This transcript is auto generated
00;00;00;00 - 00;00;28;06
Jonathan Porter
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host, Jonathan Porter. The False Claims Act is changing rapidly. It's being used in new and interesting ways, and we've written a lot about these changes in the False Claims Act here at Husch Blackwell. We've done podcasts about all of these big developments, but we're going to do a podcast today that condenses all of those big recent developments into just one episode.
00;00;28;06 - 00;00;48;07
Jonathan Porter
And so it's going to be really easy for you to catch up on the big developments here on today's podcast episode. Our government enforcement group wrote about these big developments in a recent blog post, and today we're going to walk through that blog post and talk about all of the ways that the False Claims Act has changed in recent months.
00;00;48;10 - 00;01;11;27
Jonathan Porter
So consider this your mid-year update for the False Claims Act. Joining me to talk about this mid-year update are two of my Husch Blackwell colleagues, Abe Souza and Kip Randall. The three of us wrote about this topic together with our fearless leader, Jody Rudman not long ago. Jody was on the podcast two episodes ago, and so I'm tapping Abe and Kip to walk us through the details of our blog post.
00;01;11;29 - 00;01;30;04
Jonathan Porter
Regular listeners know both Abe and Kip from past episodes. Kip is a partner in Kansas City and Abe is in St. Louis, former AUSA in Chicago, and I'm happy to welcome both of them to the podcast today to talk about this mid-year update of all things False Claims Act enforcement. Guys, welcome to the podcast.
00;01;30;07 - 00;01;32;29
Abe Souza
Hey, Jonathan, thanks for having us.
Kip Randall
Yeah. Thanks, Jonathan.
00;01;32;29 - 00;01;33;24
Kip Randall
Thank you for having us.
00;01;33;29 - 00;01;54;15
Jonathan Porter
All right, so the biggest developments from the first half of 2026 probably isn't a new risk area, but the ramifications of DOJ's new infrastructure to combat fraud. Kip, why don't you start us off by telling us what's changed within DOJ and how it's changing its coordination with other agencies to find fraud?
00;01;54;17 - 00;02;23;20
Kip Randall
Sure. So it's really an institutional change. In January, the administration announced it was going to create a new national fraud enforcement division in DOJ. And by April, then Acting Attorney General Todd Blanche had made that concrete by folding into the fraud division, the Criminal Division's tax section, the Health Care Fraud Unit, and market Government and Consumer Fraud Unit into that fraud division as a whole.
00;02;23;22 - 00;02;47;17
Kip Randall
Then also added to the division was an AUSA from each one of the US Attorney's offices. And then that's now being run by Assistant Attorney General Colin McDonald. And he reports directly to Attorney General Blanche. But he's also taking referrals straight from the White House. And so that's telling us so this is really a a policy priority for the administration.
00;02;47;19 - 00;03;17;12
Kip Randall
Then in recent news, AG McDonald just issued a memorandum laying out sort of the fraud division's enforcement priorities. The memo frames the division's mission around an estimated between 233 billion and 521 billion dollars in annual fraud losses to the federal government. And so in that memo, he outlines five priorities for the fraud division. And I'll briefly go through those.
00;03;17;12 - 00;03;46;19
Kip Randall
So the first one is the public trust financial integrity that's really covering government procurement fraud as well as fraud on benefit and grant programs like student loans and veterans benefits. And then the second priority is health care fraud. But the division kind of supercharging the health care fraud Strikeforce model. The third is internal revenue going after those unethical return preparers, income concealers and the like.
00;03;46;22 - 00;04;17;07
Kip Randall
Fourth is the global trade and commerce priority, targeting customs evasion and other trade related fraud. And then finally, the fifth is corporate misconduct, kind of holding those organizations accountable while incentivizing them to voluntarily self disclose, cooperate and remediate. With that memo, AG McDonald says the division will reach approximately 500 attorneys and staff by the end of August and will continue to grow pretty aggressively over the next two years.
00;04;17;09 - 00;04;43;08
Kip Randall
In addition to the fraud division, there's also a White House level task force to eliminate fraud, which is coordinating across agencies and a DOJ, HHS, FCA working group. A lot of acronyms there that predates both of those. But what that does is it brings together the DOJ civil division and then within HHS, the Office of General Counsel and the OIG, as well as CMS.
00;04;43;10 - 00;05;15;23
Kip Randall
And that's really to streamline referrals and use data analytics to spot fraud earlier. So what this means for anyone doing business with the government is that these structural changes are expanding what counts as fraud. Familiar tools like contract certifications, compliance attestations, grant conditions, those are all pointing towards new categories of conduct. And then the coordination between civil and criminal components means that civil FCA issues can surface criminal exposure
00;05;15;23 - 00;05;27;03
Kip Randall
much faster than it used to, and vice versa. So companies should expect referrals to move faster and enforcement priorities across agencies to look a lot more aligned than they have in the past.
00;05;27;05 - 00;05;43;27
Jonathan Porter
Thanks, Kip. That's very helpful. You mentioned in the McDonald memo from August 13th. Yeah. I also noticed that health care was very high up on that list. Most of my clients are in the health care space. It's alarming. Any time you get DOJ saying we want to put even more resources into fighting fraud in the health care space.
00;05;44;01 - 00;06;01;12
Jonathan Porter
There's a lot of really bad actors in the health care industry, but there's a lot of good actors who fall under federal scrutiny way more often then they probably should, because how much attention's on health care. So, Kip, thanks for calling that out. And I want to talk about certifications in a second. But first, I want to tackle another big development that we wrote about in the article.
00;06;01;15 - 00;06;30;13
Jonathan Porter
And that's this continued trend towards FCA cases going to trial. So we've discussed trial penalties before on this podcast. We've discussed how the trial penalties create risk profiles that essentially prohibit defendants from going to trial. But many have taken that risk in recent years with some pretty mixed results. And we had a big trial earlier this year. So, Abe, tell us about that big trial and what it means for those accused of False Claims Act violations going forward.
00;06;30;15 - 00;06;56;28
Abe Souza
Thanks, Jonathan. Yeah. Kip talked through some of the government infrastructure that's going up to support FCA and other fraud claims. And I think it's always important to keep an eye on whistleblowers and decline qui tams as well, because they're so important to our clients in the space. And last time I was here, Jonathan, you and I talked about the Penelow vs Janssen Products case, which had just been argued in the Third Circuit on appeal.
00;06;57;00 - 00;07;24;15
Abe Souza
That one was a decline qui tam involving reimbursement for HIV medications. And the case went to trial a few years ago. The jury sided with the defense actually on an anti-kickback statute theory. But the jury agreed with the relator on and off label marketing theory. And the result of this was a staggering jury verdict of more than 1.6 billion with a B, which was pretty alarming, to put it mildly.
00;07;24;17 - 00;07;50;13
Abe Souza
We're still waiting on a ruling on that one from the Third Circuit. The case has actually been ordered a mediation, so we're keeping an eye on it. But as you mentioned, Jonathan, we had another big FCA trial in a declined qui tam this year. It involved different factual circumstances and substantive issues than the Penelow case. But I think it raises similar themes, and it's worth exploring this one was in federal court in South Carolina.
00;07;50;15 - 00;08;14;14
Abe Souza
Actually, it still is. The case involved the contract to provide support services to U.S. military personnel in bases in Afghanistan. And that entailed everything from dining facility operations to laundry and facility repair. So the leaders in that case alleged widespread fraud under various theories. But notably, as in the penalty case, the jury actually rejected certain of those theories.
00;08;14;16 - 00;08;40;05
Abe Souza
Even so, it found in the relator’s favor on a property management theory and an awarded $15 million in damages, which was trebled to 45 million. But here's where it gets really interesting. The case certainly didn't stop there. The relators asked the court to award fees and costs exceeding $96 million, even though they had lost on multiple theories, which is more than six times the underlying damages award before it was trebled.
00;08;40;05 - 00;09;00;07
Abe Souza
So, look, it's a very significant sum in this case is notable not only for its verdict, which, again, is a significant partial victory for the defense, but also for the financial costs that followed. In spite of that victory, including this dispute over legal fees. And so I think there are a few takeaways from this case and others that have gone to trial recently.
00;09;00;07 - 00;09;21;06
Abe Souza
I think first and foremost, we've talked about this before, but trials are an essential part of our justice system, and I think we'd all agree here that if a defendant determines it did nothing wrong, they can and should be willing to consider going to trial. But at the same time, I think these cases are a reminder that FCA trials generate a lot in terms of litigation expense.
00;09;21;09 - 00;09;43;29
Abe Souza
They also consume leadership attention in a way that can be distracting and burdensome. And then, as we saw most recently, in this case, they create fee shifting risks that extend beyond the verdict. And so I think when you're modeling risk and you're establishing reserves for these FCA matters, organizations should really account for the full spectrum of costs and how they can impact the organization.
00;09;44;01 - 00;10;02;05
Jonathan Porter
Thanks, Abe. Yeah. So $96 million for a case where you didn't win on everything. It seems like a lot of money. I'm going to go ahead and predict the court's not going to award $96 million. If they do, I'll be stunned. But I also think that'll be worth its own episode to figure out what the world happened there.
00;10;02;05 - 00;10;19;29
Jonathan Porter
So maybe we'll circle back to that next year, Abe, because I think it's going to take a while to get to that point. But yeah, 96 million, a lot of dollars. Kip, I want to circle back to something you mentioned a few minutes ago and that’s certification. So back in the beginning of FCA enforcement, the certifications were really clear.
00;10;19;29 - 00;10;37;16
Jonathan Porter
So if you tell the Army that you're giving them a horse, but you're actually giving them a mule, you can see how that representation goes to the heart of the deal. That's what you're buying. This is the description of the thing that you're buying. But these days, defense contractors certify a ton of things when making claims to the government.
00;10;37;16 - 00;10;49;16
Jonathan Porter
It seems like the ways contractors can get in FCA trouble they grow year after year. So, Kip, tell us some of the certifications that result in FCA trouble so far this year.
00;10;49;22 - 00;11;18;18
Kip Randall
Well you're right Jonathan. This is not the horse and mule fact pattern anymore. What's been kind of consistent across the cases is the analytical framework that DOJ is using, which is find a required certification, whether it's in a contract, an invoice or a compliance attestation, and then tie that to payment eligibility and dig into whether an underlying deficiency makes that certification and knowing misrepresentation.
00;11;18;21 - 00;12;06;06
Kip Randall
Now, this framework has been applied across a few areas that surprise people who still think the FCA has as a strictly billing statute. Right. So operational compliance, things like quality controls and performance requirements that are baked into government contracts, that's one. But also there's workplace and civil rights certifications, including employment practices, anti-discrimination attestations that are tied to federal contracts is another and one that I talked about on the podcast a couple of times, is cybersecurity compliance is become a real engine of its own when you're talking about certifications, about security controls, breach reporting obligations, adherence to standards like NIST SP 800-171 and CMMC.
00;12;06;09 - 00;12;31;21
Kip Randall
What makes cybersecurity distinct is the DOJ doesn't need a breach to bring a case. A false certification of compliance is enough exposure on its own, and the reason this keeps expanding is that certification risk isn't sitting in one department anymore. You've got contracting officers, H.R. IT security and operations that can make a representation that ends up being tied to a government payment.
00;12;31;24 - 00;12;51;21
Kip Randall
And any one of those can become the basis for an FCA case. So companies should consider mapping out every point where the organization makes a payment link to a representation. And then figure out who inside the company actually owns the underlying facts, and confirm that those facts are accurate and documented before someone else finds the gap. Thanks.
00;12;51;24 - 00;13;08;00
Jonathan Porter
Yeah, Kip, you're right, and I hope that's helpful to some of the government contractors that are listening, because there are ways for people to get ahead of this. But it is sort of staggering the many different ways that folks can get in trouble with their certifications these days. Gone are the days where you just repay the government some money now.
00;13;08;06 - 00;13;27;05
Jonathan Porter
Now you have to go through and figure out was this fraud or not? And so that's where we are now. Abe you mentioned whistleblowers before in declined qui tams. I want to go back to that because whistleblowers obviously play an enormous role in FCA enforcement. We talk about it nearly every episode. But gone are the days when the whistleblower is some fired executive.
00;13;27;05 - 00;13;51;11
Jonathan Porter
Instead, it appears many whistleblowers now aren't even people at all. But data mining companies. There are so many of these data mining company whistleblowers that DOJ created an entire policy and initiative to get a handle on the mountain of qui tams that these data miners are filing. So Abe what's happening with data mining whistleblowers, and what is DOJ doing about it?
00;13;51;13 - 00;14;31;19
Abe Souza
Yeah, this really is a fascinating issue. I saw this when I was with DOJ handling false claims Act matters, Jonathan. You probably did too. I saw it particularly in cases involving alleged fraud under the Paycheck Protection Program or PPP loan fraud cases. And as you say, the relator wasn't a true insider, but a data miner that scoured the internet for open source materials and concluded that the defendant or the target should not have actually received the loans they did, often because of affiliation with other companies or other legal reasons, and in connection with those cases, I interacted with very good data miners who were incredibly sophisticated at what they did, as well as others who
00;14;31;19 - 00;14;53;24
Abe Souza
were not and used more rudimentary techniques that weren't particularly helpful. I should say that these cases are very interesting. They raise fascinating issues under the public disclosure bar, among other issues. But they're not just limited to PPP loan cases. These data miners analyze publicly available data sets for statistical anomalies and all sorts of contexts, and they claim that those indicate fraud.
00;14;53;26 - 00;15;18;17
Abe Souza
And they bring these cases. And notably, since fiscal year 2024, data miners have filed more than 45% of all qui tam complaints, which is a pretty remarkable statistic. And more generally, there have been over 780 qui tam complaints that have been filed for fiscal year 2026 alone. That's a statistic from back in April. So look, we're on pace for another year, another record year.
00;15;18;20 - 00;15;45;25
Abe Souza
And in response to all this and Jonathan, you alluded to it already. But in April, DOJ announced the FOCUS initiative, which stands for Fraud Oversight through Careful Use of Statistics. And basically, it's a program designed to help the government assess the viability of data driven qui tams. The government said that it welcomes the contributions of data miners, but it's going to prioritize working with those who demonstrate an insightful application of sophisticated technological capabilities.
00;15;45;27 - 00;16;07;01
Abe Souza
Basically, those who are better at this than others. And through this initiative, data miners can actually had the opportunity to meet with the civil fraud section and discuss their capabilities and outline why and how their data signals reliable correlation with fraud. This is a required, but certainly some coordination with civil frauds is encouraged to continue to bring these cases.
00;16;07;03 - 00;16;26;08
Abe Souza
It's a very interesting development where DOJ is acknowledging that this can be a useful tool for them. And I think for a long time, all of us have thought DOJ needs to get a lot better with getting their hands on their own data instead of doing that. Unfortunately, it seems like they're outsourcing this largely, and so we'll have to see how this contributes to continued qui tam filing rates.
00;16;26;16 - 00;16;58;17
Jonathan Porter
Yeah. Abe, at the risk of going on a rant here, you've touched on something that's going to make me go on the rant. So buckle up. I think it's ridiculous that DOJ needs to allow data mining companies to get a take of fraud, because DOJ isn't able to figure that out by themselves. If private companies are able to look at open source data and spot fraud, how much more could the government figure out fraud with their own information, plus all of the publicly available stuff?
00;16;58;23 - 00;17;17;28
Jonathan Porter
It would be great if some federal agencies could get really good on catching fraud and do it themselves so that there's not this whole data mining thing, but I guess this is the world we live in now. At some point, one of these is going to go to trial, and I'd be curious how a jury is going to feel about this whole concept.
00;17;18;00 - 00;17;37;08
Jonathan Porter
I would imagine judges are also skeptical of this, but DOJ is embracing it. Like you said, they put some guardrails on it. But if we're going to like zoom back and think about enforcement, I just don't think this is anywhere close to what the original drafters of the False Claims Act had in mind. But here we are speaking of here we are.
00;17;37;12 - 00;17;52;23
Jonathan Porter
It's 2026. Everyone's talking about AI, and DOJ is no exception. DOJ is thinking about AI in a few different ways. And so, Kip, why don't you tell us about the role that AI plays right now in False Claims Act enforcement?
00;17;52;25 - 00;18;23;16
Kip Randall
Well, at the risk of having you go on another rant, I'll get into that. So AI is showing up in FCA enforcement in two really distinct ways, and it's worth kind of separating them because the risk is different for each. First, you've got AI as a source of the underlying liability. As AI tools get embedded into things like medical coding and clinical documentation workflows, the risk isn't the use of AI itself but deploying it as scale without adequate validation and error monitoring.
00;18;23;19 - 00;18;48;25
Kip Randall
If an organization rolls out a tool that's generating inaccurate claims and doesn't have a process to catch and correct that, you've built a paper trail for DOJ or a relator, they can point to CI enter there. So the practical takeaway for clients using AI anywhere near billing or claims is build validation controls and air monitoring in from day one and document them.
00;18;48;28 - 00;19;21;29
Kip Randall
The second area this is AI is an enforcement tool. So DOJ is leaning on data analytics and increasingly using AI assisted analytics to identify fraud, which connects directly to the data mining related trend that it was just talking about, and to the interagency data sharing infrastructure that DOJ has been building. So companies should really assume that their billing patterns, coding practices, and contracting data are being run through some kind of statistical anomaly detection that outside data miners are using.
00;19;21;29 - 00;19;38;08
Kip Randall
We should expect that the government should be doing this on its own to nonpublic data as well. And the two sides of that coin are AI risk in your own operations and in AI as a detection tool aimed at you, and they should be treated as really core FCA compliance issues.
00;19;38;10 - 00;20;00;08
Jonathan Porter
Thanks, Kip. The one thing I will say is, if you are thinking that AI will shield you from False Claims Act liability, if you think that you're going to implement AI in your processes, I wouldn't be so sure. I think judges and juries and DOJ certainly will not necessarily excuse people who have done something wrong when they use AI.
00;20;00;08 - 00;20;20;19
Jonathan Porter
I think they're gonna be pretty skeptical that. I would not delegate your compliance program to AI, something like that. Kip, thanks for pointing that out. Our last topic is something that we've done a couple episodes on whether qui tams are unconstitutional. What's the status there, Abe? And has anything changed in the last few months on qui tam constitutionality?
00;20;20;22 - 00;20;57;00
Abe Souza
No doubt this continues to be an interesting issue that we're all monitoring very closely. As a reminder, this started when Justice Thomas question the constitutionality of the FCA's qui tam provisions, and specifically whether they're consistent with article two of the Constitution. Other justices subsequently expressed similar concerns, and these came to a head in the Zafirov case in Florida, where the court held that the FCA's qui tam provisions violate the Appointments Clause basically finding that qui tam relator's are officers within the meaning of the Constitution, but they're not appointed as required. I should say,
00;20;57;00 - 00;21;17;02
Abe Souza
in addition to the Appointments Clause issue, constitutionality has been challenged under the take care and vesting clauses as well. The Zafirov case has been appealed to the 11th Circuit, argued. We're still waiting for a decision on that one. As of right now, it could be coming down at any moment. Who knows? I mentioned the Penelow case in the Third Circuit earlier.
00;21;17;04 - 00;21;36;26
Abe Souza
That's a case on appeal before the Third Circuit. Again, it relates to a whole host of issues, including falsity and materiality. But constitutionality is one of the issues in that appeal. It was discussed during oral argument. So that's pending before the Third Circuit. I think a lot of us, based on the argument, got the sense that constitutionality would now carry the day there.
00;21;36;26 - 00;21;57;17
Abe Souza
But the case has now been ordered to mediation, so we'll have to see how that plays out and whether we end up getting an opinion from the Third Circuit on constitutionality. In addition to the 11th and Third Circuits looking at this issue, multiple Fifth Circuit judges have expressed concerns in separate opinions and notably, a willingness to reconsider currently controlling on banc authority and that circuit.
00;21;57;17 - 00;22;18;03
Abe Souza
We'll have to see what happens there. And in the meantime, every defendant in a qui tam case, including our clients, has been raising this argument for some time, with the government filing substantially similar statements of interest in those declined qui tams. I've got one a couple weeks ago myself. So it's interesting how all of this can change once we get a ruling from an appellate court.
00;22;18;03 - 00;22;21;01
Abe Souza
Once they weigh in, it'll be interesting to see what happens.
00;22;21;04 - 00;22;34;22
Jonathan Porter
Thanks, Abe. Yeah, I think at some point there's going to be a circuit split on this. I don't know when it's going to be. I don't know that it'll be in the next year or two, but I think there's going to be a circuit split at some point. Maybe it all fizzles out. I don't know. We'll give you the answer when it happens on this podcast.
00;22;34;22 - 00;22;49;27
Jonathan Porter
How about that. All right. So last question for both of you given this shifting False Claims Act landscape, what should our listeners do to get ahead of all of these curves that we're talking about? Give us one good suggestion to close this out.
00;22;50;01 - 00;23;14;08
Kip Randall
My suggestion would be go inventory every place your organization makes a representation to the government being tied to a payment. And whether that's a contract certification or an invoice attestation or grant condition compliance report any of those and check who owns the underlying facts behind each one of those, and whether those facts are actually documented and current.
00;23;14;11 - 00;23;32;22
Kip Randall
Given how much certification based liability, data driven scrutiny and AI related risk that we've talked about today, I think that single exercise touches almost everything we discussed. And it's the kind of thing that you want to do on your own timeline, and not while responding to a civil investigative demand.
00;23;32;22 - 00;23;57;15
Abe Souza
Sort of a related point to Kip's, we talked about the rise of data mining relators, Kip talked about AI, we talked about the FOCUS initiative. Look, I think whether you're an individual, you're an organization, you're a provider in health care, you're involved in government contracting or some other sector receiving federal funds, you should assume for sure at this point that you're billing patterns, you're coding practices, you're contracting practices,
00;23;57;15 - 00;24;20;28
Abe Souza
your data is going to be subject to analysis. And I think that's just where we are here in 2026. It's cold comfort that it won't be, and I think you should be ready for it to be analyzed and monitored. And so I think at a high level that needs to be incorporated into compliance programs. It starts with awareness, but it also extends into monitoring, validating and remediating the data that's available if necessary.
00;24;20;28 - 00;24;27;28
Abe Souza
And that will give the company some assurance that they are complying and warding off risk to the extent they can.
00;24;28;00 - 00;24;39;04
Jonathan Porter
Thanks Abe. You both gave very good responses there, and I don't have anything to add from that. So I appreciate both of you coming on the podcast. I hope our listeners have really enjoyed this. But Kip, Abe, thanks for joining us.
00;24;39;06 - 00;24;40;14
Kip Randall
Yeah, thanks for having us.
00;24;40;17 - 00;24;42;06
Abe Souza
Thanks again. Jonathan, this is great.
00;24;42;13 - 00;25;00;26
Jonathan Porter
To close, the False Claims Act really is shifting very, very quickly. Like we've discussed, it's being applied in new and different ways. And so we're going to continue to bring you blogposts like the three of us. Plus Jody wrote a few weeks ago, we're gonna continue to bring you episodes about the cutting edge things that are happening in the false claims AI.
00;25;00;27 - 00;25;18;21
Jonathan Porter
But we're also going to do was Abe and Kip just did, which is to give you practical insights, ways that you can tinker with things now in order to get ahead of this shifting landscape. So we appreciate our listeners and the great feedback that we always get from our listeners. We're grateful for each and every one of you.
00;25;18;21 - 00;25;25;06
Jonathan Porter
So we hope you enjoyed this and we'll see you next time.