DOJ Rule Confirms That FCA Penalties Will Nearly Double Effective August 1, 2016

As we reported here, the Bipartisan Budget Act of 2015 (“the Act”) required all federal agencies to increase the civil monetary penalties within their purview.  While the adjustment is painted as a “cost-of-living adjustment,” the first step up is a jarring one: agencies must take penalties as they were last adjusted by law (other than under the Inflation Adjustment Act), and increase each penalty by the change in the Consumer Price Index (“CPI”) since that time.  The Act requires agencies to make adjustments effective no later than August 1, 2016.  Yesterday DOJ released an interim final rule (available here), announcing adjustments to the penalties it enforces, including penalties under the FCA.

Setting aside the Inflation Adjustment Act, FCA penalties were last adjusted in 1986.  DOJ’s adjustment of those 1986 penalties ratchets up the minimum per claim penalty from $5,000 to $10,781 and the maximum per claim penalty from $10,000 to $21,563.  Penalties will continue to increase each year consistent with any increases in the CPI.  Federal agencies had an option to pursue an exception to the Act’s required hikes.  However, DOJ expressly notes that it is declining to invoke its authority to increase any of the penalties under its jurisdiction by less than the required amount.  These higher rates have a moderate retroactive scope: they apply to any penalties assessed after August 1, 2016, so long as the conduct occurred after November 2, 2015, which is the date of the Act’s enactment.

DOJ is offering a 60-day period for public comment and it “welcomes public comment on the changes made.”  The Congressional Review Act (“CRA”) requires “major rules” to go into effect no sooner than 60 days after publication in the Federal Register.  Although DOJ is offering a 60-day comment period, the rule will go into effect before the comment period closes, based on DOJ’s conclusion that this rule is not a “major rule.”  The CRA defines a “major rule” as one that either: 1) has an annual “effect on the economy” of $100M or more; 2) leads to “a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions”; or 3) has “significant adverse effects on competition, employment, investment, productivity, [or] innovation.”

Despite DOJ’s conclusions about the impact of this rule, the sheer magnitude of the increases in FCA penalties threatens significant consequences to industries that are frequently the subject of FCA suits.  The increases also portend more robust constitutional objections to FCA penalties (as discussed here and here), particularly for companies submitting a high volume of claims.