Bar Association conference said that the DOJ invoked its authority to dismiss about 50 qui tam cases.^[4]

While certainly helpful for the defendants in those cases, that is a drop in the bucket out of the hundreds of qui tam cases filed each year and the hundreds of declined qui tam cases involved in pending litigation that will take years to litigate but don’t really pay off for the government.

The implication is clear: To maximize the return on investment in the FCA and minimize the impact on industry and courts, the DOJ needs to increase its monitoring, and where appropriate its dismissal, of weaker, declined qui tam cases.

^[1] _{While this data is informative, it has important limitations. The DOJ’s data has obvious quality and consistency problems, and the DOJ omitted certain data. For example, the data is inconsistent in how it tracks the timelines for some cases with multiple defendants, and it has incomplete or inaccurate docket information for many cases, which makes it challenging to link the DOJ’s data to other data sources. Also, the scope of the data pull does not include cases that were sealed or remained pending as of June 2020, or cases that had not been reported to the DOJ Civil for tracking as of June 2020. Furthermore, the process of cleaning and structuring this data required judgment calls. We have endeavored to report statistics in a way that is not significantly affected by those judgments. That said, the statistics reported in this article are meant to be informational only. They are not and cannot be definitive and may not apply to any specific case, which will turn on the specific facts and law that apply to that case.}

^[2] _{A word of caution: Because of limitations in the DOJ FOIA data, it was only possible to link the DOJ FOIA data and the IDB data for a subset of cases. Also, the IDB data itself is known to have significant data quality issues of its own. For both the litigated qui tam cases and declined cases this article focuses on, there is IDB data for about 87% of cases, however, which is sufficient for purposes of this discussion.}

^[3] _{Memorandum from Michael Granston, Director of the Commercial Litigation Branch, Fraud Section (Jan. 10, 2018), https://www.insidethefca.com/wp-content/uploads/sites/300/2018/12/Granston-Memo.pdf.}

^[4] _{Remarks of Deputy Assistant Attorney General Michael D. Granston at the ABA Civil False Claims Act and Qui Tam Enforcement Institute (Dec. 2, 2020), https://www.justice.gov/opa/speech/remarks-deputy-assistant-attorney-general-michael-d-granston-aba-civil-false-claims-act.}