Double, Triple Whammies and Rewards

Speaking of the False Claims Act, get ready to buckle up.

Starting Monday, an interim final rule by the U.S. Justice Department will nearly double the statute’s civil monetary penalties for each false claim. The minimum penalty will go from $5,500 to $10,781, and the maximum penalty will go from $11,000 to $21,563.

For defendants, this means you’re looking at a minimum fine of $10,781 for every allegedly false claim. Multiply that by hundreds or thousands of bills that the government may deem suspect, and you quickly run up some big numbers.

Already, the FCA’s penalties have implicated the Eighth Amendment’s ban on excessive fines in cases where they’ve far surpassed the government’s actual losses. In many of those cases, the Justice Department has avoided the constitutional question by forgoing or reducing the penalties it sought under the statute.

Now throw these new penalties in with the specter of treble damages, which means the government can recover three times its actual losses in addition to the penalties, and you’ve got double and triple whammies for government contractors—with corresponding rewards for the whistleblowers who sue them.

The new rule was required by the Bipartisan Budget Act of 2015, which directed all federal agencies to update their civil monetary penalties every year to account for inflation. For the False Claims Act, this first update catches up on inflation since 1986, which was the last time the Justice Department raised the penalties in such cases. Actually, that’s not true; the last time was 1999, but the new rule disregarded that because the Bipartisan Budget Act had repealed the underlying legislation.

The DOJ’s new penalties apply in both its civil and criminal division and across constituent agencies like the Drug Enforcement Administration (DEA), the Federal Bureau of Investigation (FBI), and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).

The rule may also budge many states to conform their own penalties to federal law. That’s because the federal government lets states keep ten percent more than their pro-rata share of a Medicaid-fraud recovery when they bring a case under state law. To be eligible, however, a state’s civil penalties must meet or exceed the federal ones.

The new rule is effective August 1, and it will apply to all cases that allege false claims after November 2, 2015, which is when the Bipartisan Budget Act became law. Although the Justice Department is soliciting public comment through August 29, the rule is already final and will go effective next week.

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