Federal Agencies Can Now Directly Pursue FCA Cases Up to $1M
Embedded in the FY 2025 National Defense Authorization Act, signed into law on December 23, 2024, is a provision that could significantly impact agency enforcement activity: the Administrative False Claims Act (“AFCA”). Enforcement of the federal FCA is currently limited to DOJ and whistleblowers, and agencies lack the right to pursue federal FCA claims directly on their own behalf. But effective after agencies amend their regulations—the AFCA directs them to do by June 23, 2025, although the change in administration may cause delays—each federal agency’s Inspector General can pursue administrative FCA actions for claims aggregating up to single damages of $1,000,000, which are also subject to doubling under the statute (rather than treble damages as under the federal FCA). In addition, agencies can levy civil monetary penalties, subject to yearly inflationary increases. The amount of each per-claim penalty varies by agency but, for example, HHS may impose a penalty of up to $12,800 per claim, in addition to double damages. The AFCA may increase agency appetites to convert administrative self-disclosures, such as those made to HHS-OIG relating to potential violations of the Anti-Kickback Statute, into AFCA actions.
The AFCA replaces and expands upon the Program Fraud Civil Remedies Act (“PFCRA”), a law that allowed agencies to initiate administrative proceedings for claims up to $150,000. The initiating federal agency was responsible for investigating PFCRA claims but needed DOJ approval before bringing an action. Because of this at-times cumbersome approval process and the low statutory cap on claims, the PFCRA was not frequently used.
In contrast, the AFCA not only significantly increases the value of potential enforcement actions, it also incorporates an inflation adjustment clause, allowing the statutory cap to continue to keep pace with inflation. In addition, the AFCA expands the permissible DOJ officials who can review potential administrative FCA cases, likely accelerating the approval process. The AFCA also allows agencies to use recovered funds to reimburse themselves for the cost of investigating and litigating AFCA claims, which could fund the work of additional employees pursuing AFCA actions. The PFCRA’s statute of limitations was six years, but the AFCA incorporates the FCA’s approach of offering the longer of a six-year statute of limitations period or a ten-year statute of repose.
The AFCA also broadens the basis for liability as compared to the federal FCA: Despite its name, the AFCA prohibits not only false claims but also various types of false statements made in the absence of the submission of a false claim. Failure to establish that a defendant submitted or caused the submission of a false claim is often a critical defense for companies facing federal FCA enforcement actions, but one that could be unavailable under the AFCA. Another critical difference between the federal FCA and the AFCA is that the latter does not have a qui tam provision allowing private whistleblowers to litigate on behalf of federal agencies.
Like PFCRA cases, agencies litigate AFCA cases before administrative law judges (“ALJs”), with appeals to federal court. Defendants in ALJ proceedings often enjoy fewer procedural protections and discovery rights as compared to defendants in federal court, which can make defense of these matters more challenging.
Interested members of the public should have some visibility into the extent to which federal agencies increase the false claims cases they bring directly: The AFCA requires agencies to report how many potential claims the agency referred to DOJ reviewing officials, what actions DOJ took regarding those reports, and how long, on average, the agencies took to resolve each claim. The agency heads must transmit the reports to the appropriate Congressional committee and, after sixty days, make copies of the report available to the public upon request.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
