The Bipartisan Budget Act of 2015 (H.R. 1314), signed into law by President Obama November 2, 2015, will increase the civil monetary penalties (CMPs) imposed under the Social Security Act (SSA) in addition to False Claims Act (FCA) penalties (among other civil penalties). Under an innocuous-sounding provision, entitled “Civil monetary penalty inflation adjustments,” the budget deal removed an inflation update exclusion that previously applied to the SSA as well as the Occupational Safety and Health Act (OSHA). The budget deal also requires that federal agencies implement a “catch up” penalty update through interim rulemaking no later than August 1, 2016, along with annual penalty updates thereafter.

Pursuant to the provision requiring penalty “catch up” adjustments, agencies must update penalties to reflect Consumer Price Index (CPI) updates for each CMP from October of the calendar year during which the amount of such CMP was established or last adjusted under a provision of law other than the Federal Civil Penalties Inflation Adjustment Act of 1990. However, such “catch up” adjustment are capped at 150% of the current penalty amount. For example, a penalty now set at $10,000 may not increase to more than $25,000. Under this “catch up” methodology, per day CMPs imposed on nursing facilities under the SSA, currently capped at $10,000, will likely increase to approximately $20,000 no later than August 1, 2016. The nursing facility CMP update to approximately $20,000 would reflect the inflation updates since the establishment of these CMPs in 1987. After the initial, “catch up” update, annual adjustments will be made consistent with CPI cost-of-living updates.

Note that there is an exception process built into the statutory framework with respect to the “catch up” adjustment. Under the exceptions process, the head of the agency may make the first adjustment less than that prescribed by statute if, after publishing a notice of proposed rulemaking and providing an opportunity to comment, the agency determines (1) increasing the CMP by the otherwise required amount would have a negative economic impact; or (2) the social costs of increasing the CMP by the otherwise required amount outweigh the benefits and the Office of Management and Budget concurs with the assessment under (1) or (2). Given the nature of the exceptions process, it seems unlikely that agencies will seek exceptions.

The FCA penalty adjustment will help the government’s negotiating position when the government brings FCA allegations against a health care provider or supplier because a provider or supplier’s potential liability will be even greater—potentially forcing the provider to settle (for even a larger amount). That being said, the inflation increase for the FCA penalties merely strengthens an already-available, and powerful, tool used by the government and qui tam relators.