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Annual Inflation Adjustment Raises False Claims Act Penalties

Posted  December 16, 2021

As of December 13, 2021, each separate violation of the False Claims Act exposes defendants to a per-claim penalty between $11,803 and $23,607.  The increase is part of the Civil Monetary Penalties Adjustment for 2021, a rule issued by the Department of Justice in accordance with the Bipartisan Budget Act of 2015 as part of annual adjustment for inflation.  The increase is small – the prior range was $11,665 – $23,331 – but we love an opportunity to talk about FCA penalties.  The mandatory penalties of the False Claims Act can act as an important deterrent to wrongful conduct, as well as a mechanism to recover for harm that is often difficult to measure.

Penalties under the False Claims Act

Under the False Claims Act, the government may recover three times its actual losses, referred to as “treble damages.”  In addition, a defendant may be liable for penalties for each violation of the act: each false claim submitted or caused to be submitted by the defendant, each false statement made, or each individual violation.

Per-claim penalties were part of the original False Claims Act in 1863, with the amount then set at $2,000.  With the 1986 FCA amendments, a range was added, and the per-claim penalties were set at $5,000 – $10,000 per violation.

FCA penalties are mandatory.  As set forth in the language of the act, anyone who violates the act “is liable to the United States Government for a civil penalty of not less than $5,000, and not more than $10,000,” which amount is adjusted for inflation on a periodic basis.

Adjustments for inflation were first made in 1999.  Since 2016, adjustments have been made annually.  And, while the amount of penalties was previously calculated based on the penalty amount at the time of the violation, penalties are now calculated based on the penalty amounts in effect at the time the penalties are assessed.

What Whistleblowers Want to Know about False Claims Act Penalties

Whistleblowers often quickly identify that penalties can add up fast.  Fraudulent schemes can result in the submission of thousands of actual false claims.  For example, a healthcare provider who adopts a practice of upcoding a certain kind of procedure or diagnosis may submit thousands of upcoded claims annually.  Even if each individual false claim results in only a small overcharge, penalties would add over $10,000 to each false claim.  In a 2015 healthcare case, a jury found that Tuomey Healthcare Systems submitted 21,703 false claims in violation of the Anti-Kickback Statute.  While the false claims were valued at $39 million, the trial court imposed penalties of nearly $120 million.  The sizable penalties that be imposed under the False Claims Act are designed to be a substantial deterrent to defendants.

In addition, penalties can be useful where actual damages are difficult to calculate or prove.  The False Claims Act is designed to make the government whole and compensate for the various injuries that may flow from a defendant’s fraudulent scheme.  Fraud harms the government in ways beyond overpayments, including by undermining the procurement process or misdirecting government resources.  As an example, the government offers mortgage insurance and other forms of loan guarantees, requiring issuers and lenders to comply with program requirements.  When issuers and lenders don’t follow the rules, the government guarantees loans that do not meet program requirements.  The goals of the programs are undermined, but damages in such a situation can be difficult to assess, in part because the government may never be required to perform under the guarantee.  Per-claim penalties can help fill this gap.  In 2017, $12,950,000 in FCA penalties was imposed on Allied Home Mortgage and related entities following a trial that found them liable for fraudulently certifying FHA loans.

While hypothetical penalty calculations can result in eye-popping numbers, there are often limitations on their practical impact on a case.  First, in cases with substantial penalties, or where per-claim penalties bear little relationship to proven damages, defendants can argue – and some courts have agreed – that the penalties violate the Excessive Fines Clause of the Eighth Amendment.  Second, while penalties are mandatory after trial, they are often disregarded in settlements of False Claims Act cases.

If money is recovered for the government in a qui tam case, the whistleblower is ordinarily entitled to a share of that recovery – including any FCA penalties recovered.  Experienced whistleblower attorneys can help assess potential claims under the False Claims Act, including potential damages and penalties.

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