Billions to Boundaries: What Record False Claims Act Recoveries Mean for 2026 Compliance

Fiscal year (FY) 2025 will be remembered as a landmark year for the False Claims Act (FCA). On January 16, 2026, the U.S. Department of Justice (DOJ) announced record-setting recoveries from FCA settlements and judgments. At the same time, FCA jurisprudence in 2025 refined—and in some cases narrowed—the statute's reach. Together, these developments frame a complex enforcement environment as companies enter 2026.

This alert summarizes DOJ's FCA recovery announcement, highlights notable defense-friendly judicial outcomes from 2025, and outlines key FCA enforcement trends to watch in 2026.

DOJ Reports Record FCA Recoveries for FY 2025

DOJ reported that FCA settlements and judgments exceeded $6.8 billion in FY 2025 (ending September 30, 2025), the highest total in the statute's history. More than $5.7 billion of that amount (almost 84%) arose from healthcare matters, maintaining healthcare as the epicenter of FCA enforcement.

Whistleblower activity also reached new heights, with 1,297 new qui tam actions filed in FY 2025—another record—and 401 new DOJ investigations opened. Relator-driven litigation continues to fuel enforcement volume and recovery, with $5.3 billion (almost 78%) of the FY 2025 recovery sourcing to whistleblower lawsuits.

The DOJ highlighted continued enforcement priorities extending into 2026, including managed care (evidenced by DOJ's January 2026 announcement of a $556 million settlement of an intervened Medicare Advantage risk adjustment qui tam, resolving allegations that inaccurate diagnosis coding inflated risk scores and led to overpayments by CMS), medically unnecessary services, cybersecurity compliance, procurement integrity, and emerging policy-driven FCA theories.

Defense-Friendly FCA Outcomes in 2025: Courts Reassert Limits

Against this FCA enforcement momentum, 2025 also produced meaningful judicial developments favorable to defendants.

Deference to Clinical Judgment on Medical Necessity

In December 2025, the First Circuit held that in FCA cases alleging Medicare fraud based on laboratory testing, a lab can rely on a doctor's order to show that a test is reasonable and necessary. United States ex rel. Omni Healthcare, Inc. v. MD Spine Solutions, LLC, 160 F.4th 248 (1st Cir. 2025).

The court emphasized that FCA liability turns on actual knowledge and belief, not hindsight critiques of medical decision making, relying on the Supreme Court's 2023 decision in United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023). The First Circuit refused to require labs to second-guess medical necessity and police physician medical judgments, rejecting using the FCA as a substitute for utilization management absent evidence of fraud. Notably, the court expressed skepticism toward the relator medical practice that attempted to engineer an FCA case by directing staff to order more expensive tests, signaling that courts may not look favorably on efforts to manufacture FCA liability.

Although binding only in the First Circuit, Omni is likely to be cited nationwide as lab defendants challenge medical necessity-based FCA theories. But Omni's safe harbor is not absolute—it may be overcome if a plaintiff raises a genuine dispute of material fact as to the lab's knowledge. Labs, therefore, must remain alert to improprieties that could undermine clinical reliance, and recognize that other FCA theories—like those predicated on Anti-Kickback Statute (AKS) violations, which were not at issue on appeal—may still present risk post-Omni.

But-For Causation More Firmly Planted in AKS-Based FCA Cases

In another important 2025 First Circuit ruling, the appellate court held that an alleged AKS violation gives rise to FCA liability only if the kickback was the but-for cause of the submitted claim. Interpreting the AKS "resulting from" provision, the First Circuit rejected a more attenuated causation standard, raising the evidentiary bar for AKS-based FCA claims.

The decision aligns the First Circuit with the Sixth and Eighth Circuits and deepens the divide with the Third Circuit, which continues to apply the more lenient "causal link" standard. The but-for requirement presents a significant hurdle where plaintiffs cannot show that the claim would not have been submitted absent the alleged kickback. Notably, on remand, the government pivoted away from claim-by-claim falsity, advancing a false certification theory instead.

Although Supreme Court review is widely anticipated if the split persists, the Third Circuit's approach increasingly appears isolated—suggesting that but-for causation may emerge as the dominant standard for AKS-based FCA liability.

Successful Challenges to DOJ Subpoenas

In the latter half of 2025, recipients of DOJ subpoenas directed at entities involved in gender-affirming care successfully moved to quash or narrow those demands. Courts credited arguments that the subpoenas were issued for an improper purpose, sought highly sensitive patient and provider information unrelated to any congressionally authorized investigation, and were impermissibly overbroad, vague, or unduly burdensome.^[1] These rulings reflect growing judicial skepticism of enforcement efforts that stretch investigative authority beyond clearly defined statutory limits.

Qui Tam Constitutional Challenges Continue to Percolate

Constitutional challenges to the FCA's qui tam provisions are likely to continue shaping FCA litigation in 2026. Defendants have argued that allowing private relators to litigate on behalf of the United States violates Article II and separation-of-powers principles by vesting executive enforcement authority in private actors.

While no circuit court has yet invalidated the qui tam framework, challenges remain pending, with particular focus on the Eleventh Circuit. See United States ex rel. Zafirov v. Fla. Med. Assocs., LLC, Nos. 24-13581 & 24-13583 (11th Cir., argued Dec. 12, 2025). Continued appellate attention suggests that constitutional arguments will remain part of the defense toolkit, especially in high-stakes cases where DOJ declines to intervene.

FCA Enforcement Trends to Watch in 2026

Several trends are poised to shape FCA risk in the coming year:

• DEI-Related FCA Theories. DOJ has signaled increased interest in using the FCA to pursue alleged misrepresentations tied to DEI certifications by federal funding recipients and contractors, as we reported here. The FCA defense bar may blunt the disruptive impact of those CIDs by moving to set aside or limit the information sought, mirroring successful challenges in 2025 to DOJ gender-affirming care subpoenas.
• Customs and Tariffs. FCA enforcement in customs and tariff matters continues to expand, as reflected in 2025 FCA settlements across a broad range of industries—including flooring, aluminum components, metals, and specialty chemicals. As trade policies and enforcement priorities evolve, DOJ is likely to continue pursuing allegations involving undervaluation, misclassification, and duty evasion.
• Cybersecurity Compliance. DOJ has made clear that failures to meet cybersecurity requirements tied to federal contracts or funding—and misrepresentations about compliance—may give rise to FCA liability, as illustrated in July 2025 settlements here and here.
• Medicare Advantage and Managed Care. The January 2026 Medicare Advantage settlement underscores that Medicare Advantage risk adjustment remains an enforcement priority, driven by data analytics, audits, and whistleblower activity.

Conclusion

The FCA landscape entering 2026 is defined by record-setting enforcement and sharpened legal boundaries. Record recoveries do not signal diminished defenses, as courts continue to impose meaningful limits on FCA liability. Companies should prepare for sustained scrutiny, including under novel FCA enforcement theories, while recognizing that courts remain an essential counterbalance in an era of aggressive enforcement.