Digging Into FCA Stats: Part I – In-House Litigation Budget Insights

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?

Refresher on the FCA

Practically any company, nonprofit or individual that does business with the government or receives federal funds, whether directly or indirectly, is at risk for FCA liability. The FCA enables the federal government to recover funds it paid out as a result of fraud, which is expansively understood by plaintiffs, the government and some courts to include not only bribes and kickbacks, but also technical regulatory violations, breaches of contract and disagreements over the medical judgments of physicians.

Defendants face liability of up to three times the amount of any overpayment, plus fines and attorneys’ fees — not to mention their own legal expenses. A finding of FCA liability can also result in suspension and debarment from government contracting or grants.

Most FCA cases are brought by private individuals, often defendants’ former employees, who file qui tam complaints as relators on behalf of the U.S. in exchange for a share of the government’s recovery.

When filed, qui tam cases remain under seal to allow the DOJ time to investigate the allegations and elect whether to intervene, taking over litigation of the case once it is unsealed, or decline, leaving it to the relator to litigate. Once the DOJ makes that decision, the case is unsealed, the complaint is served on the defendant and litigation proceeds as in any civil litigation.

The DOJ also brings FCA cases directly as a result of government investigations.

How long does an FCA case take to litigate?

Depending on the approach taken by the DOJ to investigating the allegations in a qui tam complaint, a defendant may learn about a case any time from soon after it is filed to years later when the complaint is unsealed and served. While every case is unique, the data shows that the typical defendant in a qui tam action can expect a case against it to remain under seal for a little under two years while the DOJ undertakes its investigation.

If the case proceeds to litigation and is unsealed, the typical defendant will spend one or two more years in litigation, i.e., motions practice, discovery and — rarely — trial. Many defendants, however, can expect both the sealed investigation and subsequent public litigation to drag on for years longer.

First, looking at the sealed investigation phase, a majority of qui tam cases were unsealed within the first two years after the complaint was filed, with 28% unsealed in their first year and 31% in their second year.

The remaining 41% of qui tam cases remained sealed more than two years, and 12% of cases remained sealed more than four years.

Unsurprisingly, the longer a case was sealed and the longer the DOJ investigated, the more likely it was that the DOJ eventually intervened: The average case in its first year under seal had a 26% chance of the DOJ eventually deciding to intervene, a 35% chance in its second year, a nearly 50% chance in its third year and up from there.

Over a quarter of qui tam cases were resolved — whether through settlement or dismissal — either while the case was under seal or within a month after unsealing, many times as a result of an agreement reached while the case was sealed, and presumably prior to the defendant’s filing an answer or a motion to dismiss.

The remaining qui tam cases transitioned from investigation defense to litigation defense. Among these qui tam cases that continued past the first month after unsealing, half were resolved within one year of unsealing, potentially prior to significant discovery, a fifth in the second year, 16% in the third or fourth year and 12% were litigated more than four years after unsealing.

How will an FCA case likely end?

Early in a case, before the facts and legal theories are developed — and both sides’ appetites for litigation versus settlement are understood — it can be difficult for in-house counsel to assess the chances of prevailing in FCA litigation.

The data is consistent with the understanding FCA practitioners have long held: Defendants almost always settle if the DOJ intervenes and almost always prevail if the DOJ declines. And, on average, the DOJ declines to intervene in about three-fourths of cases — setting aside cases that were dismissed by relators prior to the DOJ’s intervention decision.

Among qui tam cases as a whole, nearly three-fourths were resolved with defendants paying nothing to the government. Unsurprisingly, the outcomes were especially favorable for defendants when the government declined to intervene, with 90% ending with no recovery for the government.

When the government chose to intervene, the percentages flipped against defendants, with 90% of cases ending in settlement or judgment for the government. Defendants fared slightly better in cases brought directly by the DOJ, with only 77% of cases ending in settlement or judgment.^[2]

The longer a case continued after unsealing, the worse the outcome for defendants. The average qui tam case in its first year of litigation after unsealing had a 73% chance of eventually ending with no recovery. By year two, the average defendant’s odds of avoiding a payment to the government fell to 65%, and in years three and four the average defendant had only a 62% chance.

Countervailing forces drive these numbers. On one hand, in the intervened cases that transitioned from sealed investigation to unsealed litigation, the odds of a defendant eventually prevailing nearly doubled from 11% in the first year after unsealing to 19% by the fourth year.

On the other hand, in declined cases, the average defendant’s chances of defeating the relator and avoiding paying the government fell from 86% in the first year to 77% in the second, to 73% in years three and four.

What do FCA defendants pay to settle?

Beyond accounting for the chances of avoiding any payout at all, assessing the risk also requires in-house counsel to assign a value to that risk. The data makes clear that most settlements paid under the FCA are relatively small ones, and that most of the DOJ’s multibillion-dollar annual reported recovery is driven by a few blockbuster settlements.

In qui tam cases where defendants eventually settled with the government or a court entered a judgment against the defendant, 40% ended in a payment of a million or less, and nearly 70% of cases ended in a payment of $5 million or less. The real money is in the big cases.

Among qui tam cases that ended in a recovery, the top 30% of qui tam cases by payment amount ended in a payment of more than $5 million, and 7% paid over $50 million. Intervened qui tam cases have slightly fewer low-dollar payments below $1 million, and a slightly higher proportion of recoveries for larger amounts.

Cases brought directly by the DOJ have a somewhat lower proportion of recoveries below $5 million and a larger proportion of recoveries between $5 and $100 million. Defendants fared significantly better in declined cases, with 61% of cases ending in a recovery of $1 million or less, though a few cases still ended with payments over $50 million.

Lastly, as with the outcomes of cases, the settlement amounts also increased the longer a case was litigated after unsealing. Half of all qui tam cases that settled before or within a month of unsealing ended with a payment of $1.5 million or less.

That median payment crept up as time passed. Half of cases resolved at some point during or after the second year of unsealed litigation ended with the defendant paying $1.7 million, and which increased to $2.5 million for cases settled year after year three, and $2.9 million for cases resolved in or after years four or five.

This trend was even more pronounced in the cases among the top quarter of the largest settlements — these defendants paid at least $4.8 million for cases resolved in the first year after unsealing, which jumped to at least $7.9 million in the second year and at least $15 million for cases that continued on after the third year.

Conclusion

Every case will be driven by its facts and the motivation of the government, relators, relators counsel and defendants to litigate versus settle, and by how eager each side is to resolve the matter quickly. Yet, the statistics in this article can supplement risk assessment, budgeting and negotiating possible resolutions to FCA cases.

It is also possible to be even more granular with the data and assess, for a particular case, the typical timing and outcome of FCA cases in the relevant jurisdiction and with a specific contracting agency. Especially early in the case, as facts continue to be investigated by both the defendant and the government, this data allows a defendant to better assess what life as an FCA defendant may look like.

^[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] _{There are two potential data issues related to the direct cases. First, the number of direct cases noted as resolved in the data are much lower than the number of cases the DOJ’s press releases indicate were initiated. The cause of this difference is unclear, though it may be that the DOJ did not provide statistics about investigations that were never made public but did include that data in its press release statistics. Second, the data includes a number of recent direct cases that are listed as settled, but with no recovery amount. Because the DOJ evidently believed that it had obtained some recovery, even if perhaps no monetary recovery, we have included those among cases the settlement category rather than the no recovery category.}