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Mandatory FCA Per Claim Penalties Dramatically Increased from $11,000 to $21,563

The penalties are potentially astronomical for entities with FCA exposure.

In addition to treble damages, the False Claims Act (FCA) provides for mandatory penalties for each false claim submitted “of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990.”[1] Presently, adjusted penalties under the FCA range from $5,500 to $11,000. Effective August 1, 2016, however, that range will nearly double, with the mandatory minimum penalty increasing from $5,500 to $10,781 and the mandatory maximum penalty increasing from $11,000 to $21,563.

The increased penalties will apply for claims or statements made on or after August 1, 2016 and before January 1, 2017. For claims or statements made on or after January 1, 2017, the range for penalties will be the larger of either (i) the amounts specified for the previous year (i.e., from $10,781 to $21,563) or (ii) the amounts from the previous year further adjusted for inflation.

The adjustment was announced in an interim final rule published without notice or comment on May 2, 2016 by the US Railroad Retirement Board.[2] Penalties have not been adjusted for inflation since 1996, when they were only modestly increased from $5,000 to $5,500 and $10,000 to $11,000, respectively. The 1996 adjustment was modest by necessity, as adjustments were capped at that time by statute to 10% of the original penalty amount or range. Significantly, that statutory cap is no longer in effect. Under the Bipartisan Budget Act of 2015, Public Law 114-74, the new limitation is 250% of the pre-adjustment penalty amount or range.

Because the recently announced adjustment is based on a 215% change in the consumer price index for all urban consumers (CPI-U) between October 1986 and October 2015, it does not reach the new limitation. However, the increase is nonetheless significant for entities with FCA exposure.

Mandatory penalties are potentially astronomical for entities that may submit hundreds of thousands, if not millions, of claims to the government for payment over relatively short periods of time. That already extreme exposure will now be almost twice as much. However, civil penalties under the FCA that are disproportionate to the gravity of the underlying offense have been successfully challenged on the basis that they violate the Excessive Fines Clause of the Eighth Amendment.[3]

[1] 31 U.S.C. §3729.

[2] 81 Fed. Reg. 26,127 (May 2, 2016).

[3] See e.g. U.S. ex re. Smith v. Gilbert Realty Co., Inc., 840 F. Supp. 71 (E.D. Mich. 1993) (holding that penalty above $35,000 would be excessive under the Eighth Amendment in light of the underlying conduct); see also U.S. ex rel Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390 (4th Cir.)  (permitting relator to accept $24 million notwithstanding statutory minimum to bring judgment within the confines of the Eighth Amendment). 

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About this Author

Eric Sitarchuk, Morgan Lewis, litigation attorney

Eric W. Sitarchuk represents clients in government investigations and white-collar litigation. With 30 years of experience in this area, he represents clients in a wide variety of white-collar criminal matters, False Claims Act (FCA) and qui tam litigation, and Foreign Corrupt Practices Act (FCPA) and other complex federal and state investigations. Working with boards of directors, audit committees, and corporate management, Eric has conducted numerous internal investigations, and advised on the creation and implementation of corporate compliance and ethics programs. He...

Alison Tanchyk, Morgan Lewis, life sciences lawyer

Alison Tanchyk handles government and internal investigations, complex civil litigation, and compliance and regulatory cases, with an emphasis on Foreign Corrupt Practices Act (FCPA), Anti-Kickback Statute (AKS), and False Claims Act (FCA) matters. Companies and individuals rely on Alison to defend against investigations alleging violations of the FCPA, AKS, and FCA, and involving allegations of healthcare, tax, and securities fraud, and other business frauds. Corporate leaders and Boards also seek Alison’s counsel on matters related to developing, implementing, evaluating, and auditing internal compliance and ethics programs. ​

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As part of her comprehensive white collar litigation practice, trial lawyer Meredith S. Auten concentrates on Civil False Claims Act (CFCA) and qui tam actions involving a range of corporate clients, including those in the pharmaceutical, healthcare, and defense contracting industries. Meredith regularly defends corporations and their employees against government charges involving alleged trade secret, intellectual property, and antitrust violations, as well as healthcare, procurement, tax, bank, and securities fraud. She also defends clients in complex government...

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A commercial and white-collar litigator, Rebecca J. Hillyer concentrates her practice on complex business fraud, False Claims Act (FCA) and qui tam litigation, healthcare fraud, business disputes related to competition issues, trade secrets, mergers and acquisitions, and product liability cases. Becca represents clients in the medical device, pharmaceutical, healthcare, technology, and financial services industries. Becca is a member of the firm’s Commercial Litigation Steering Committee, and she serves on the Recruiting and Pro Bono Committees.

Holly Barker, Healthcare Attorney, Morgan Lewis

Holly C. Barker counsels clients on US federal and state healthcare fraud and abuse enforcement and regulatory matters, primarily defending companies in False Claims Act (FCA) actions. Holly represents pharmaceutical and medical device manufacturers, hospital systems, long–term care facilities, clinical laboratories, physicians, and senior healthcare executives in complex criminal, civil and administrative fraud and abuse matters before US Attorneys’ Offices, the HHS Office of Inspector General, and state MFCUs.