On June 30, 2016, the Department of Justice announced that it will double the per-violation civil penalties assessed under the False Claims Act (“FCA”), 31 U.S.C. § 3729. DOJ’s interim final rule will raise the minimum per-violation penalty from $5,500 to $10,781 and the maximum penalty from $11,000 to $21,563. 81 Fed. Reg. 42491 (June 30, 2016).[1] The change becomes effective on August 1, 2016 and will apply only to claims filed after November 2, 2015.

While dramatic, the increase was a response to something much more gradual—inflationary changes. Section 701 of the Bipartisan Budget Act of 2015, Pub. L. 114-74 (Nov. 2, 2015), requires federal agencies to update the civil monetary penalties within their jurisdiction to account for inflation. Specifically, the “head of an agency” must adjust civil monetary penalties through an interim final rule no later than July 1, 2016 and have the adjustment take effect by August 1, 2016.

Each agency’s 2016 adjustment, referred to as a “catch-up,” has to reflect the difference between the Consumer Price Index (“CPI”) in October of the year in which the penalty was last adjusted and the CPI for October 2015. Since DOJ last adjusted the FCA’s civil monetary penalties in August 1996, the current change captures almost 20 years of inflation.[2]

The increase will have far-reaching implications for companies accused of violating the FCA. Not only will the higher range increase a company’s overall financial exposure, but the mandatory nature of these penalties will significantly increase the risks associated with a negative verdict. In other words, even if a company can persuade the trier-of-fact that the actual loss was very low, it will still face a heavy penalty for the violation. At the same time these increased risks are incentivizing companies to settle, they are arming Government with a much better bargaining position. This increased leverage will likely lead to more expensive FCA settlements.[3]

Companies whose business necessarily requires a high volume of claims, such as government contractors, health care providers or pharmaceutical manufacturers, should be especially cautious going forward. Since the harm from the increased penalty is compounded not by the gravity of the violation but by the quantity of violations, this change will disproportionately affect companies who send a significant number of claims to the federal government. In light of this increased risk, high-volume submitters should consider auditing their claim submission process for implied certification risks[4] to avoid paying massive penalties for errors.[5]

The interim final rule is subject to a period of public comment. All public comments are due on August 29, 2016.rule has the potential to be grossly disproportionate to the government loss. Accordingly, a company faced with a massive civil penalty due solely to the volume of improper submissions may have a claim for an as-applied Eighth Amendment violation