Federal agencies are nearly doubling penalties for False Claims Act violations.
Following the lead of the Railroad Retirement Board, the U.S. Department of Justice (DOJ) recently published an Interim Final Rule on June 30 that nearly doubles the minimum penalties that can be assessed for violations of the False Claims Act (FCA). This action was taken based on a provision of the budget law signed by President Obama last November.
Under the DOJ rule, the mandatory minimum penalty has increased from $5,500 to $10,781 per claim, and the mandatory maximum penalty has increased from $11,000 to $21,563 per claim, plus three times the amount of the government’s actual damages.
This “catch-up adjustment” is based on the increase in the Consumer Price Index since FCA penalties were last adjusted by statute in 1996. The change had been expected because beginning this year, federal law requires each agency to adjust penalties on an annual basis for each law within its respective jurisdiction. Although agencies have the authority to implement less than the full amount of increase if doing so would produce a “negative economic impact,” the DOJ stated that it will not invoke that authority.
The increased amounts are applicable only to penalties assessed after Aug. 1, 2016, whose associated violations occurred after Nov. 2, 2015. The rule is still open for comments, which are due by Aug. 29, 2016.
The effective date may vary from agency to agency. For example, the Railroad Retirement Board’s (RRB) rule provides that its increased penalties will apply only to claims made to it on or after Aug. 1, 2016. Other agencies are expected to increase their penalties as well.
Coupled with the existing FCA provisions that allow for triple damages, “this substantial increase in FCA penalties could give rise to astronomically large judgments,” says Alison Tanchyk, a litigation partner in the Miami office of Morgan, Lewis & Bokius. “Those judgments may be ripe for constitutional challenge, however, because they result in punitive recoveries completely out of proportion to the gravity of a violation.” Excessive fines are prohibited by the Eighth Amendment to the U.S. Constitution, she adds.
Compliance officers, hospital financial officers, and legal counsel should redouble their efforts to detect and prevent possible false claims. This is especially so in light of the U.S. Supreme Court’s recent holding in Universal Health Services, Inc. v. United States ex rel. Escobar that “implied certification” is a valid theory for FCA liability in some circumstances.
See related article: High Court Decides False Claims Act Case
J. Stuart Showalter, JD, MFS, is a contributing editor for HFMA.
Interviewed for this article: Alison Tanchyk is a litigation partner in the Miami office of Morgan, Lewis & Bockius.