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A record-breaking year in several respects
On January 16, the Department of Justice (DOJ) reported a record-breaking $6.8+ billion in False Claims Act (FCA) recoveries for civil cases in fiscal year 2025, representing an increase of nearly $4 billion over 2024 and the highest annual recovery in FCA history. Health care fraud remained the dominant enforcement priority, with over $5.7 billion (83%) relating to matters involving the health care industry. Other targeted industries include procurement, loan and grant fraud – including military procurement, cybersecurity, and pandemic fraud – and tariff and customs avoidance.
For the third consecutive year, the total number of initiated qui tam lawsuits increased year over year, demonstrating continued fraud enforcement by the agency and an active environment for private whistleblowers. The 1,297 new qui tam cases filed in 2025 is also a record, exceeding the previous record of 979 new cases filed in 2024. The government opened 401 investigations in 2025, focusing on new policy objectives announced by the current administration in June. Total settlements and judgments under the FCA since Congress strengthened the statute in 1986 now stand at $85 billion.
As Reed Smith has discussed in prior blog posts, the FCA continues to face scrutiny, with the Eleventh and Third Circuits currently considering the constitutionality of the qui tam provisions after a federal judge in Florida ruled that they violate the Appointments Clause. The Sixth Circuit recently rejected the opportunity to take up the constitutionality issue.
For now, however, FCA enforcement is in full force and shows no sign of slowing, particularly given the administration’s focus on combatting fraud. This record-breaking year underscores DOJ’s continued focus on addressing fraud through the FCA to protect taxpayer dollars.
Medicare Advantage and managed care enforcement
With the Medicare Advantage (Medicare Part C) program now representing the largest component of Medicare – both in terms of beneficiaries impacted and dollars spent – DOJ has continued to focus on this enforcement priority. DOJ’s 2025 FCA recoveries in managed care reflect several recurring themes:
- Unsupported diagnosis codes: Plans allegedly using retrospective chart reviews to add diagnoses without adequate documentation support, thus inflating risk scores and capitation payments;
- Retrospective “add-on” coding practices: Programs allegedly designed to identify additional codes long after visits, with limited involvement from treating providers;
- Physician/clinician pressure: Internal communications and incentive structures allegedly encouraging clinicians or contracted reviewers to capture more diagnoses, regardless of clinical relevance.
Although not part of its record recoveries in 2025, DOJ also intervened in pending qui tam matters against national insurers and regional health plans, alleging widespread addition of improper diagnoses and false certifications regarding the accuracy of risk-adjustment data and alleged kickbacks to broker organizations in exchange for enrollments into the respective insurers’ Medicare Advantage plans. Combined with the multiple large settlements in 2025, this signals that managed care will remain a central focus for DOJ in FCA enforcement for the foreseeable future.
Prescription drugs, pharmacies, and opioid-related theories
DOJ continued its pursuit of alleged misconduct relating to drug pricing, drug dispensing, and illegal kickbacks. These efforts resulted in substantial seven- to nine-figure settlements alleging a range of conduct, including:
- Kickbacks in the form of co-pay assistance to federal health care program beneficiaries;
- Kickbacks in the form of improper honoraria, meals, and travel expenses to physicians by manufacturers to induce prescribing;
- Dispensing drugs without valid prescriptions;
- Dispensing opioid prescriptions lacking evidence of legitimate medical purpose; and
- False and inflated Average Wholesale Prices.
Collectively, these cases demonstrate DOJ’s willingness to pursue the entire prescription drug supply chain, from manufacturers to pharmacies and even consultants.
Medical necessity and standard of care
Beyond pricing and kickbacks, the United States also pursued matters on the basis of medically unnecessary services and substandard care that allegedly put at risk the health and safety of vulnerable patient populations.
DOJ’s 2025 FCA recoveries included allegations of:
- Medically unnecessary surgical debridements;
- Inpatient hospital admissions when observation status or outpatient care was more appropriate; and
- Grossly substandard care.
Stark Law and Anti-Kickback Statute recoveries against providers
Fiscal Year 2025 also saw significant enforcement involving hospitals and health systems and other providers alleging violations of the Stark Law and/or the Anti-Kickback Statute. These seven- to eight-figure settlements included allegations of improper financial arrangements with employed or contracted physicians who either did not meet a technical Stark exception because the arrangements were not commercially reasonable or exceeded fair market value, or acted as an inducement to the physicians to refer items or services payable under a federal health care program.
False Claims Act trials
Because of the potentially astronomical financial exposure, FCA cases rarely proceed to trial, where defendants face treble damages and exorbitant per-claim penalties that regularly lead to hundreds of millions – if not billions – of dollars of exposure. Nonetheless, 2025 saw several high profile FCA trials across the country.
For example, two jury trials pursued by individual relators in the prescription drug space resulted in favorable verdicts on behalf of the United States. In one trial, a jury returned a $1.6 billion verdict arising from allegations that federal health care programs were induced by false and misleading claims about the safety of the drugs. This matter is now on appeal before the Third Circuit, with oral argument on the merits tentatively scheduled for the week of March 20, 2026. Another jury returned a $289 million verdict for causing two Medicare Part D plans to report false and inflated prices for generic drugs.
A third FCA jury trial resulted in a high-profile full defense verdict for a pharmaceutical manufacturer involving alleged kickbacks to prescribers in order to boost prescriptions. Although the United States declined to intervene in that respective matter, the State of Washington proceeded, alongside the relator physician. But after a three-week trial, the jury found in favor of the company on every claim. Notably, this lawsuit was initially filed in 2015, over a decade before the case was ultimately tried, demonstrating how long and arduous it can be to litigate an FCA matter.
Role of self-disclosure and cooperation
DOJ explicitly stated that the Department “remained committed to incentivizing and rewarding entities and individuals that self-disclose misconduct, demonstrably cooperate in the course of an investigation, and take effective remedial measures.” According to DOJ, qualifying cooperative measures include:
- Self-disclosures of misconduct;
- Assistance with the determination of government losses;
- Disclosures of internal investigations and facts not known to the government; and
- Remedial measures such as implementing compliance program enhancements or terminating culpable employees.
Though the DOJ materials do not quantify the specific credit afforded, DOJ stated that “[s]everal settlements over the last year acknowledged such cooperative measures and reflected credits afforded to the defendants in the form of reduced penalties or damage multiples in connection with the resolution.” For example, DOJ’s summary discussed a case that involved a self-disclosure, but it does not specify whether this resulted in a reduced damages multiple (e.g., 2x instead of 3x), reduced penalties, or both. Without knowing what the settlement would have been absent cooperation, it is impossible to measure the actual impact of the policy. Nonetheless, DOJ continues to reinforce the importance of self-disclosure and cooperation, and health care companies should continue to strongly consider the advisability of such an approach.
2026 and beyond: Reestablishment of the False Claims Act Working Group
2025 was a record year for FCA recoveries, and Reed Smith expects this trend will continue as DOJ and the Department of Health and Human Services (HHS) reestablished the DOJ-HHS False Claims Act Working Group after several years of being dormant. This reestablished working group is led by DOJ Deputy Assistant Attorney General for the Civil Division’s Commercial Litigation Branch and includes senior officials from HHS. The DOJ-HHS FCA Working Group will prioritize, among other areas:
- Medicare Advantage fraud;
- Drug, device, and biologics pricing;
- Kickbacks related to drugs, devices, and durable medical equipment;
- Electronic health record manipulation; and
- Barriers to patient access to care.
The DOJ-HHS FCA Working Group facilitates the sharing of information among and between government agencies and commercial insurance plans, and will leverage data to proactively identify fraud patterns that can be pursued civilly or criminally by DOJ and HHS. This could result in more matters being initiated based on data analytics and interagency referrals, which would be in addition to traditional qui tam filings, and more high dollar resolutions based on systemic cases against large insurers, health systems, and companies involved in the drug and device supply chain.
Beyond health care: DOJ’s expanding False Claims Act enforcement priorities
While health care enforcement continues to dominate FCA recoveries, DOJ’s FY 2025 results underscore a sustained and increasingly diversified focus on non-health care FCA enforcement. Military procurement, cybersecurity compliance, pandemic relief programs, and customs and trade fraud together accounted for billions in recoveries, myriad qui tam filings, and a growing pipeline of investigations. As outlined below, DOJ’s enforcement posture in these areas reflects not only financial concerns, but also broader policy priorities tied to national security, supply chain integrity, data protection, and government program integrity.
FCA enforcement in military procurement
Military procurement fraud accounted for a significant share of DOJ’s non-health care FCA recoveries in FY 2025. DOJ reported nearly $634 million in Department of War (DoW)-related recoveries, the second-highest annual total on record, though that figure was heavily driven by a single $428 million settlement reached early in the fiscal year. DOJ highlighted allegations involving false cost and pricing data, misuse of confidential procurement information, delivery of nonconforming military parts, and inflated subcontractor charges. Additional notable settlements included $62 million and $29.74 million defective pricing resolutions, a $21 million settlement for inflated subcontractor costs, and multiple matters involving substandard goods and services. Despite the increase in recoveries, enforcement activity remained steady, with 25 affirmative DOJ cases and 41 qui tam actions, consistent with recent years.
The civil cyber-fraud initiative gains momentum
Cybersecurity enforcement remained an active, though still developing, area of FCA activity in FY 2025. DOJ reported more than $52 million in recoveries across nine cybersecurity-related settlements, with the number of resolutions exceeding those reached in each of the prior two fiscal years. Despite this upward trend, individual recoveries remained relatively modest compared to health care and defense matters - the largest single cybersecurity settlement totaled $11.2 million. Nonetheless, DOJ reiterated that cybersecurity compliance in government contracting is a core enforcement priority, particularly where failures to safeguard systems or data implicate national security, sensitive government information, or critical infrastructure. DOJ’s continued emphasis suggests sustained investigative activity and a growing pipeline of cyber-related FCA matters.
COVID-era conduct and continuing FCA risk
Pandemic-related FCA enforcement also remained robust in FY 2025, generating more than $230 million in settlements and judgments across over 200 resolutions. The majority of these matters involved alleged fraud in connection with Paycheck Protection Program (PPP) loans, resulting in a high volume of cases but comparatively low per-matter recoveries, reflecting the relatively small size of most PPP loans. While pandemic relief programs have largely wound down, DOJ signaled that pandemic-related qui tam litigation, particularly PPP-based actions, continues to move through the enforcement pipeline, underscoring that COVID-era conduct remains an ongoing FCA risk.
Trade Fraud Task Force
DOJ continued to expand FCA enforcement in the customs and trade fraud arena, emphasizing tariff and duty avoidance as a growing priority. While FY 2025 recoveries in this area were relatively modest - the largest settlement totaled $12.4 million - DOJ previewed a $54.4 million FY 2026 resolution, described as the largest customs fraud settlement ever under the FCA. Cases in this space involved allegations of misrepresenting product classifications, country of origin, or disguising goods to evade duties, affecting industries ranging from flooring and plastics to furniture and industrial tools. DOJ’s launch of a cross-agency Trade Fraud Task Force signals continued and likely increased enforcement in this area.
Client Alert 2026-08
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