In an interim final rule just released, the amount of civil monetary penalties under the False Claims Act would double; inciting panic among many, including health care providers, who fear similar increases which could lead to frightening effects.
The False Claims Act (FCA), found at 31 U.S.C. § 3729, provides that any person who knowingly submits or causes the submission of a false or fraudulent claim for payment to the government must pay a civil penalty. There is no requirement for proof of specific intent under the FCA. While the FCA applies to any person who submits a false claim to the government for reimbursement, of the $3.5 billion recovered by the Department of Justice in fiscal year 2015 from FCA settlements and judgments, $1.9 billion came from companies and individuals in the health care industry.1
In November 2015, Section 701 of the Bipartisan Budget Act of 2015, entitled the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act), went into effect amending the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 1990 (28 U.S.C. 2461) to require agencies to publish regulations adjusting the amount of civil monetary penalties (CMPs) provided by law within the jurisdiction of the agency by July 1, 2016. The 2015 Act requires a one-time catch-up adjustment, followed by subsequent annual adjustments.
On May 2, 2016, The Railroad Retirement Board became the first federal agency to publish its interim final rule adjusting FCA penalties for inflation, as required under the 2015 Act. As explained in the interim final rule, the formula for adjusting the amount of CMPs was given by statute, with no discretion by the agency. The adjustment amount was calculated based on the percent change between the CPI-U for October of the last year in which penalties were previously adjustment and the CPI-U for October 2015. According to the Railroad Retirement Board, the new, post-adjustment minimum penalty under the FCA would increase from $5,500 to $10,781. The new, post-adjustment maximum penalty would increase from $11,000 to $21,563. The adjustment is a whopping 216 percent penalty increase.
The Railroad Retirement Board is just the first agency to make the adjustments. Other agencies will be making their adjustments, which should be similar if not identical, before the July 1 deadline. While the 2015 Act gives agencies discretion to adjust the amount of CMP by less than the required amount if the increase would have “a negative economic impact,” it is unlikely that agencies will pass up an opportunity to receive the maximum amount allowed by law. For health care providers, the increase is especially daunting considering the penalty amount would apply to each false claim submitted to the government for payment. The increase will also boost the Department of Justice’s and Relators’ leverage in settlement discussions. On the flip side, this massive increase may also fuel arguments about the Eighth Amendment Excessive Fines Clause. In particular, an Eighth Amendment argument could be successful in a case involving a vast number of false billing claims but only a small amount of actual damages.
In light of this considerable increase in FCA penalties and the impending release of other agencies’ similar adjustments, it is vital that health care agencies develop and implement a strong compliance plan by working closing with their health care counsel to evaluate their programs and make changes where necessary.
The Interim Final Rule, which increased the FCA penalty amount, can be found here.
The 2015 Act, which requires agencies to adjust the amount of CMPs, can be found here.
1“Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015”, The Department of Justice, December 3, 2015.