Anyone who follows false claims lawsuits and settlements knows that the money recovered by the government is significant, even staggering. So far in 2014, the Department of Justice (DOJ) has recovered more than $2 billion in False Claims Act cases. These recoveries relate to cases and conduct that began as far back as 10 years ago. Most of the recoveries so far this year are in the financial sector, and not in healthcare. Three such settlements, involving JP Morgan, SunTrust and US Bank, amount to $1.2 billion of the $2 billion recovered so far. There have been even larger monster settlements in the mortgage and banking sector, including the $25 billion mortgage servicer settlement a few years ago. What we don’t know is how these recoveries compare to the overall fraud committed.
I have seen estimates thrown out there that speculate that the enforcement recoveries are less than 5% of the total amount of waste fraud and abuse committed.
During my time with the Florida Attorney General’s office we would often compare our results with our sister states, federal counterparts, or private attorneys, and wonder how or why there was so much disparity in damage models and recoveries. On the heels of settling a large consumer protection pharmaceutical, I remember one detractor informing us that the defendant company made 50 times more than what they were paying in just the time it took to conduct the investigation. We concluded that our enforcement action was merely a cost of doing business. I have seen estimates thrown out there that speculate that the enforcement recoveries are less than 5% of the total amount of waste fraud and abuse committed. There are a host of reasons or theories for this situation but the conclusion I drew was that inconsistent or ad-hoc enforcement actions nullified the deterrent effect on wrong-doers.
I had a neighbor a while back who worked for the Drug Enforcement Administration (DEA) and we would often tell me that even after their largest drug busts they knew more drugs trickled into the US than they could ever stop. Part of their theory was that the larger busts would deter or ward off new entrants to the illegal drug world. The inherent problem with this approach is that the people who were the best at not getting caught gobbled up more and more of the market share and grew wealthier and more powerful.
The question we have to ask is whether our current enforcement and regulatory schemes are effective deterrents or is the fraud keeping pace with the enforcement? The bigger the recovery the bigger the fraud. In otherwise legal industries like healthcare and banking, is it possible that selective or inconsistent enforcement is keeping new entrants (read: competition) away and allowing the best fraudsters to grow larger?
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