False Claims Act Violations to Become Much Costlier Starting August 1

On June 29, the U.S. Department of Justice (DOJ) confirmed that penalties for False Claims Act (FCA) violations will increase substantially. The DOJ’s interim final rule nearly doubles the per violation penalty for FCA violations, boosting the minimum penalty to $10,781 (up from $5,500) and the maximum penalty to $21,563 (up from $11,000). The increased penalties will become effective on August 1, 2016, but will retroactively apply to claims brought after November 2, 2015.

The dramatic increase stems from the Bipartisan Budget Act of 2015, which required federal agencies to adjust civil monetary penalties under their jurisdiction to account for inflation from the time the penalty was last increased. This “catch up adjustment” applies a cost-of-living adjustment percentage based on the amount by which the Consumer Price Index (CPI) of October 2015 exceeds the CPI of the year in which the penalty amount was established or adjusted. For the FCA, the benchmark is the originally enacted penalties set in 1986, meaning the “catch up adjustment” accounts for 30 years of inflation.

Because FCA penalties are assessed on a per claim basis – which often can number in the hundreds or thousands for many health care and pharmaceutical companies – the increased penalties may lead defendants to settle more frequently with whistleblowers and the government to avoid enormously costly trial verdicts. Practically speaking, the increase may have little impact on the vast majority of FCA settlements, which typically do not include penalties, merely an agreed upon multiplier of the government damages (up to treble damages).

Regardless, the increase in penalties certainly increases a company’s risk exposure. On the other hand, defendants may now have a stronger argument that FCA penalties are unconstitutional under the Eighth Amendment’s prohibition on “excessive fines.” In either case, the increased penalties make one thing patently clear: FCA litigation will become an even more high-stakes exercise on August 1.