The Biden Administration has made it clear that deterring corruption and fraud through aggressive enforcement – including the use of the False Claims Act – is a priority. With its leadership team beginning to take form, the Department of Justice (DOJ) is ready to take action. Although the pandemic may again slow some investigations and trials in 2022, we expect the pace of enforcement to pick-up on the whole. Specific FCA enforcement priorities continue to include pandemic-related fraud, fraud related to opioids, and conduct targeting seniors. In addition, DOJ’s Civil Cyber Fraud Initiative underscores DOJ’s commitment to using the FCA in new ways to reinforce cyber security obligations of government contractors and subcontractors and root out fraud. And, as in years past, businesses operating in the health care industry sector are under intense FCA scrutiny from the government and from would-be FCA whistleblowers. DOJ has indicated it is particularly focused on fraud related to telehealth and to the acquisition and implementation of electronic health records systems. The following emerging trends warrant close scrutiny in 2022 and appear to represent another active year of FCA enforcement. 

An increase in telehealth and continued transition to electronic health records are likely to draw FCA scrutiny

The use of telehealth services has skyrocketed during the COVID-19 pandemic; we expect a significant portion of this expansion to endure. A number of recent FCA cases have scrutinized the practices of telemedicine companies and healthcare providers who utilize telehealth, and we expect this to continue. Allegations of fraud have recently related to orders for durable medical equipment, diagnostic tests, and compound medicines that aren’t supported by sufficient patient diagnostic interaction. While similar cases may be on the horizon, new or novel FCA theories relating to telehealth services may also emerge. New regulations aiming to narrow opportunities for fraud in telehealth may also be forthcoming. Telemedicine companies and providers who utilize telehealth should therefore evaluate their compliance programs to ensure the length of patient diagnostic interactions are accurately documented in 2022 and closely monitor regulatory changes on the horizon. Although the vast majority of health care providers have already transitioned to electronic health records (EHR), we expect to see continued FCA enforcement activity in this area. EHR companies should confirm that their products are compliant with the latest requirements for the government incentive programs, and health care providers should ensure that their EHR software is properly certified through the ONC Health IT Certification Program, publicly available at here, and has previously maintained successful reliable outcomes.

DOJ’s Civil Cyber-Fraud Initiative could have broad implications

In recent years we have seen that failures to comply with contractual and regulatory requirements relating to cybersecurity is a burgeoning area of FCA risk for government contractors and grant recipients. DOJ’s recently-announced Civil Cyber-Fraud Initiative underscores this risk. This initiative seeks to organize and prioritize DOJ’s efforts in this regard, and the initiative expressly aims to secure FCA recoveries to reimburse the government and taxpayers for losses incurred “when companies fail to satisfy their cybersecurity obligations.” With this new initiative in place, we expect DOJ may be more prone to intervene in cases where whistleblowers make such allegations of noncompliance. The government’s increased interest in aggressively enforcing compliance with cybersecurity requirements may also incentivize company insiders to examine their companies’ cybersecurity obligations and practices and file FCA actions when they find possible compliance failures. The initiative may also draw government scrutiny not just from DOJ, but also from inspectors general at numerous government agencies who could in turn refer cases to DOJ. This initiative will likely result in a flurry of activity in 2022. 

Noteworthy case law developments and DOJ policy changes

In addition to the above enforcement trends, several developing areas of case law and changes in DOJ enforcement policy will shape FCA litigation in 2022. 

First, developments in the courts, and potentially in Congress, relating to the materiality requirement of the FCA could prove important this year. A key issue is under what circumstances – if any – conclusions about materiality can be reached in the early stage of litigation. Courts have recently declined to find any single fact dispositive with regard to materiality and instead taken a “holistic” view of the circumstances of each case, including government action or inaction despite knowledge of alleged misconduct. As a result, defendants have had less success challenging FCA claims on grounds of materiality at the motion to dismiss stage or even, in some cases, at summary judgment. We will be watching to see if this trend continues.

We will also be watching to see if additional courts consider the degree to which a defendant’s assertion that its actions comported with an objectively reasonable interpretation of an ambiguous regulation prevents a finding of “knowing” misconduct, which is required for an FCA violation. Key unanswered questions about an FCA defense premised on this principle include: (1) whether the asserted objectively reasonable interpretation of the regulation must also have been subjectively held by the defendant at the time the claim was submitted; (2) who bears the burden of proof; (3) what types of evidence show that a defendant held an objectively reasonable belief at a particular point in time; and (4) whether invoking the safe harbor triggers a waiver of the attorney-client privilege. 

There is also continued disagreement in the courts about the standard of review for the DOJ’s use of its power to dismiss declined qui tam suits under 31 U.S.C. § 3730(c)(2)(A). These motions are, and always have been, rare. Nonetheless, the lack of consensus about the legal standards applicable to these motions will impact some litigants who will have to continue – absent Congressional action – to maneuver through a deepening split among the circuits in the coming year.

Finally, DOJ’s recent announcement that it has restored prior guidance requiring that, to be eligible for cooperation credit, companies must provide the DOJ with all non-privileged information about individuals involved in or responsible for the misconduct at issue in a case is certain to shape DOJ investigations and settlements in 2022. This is a departure from the more flexible, recent approach that allowed companies to benefit from a full cooperation credit if they met other requirements and identified only those individuals “substantially involved in or responsible for the misconduct.” We will be watching to see how this renewed focus on individuals within companies will shape the course of investigations and FCA settlements in the year to come. 

Staying on top of these and other potential developments in FCA enforcement will be critical for businesses moving forward. The FCA practice at Hogan Lovells stands ready to help you with our market-leading lawyers.