DOJ’s Crackdown on Government Contractors/Defense Contractors: Best Practices for Responding to False Claims Act CIDs

Background

On February 22, 2024, DOJ announced it had obtained a total of 543 settlements and judgments in 2023, totaling more than $2.6 billion, representing the highest number of recoveries in a single year.¹ These figures highlight the potency of the FCA, which imposes liability on any person or entity who knowingly submits false claims for payment to the federal government, as one of DOJ’s most powerful tools in investigating allegations of fraud on the government.²

While the federal government can bring these claims directly, private whistleblowers not affiliated with the government can also bring qui tam actions on behalf of the government.³ Referred to as “relators,” these whistleblowers are often current or former employees of the accused defendant. If the suit is successful, the relator may receive up to 30% of the government’s award.⁴ Even if the government chooses not to pursue the case and does not intervene in the relator’s lawsuit, the relator can continue their lawsuit, though it is often a much more onerous task without the resources of the federal government, and potentially receive even more of any recovery.⁵ In 2023, whistleblowers filed 712 qui tam suits, demonstrating the enormous incentives for whistleblower-led lawsuits.⁶

Trends Observed in DOJ Press Releases

The numbers surrounding the qui tam suits suggest a novel pattern: although the total recoveries in government-intervened suits typically outweigh the total recoveries in suits brought by private whistleblowers, last year’s figures reflect an increasing rate of recoveries secured by private whistleblowers who pursued FCA claims without the government’s intervention. While the percentage of recoveries in non-intervened cases was 8 percent in 2021 and 9 percent in 2020, it skyrocketed to 16 percent in 2023.⁷ These results suggest the growing success of suits brought independently by whistleblowers even where DOJ does not intervene.

Notably, DOJ initiated 500 cases on its own without the benefit of a whistleblower complaint, the highest number of non-qui tam cases ever initiated since 1987.⁸ This indicates DOJ’s prioritization and escalating efforts to pursue claims it develops based on its own data and inquires. While this is an important statistic to watch in future years, qui tam suits continue to make up the majority of the FCA cases as well as the vast majority of DOJ’s recoveries, with 2023 being no exception: suits filed by whistleblowers made up 87 percent of last year’s recoveries.⁹ Although the statistics indicate that qui tam lawsuits continue to drive DOJ’s enforcement efforts and success, looking ahead they also suggest that DOJ’s reliance on whistleblowers may potentially decrease with time as DOJ expands its efforts to partner with agencies and use data analytics to identify potential fraud.

The breakdown of FCA recoveries by industry is nearly identical to past years. Consistent with past trends, healthcare cases comprise the vast majority of the FCA recoveries. Also in line with its enforcement activity over the past several years, DOJ continues to focus on cybersecurity concerns, address issues of fraud arising out of the COVID-19 pandemic, and target government defense contractors.

• Health Care. Continuing the trend from previous years, the vast majority of the FCA recoveries were within the health care sector, with the government targeting pharmacies, hospitals, and individual physicians.¹⁰ DOJ highlighted cases that addressed the Medicare Advantage program and the opioid epidemic among others.¹¹ One prominent example is the Cigna Group, who agreed to pay $172 million to resolve allegations that it knowingly submitted inaccurate diagnosis codes for its Medicare Advantage Plan enrollees to increase its payments from Medicare.¹² Another example is DOJ’s pursuit of a lawsuit against Rite Aid Corporation for filling unlawful prescriptions for dangerous drugs in violation of both the FCA and the Controlled Substances Act.¹³
• Pandemic-Related Fraud. Pandemic-related fraud cases were also a major focus for DOJ in 2023.¹⁴ In particular, DOJ focused on the issue of improper payments under the Paycheck Protection Program (“PPP”), which was enacted during the COVID-19 pandemic to give small businesses loans for rent and other costs.¹⁵ DOJ resolved 270 FCA claims involving the PPP, recovering over $48 million.¹⁶
• Cybersecurity Focus. DOJ also targeted the cybersecurity space, bringing attention to its Civil Cyber-Fraud Initiative that holds government contractors liable for violating cybersecurity requirements and knowingly misrepresenting their cybersecurity procedures.¹⁷

Government Contracting/Defense Contracting Space

A notable area that reflects DOJ’s expanding targeting efforts is the government contracting/defense contracting space. DOJ obtained a total of $550 million in FCA settlement recoveries in cases involving the Department of Defense (DOD), the highest amount DOJ has secured in over a decade in DOD-related cases.¹⁸

Navigating the Legal Risks of Government Contracting

The record-breaking rise of FCA cases reflects an increasingly robust and aggressive effort by DOJ to pursue fraud claims. DOJ’s expanding interest in the government and defense contracting space makes it more important than ever for companies within this industry to remain diligent with their compliance efforts.

1. Implement policies and practices for a transparent and professional environment. Because FCA whistleblowers tend to be current or former employees, your company should encourage open communication and accountability to smoothly address issues internally.
2. Implement anti-retaliation measures and whistleblower protections. Employees should be encouraged to report issues to their supervisors and be reassured that they will not be retaliated against for raising concerns. In fact, if a whistleblower experiences retaliation at work, they can bring suit under the FCA’s anti-retaliation provision. The FCA protects whistleblowers who investigate, file or prepare to file a qui tam lawsuit, assist with any FCA investigation, or testify in any FCA proceeding; if successful, whistleblowers are entitled to reinstatement, back pay, special damages, and attorney’s fees.¹⁹ Incorporating anti-retaliation measures will therefore help ensure compliance with this provision and avoid further FCA concerns.
3. Implement a thorough plan to respond to all complaints, with a process set up for conducting internal investigations as well as bringing in outside counsel to investigate more serious allegations.
4. Conduct regular monitoring of compliance through internal monitoring programs. This can include sending anonymous questionnaires to employees and asking exiting employees to share any concerns.

Best Practices – Civil Investigative Demands 

While the best defense to prevent violations of the FCA are effective and rigorous compliance policies and programs, should the government investigate you or your company, it will often issue a civil investigative demand (“CID”). A CID allows DOJ to require individuals and companies to produce documents, written interrogatory responses, sworn testimony, and other information to assist in their investigation of FCA allegations.²⁰

DOJ is increasingly making use of their authority to investigate potential FCA violations. In 2023, DOJ set a record for the number of CIDs issued in a single year, totaling more than 1,500.²¹

In the event you have been issued a CID, there are a number of steps you should consider:

1. Conduct an internal investigation with the assistance of outside counsel. Because a CID is mandatory to respond to and is part of a very high-stakes federal investigation with potential reputational and financial damages, you should consider retaining outside counsel with special expertise to conduct the investigation. Outside counsel can offer proactive and strategic representation and can conduct a privileged and confidential internal investigation for you, help you carefully review your CIDs, and help you develop a tailored response plan in accordance with the statutory deadlines. Your outside counsel can also help you negotiate the scope of any broad requests and agree on certain search terms or custodians with respect to the document requests with the government.
2. Stay in communication with the investigators. CIDs can represent significant business disruptions and burdens on recipients, so it is important to plan ahead and discuss any need to prioritize certain documents or custodians with the government and gather information to respond to interrogatories and other requests from the government.

In the event you or your entity ever receive a CID, it is important to take it seriously but understand that there is a way to reduce the risks and burdens associated with it. By responding promptly and strategically, with the immediate assistance of outside counsel, you can mitigate the potential reputational, financial, and business disruptions of an FCA investigation.

¹U.S. Department of Justice, “False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023,” Press Release, February 22, 2024, https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023.

²31 U.S.C. § 3729.

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¹⁹31 U.S.C. § 3730.

²⁰15 U.S.C. § 1312.

²¹U.S. Department of Justice, “Principal Deputy Assistant Attorney General Brian M. Boynton Delivers Remarks at the 2024 Federal Bar Association’s Qui Tam Conference,” Press Release, February 22, 2024, https://www.justice.gov/opa/speech/principal-deputy-assistant-attorney-general-brian-m-boynton-delivers-remarks-2024.