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FMG Law Blog Line

DOJ Nearly Doubles False Claims Act Penalties, Increasing Risk of Litigation and Potential Liability

Posted on: August 30th, 2016

By: Michael Wolak III

On June 30, 2016, the Department of Justice (“DOJ”) issued an Interim Final Rule that nearly doubles civil penalties for False Claims Act (“FCA”) violations. The FCA is a federal law that prohibits anyone from submitting false or fraudulent claims to the federal government for payment. See 31 U.S.C. § 3729(a). In addition to penalties for each violation, the FCA imposes treble damages, or three times the amount of damages that the federal government sustains because of the false claim. The DOJ’s new rule – which adjusts the penalties to account for inflation – went into effect on August 1, 2016 and increases the penalty range for FCA violations by 96 percent, from $5,500 – $11,000 per violation to $10,781 – $21,563. The DOJ proposes to apply this rule retroactively to conduct that occurred nine months prior to August 1, 2016.

The increased penalties under the FCA have major implications for health care providers and government contractors who submit a significant number of claims for payment for their services to the federal government on a regular or daily basis each year. Consider, for example, a government contractor that submitted ten false claims per day over a three-year period, or 10,950 false claims. Under the DOJ’s new rule, maximum penalties surge from $120,450,000 to more than $236,000,000, before treble damages are factored in.

In addition to the increased potential liability imposed by the new rule, FCA claims will likely rise as the increased penalties give whistleblowers more incentive to allege fraud on behalf of the government. The qui tam provisions of the FCA allow a private individual with knowledge of FCA violations (called a “relator”) to bring a civil action on behalf of the federal government and receive a percentage of the monetary recovery, typically between 15 and 30 percent. With penalties nearly doubled, whistleblowers will be more incentivized to bring a qui tam action. We may also see defendants increasingly arguing that the penalties are disproportionate to any actual damages sustained by the government, constituting an excessive fine in violation of constitutional rights.

In fiscal-year 2015 alone, the DOJ recovered more than $3.5 billion in FCA settlements and judgments. Indeed, state and federal governments have already amassed more than $1.86 billion in FCA recoveries as of August 2016. Accordingly, health care providers and all those who do business with the federal government should take steps to minimize FCA exposure and liability, including carefully vetting and selecting contractors that perform billing functions; implementing appropriate policies and procedures and effective internal oversight to ensure compliance with applicable government regulations; and maintaining an awareness and understanding of legislative and regulatory developments that may affect the company’s liability under the FCA.

To learn more about the FCA’s constantly evolving framework and operation along with practical guidance to help your organization avoid or limit FCA liability, please contact Michael Wolak III (770-303-8638), John H. Goselin (770-818-1423) or Michael P. Bruyere (770-818-1435).

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