Effective August 1, 2016, the False Claims Act’s (FCA) civil penalty will double. As it currently stands, the FCA’s civil penalty ranges from $5,500 to $11,000 per violation. But as of August 1, the FCA’s civil penalty range will almost double to a minimum of $10,781 and a maximum of $21,563.
The increase is the result of an interim final rule issued yesterday by the Department of Justice. 81 Fed. Reg. 42491 (June 30, 2016). Although the increase was expected, it still reflects a dramatic increase in risk to those doing business with the federal government. Health care providers are uniquely at risk, because those entities are often sending thousands of claims to the federal government for reimbursement. When thousands of claims are at issue, the civil penalty can easily add up.
For example, in Tuomey, a widely-followed case involving the submission of 21,730 false claims, the jury entered a verdict in the government’s favor for $237 million. See U.S. ex rel. Drakeford v. Tuomey, No. 13-2219 (4th Cir. July 2, 2015). This verdict was comprised of actual damages and a substantial civil penalty. The actual damages were valued at approximately $39 million, but were then trebled to approximately $118 million. The civil penalty was valued at an astonishing $120 million, calculated by multiplying the 21,730 false claims by the then-minimum of $5,500.
Had Tuomey been decided under DOJ’s new rule, which increases the civil penalty minimum to $10,781, Tuomey would have been assessed a civil penalty of $234 million—in addition to the $118 million of treble damages—meaning that its total liability to the government would have been approximately $352 million. This is nearly ten times the amount of “damage” the government suffered in that case and reflects how extreme the penalties for FCA liability can be under the new rule.
Unlike past civil penalty increases, the government is requesting comments from the public. Public comments are due on August 29, 2016. Although we expect that the increases in the interim rule will become final, those conducting business with the federal government should nevertheless consider submitting comments. With a rule this consequential, we expect the DOJ will be inundated with comments from industry. If nothing else, it will be interesting to see how, if at all, DOJ addresses these comments in the final rule.
This post first appeared in the Government Contracts Blog.