Life science companies, health care providers, and government contractors will be at risk for significantly larger penalties due to substantial increases to False Claims Act (FCA) penalties and civil monetary penalties (CMPs). These penalty increases cover a broad range of health care violations, including the Stark Law, the Anti-Kickback Statute, the Emergency Medical Treatment and Labor Act (EMTALA) and the Health Insurance Portability and Accountability Act (HIPAA). The Department of Justice (DOJ) and the Department of Health and Human Services (HHS) recently announced these “adjustments” to account for inflation – in one case, accounting for more than 40 years of inflation. In particular, the new FCA penalties are nearly double, and CMPs for both the Stark Law and the Anti-Kickback Statute have increased approximately fifty percent.

The Bipartisan Budget Act of 2015 (Budget Act) mandated that federal agencies implement inflation adjustments to CMPs under their enforcement purview by August 1, 2016. As a result, several federal agencies have issued final rules implementing the adjustments, including the DOJ and HHS, as of September 2, 2016. The new penalty amounts are effective for fines assessed after August 1, 2016, and are applicable to violations that occurred after November 2, 2015. Importantly, CMPs will continue to increase as federal agencies are now required to release annual inflation adjustments.

As many companies with potential FCA exposure feared, the DOJ announced particularly significant increases to FCA penalties. On June 30, 2016, the DOJ announced that the penalties will nearly double under a federal regulation released as part of an interim final rule. The DOJ’s drastic increase to the FCA penalties had been somewhat anticipated since May 2016, when the Railroad Retirement Board, an agency with occasional FCA cases involving fraudulent benefit claims, was the first agency to announce a sharp increase to FCA penalties.

The FCA already provided for treble damages, plus penalties. The DOJ’s regulations increase the penalties from a minimum of $5,500 and a maximum of $11,000 to a minimum of $10,781 and a maximum of $21,563. The last time that the DOJ’s FCA penalties were adjusted was 1996, pursuant to the Debt Collection Improvement Act of 1996, which increased the penalty range from $5,000 - $10,000, to $5,500 - $11,000.

HHS released an interim final rule on September 2, 2016, which implements increased penalties for a variety of health care violations, including violations under the purview of the Office of Inspector General, Food and Drug Administration, Centers for Medicare and Medicaid Services, and the Office of Civil Rights. HHS’s increased CMPs will impact numerous entities that conduct business with Medicare and Medicaid, including health care providers, pharmaceutical manufacturers, and managed care organizations.

Health care providers, in particular, should be aware of the increased penalties for violations to a number of health care fraud and abuse laws. For instance, the penalty for submitting claims in violation of the Stark Law increased from $15,000 to $23,863 per violation. These penalties are applied for each Medicare and Medicaid claim submitted while a provider is not in compliance with the Stark Law, so the total amount of penalties already had the potential to be enormous. Furthermore, the penalty for circumventing the Stark Law’s restrictions increased from $100,000 to $159,089.

In addition, CMPs for violations of the Anti-Kickback Statute are now $73,588, an increase from the previous penalty of $50,000. These CMPs are in addition to potential criminal fines of $25,000 per violation.

HIPAA Covered Entities, which are health care providers, health plans, and health care clearing houses, face maximum penalties of $55,010 per violation of HIPAA’s administrative simplification provisions and an annual cap of $1,650,300. The previous maximum penalties were $50,000 per violation and an annual cap of $1,500,000.

Fines for EMTALA violations have more than doubled: Hospitals with 100 beds or more that dump patients in need of emergency care in violation of EMTALA may incur penalties of up to $103,139, a drastic increase from the previous $50,000 penalty that was last updated in 1987. Hospitals with less than 100 beds may incur penalties of up to $51,570, up from $25,000. Responsible physicians that dump patients also are subject to these increased penalties.

The entire list of HHS’s increased CMPs is available below.

The significant increase to FCA penalties and HHS’s CMPs will have a substantial impact on potential exposure for life science companies, health care providers, and government contractors. Those subject to FCA scrutiny may feel added pressure to settle or litigate FCA claims due to these increased penalties. In light of a recent United States Supreme Court decision and prior significant recoveries by the government, FCA investigations and litigation are likely to increase.

Given these harsh FCA penalties and CMPs for fraud and abuse violations, life science companies, health care providers, government contractors, and other companies in highly regulated industries that rely on government funding should focus on compliance to mitigate against the increasingly expensive ramifications of government investigations and lawsuits.