On June 14, 2018, at the ABA’s National Institute on the Civil False Claims Act and Qui Tam Enforcement, Acting Associate General, Jesse Panuccio, delivered wide-ranging remarks on the False Claims Act. Of particular interest, AAG Panuccio discussed several recent high profile enforcement priorities of the Trump Administration. (more…)
Today, DOJ announced that already-onerous FCA civil penalties will be increasing again effective immediately. Pursuant to the 2015 budget bill which required annual re-indexing of FCA penalties for inflation (discussed here), the minimum per-claim penalty, which jumped last year from $5,500 to $10,781, increases to $10,957. The maximum per-claim penalty, which rose from $11,000 to $21,563 last year, increases to $21,916. The penalties will continue to be adjusted each year to reflect changes in the inflation rate. (more…)
As we previously reported, federal FCA civil penalties were effectively doubled recently due to federal legislation requiring regular re-indexing of penalties to inflation. Now, CMS is prodding the states to amend their own FCAs to take similar action.
DOJ and HHS-OIG are charged with regularly reviewing state FCAs to determine whether they are at least as effective as the federal FCA in rewarding and facilitating qui tam actions. States that are deemed compliant receive an extra 10 percent in their share of recoveries in Medicaid fraud cases. Earlier this week, CMS announced that states will be expected to amend their FCAs to reflect the increased civil penalties now available under federal law. States will be given two years to bring their FCAs into compliance.
As we reported here, DOJ recently implemented steep increases to FCA penalties as required by the Bipartisan Budget Act of 2015, effectively doubling the prior rates. Constitutional challenges to FCA penalties under the Excessive Fines and Due Process clauses have traditionally not fared well. Supreme Court case law calls on courts to examine the ratio between punitive and compensatory damages when assessing such challenges, and the steep hikes in penalties may alter how courts adjudicate these claims. In an article available here, we discuss the future of constitutional challenges to FCA judgments in light of the starkly higher penalty range.
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.
Last year, we reported about a provision buried in the budget bill that called for all federal agencies to issue regulations by July 1, 2016 proposing increases to civil penalties in FCA cases under their jurisdiction. The first of those regulations has just been published, and it confirms that the range of civil penalties is set to almost double this year – with further increases to come in subsequent years.
Buried in the budget legislation recently signed into law by President Obama is a provision that will increase FCA civil penalties significantly. The FCA’s civil penalties were last increased by 10%, to their current levels of $5,500-$11,000, in 1999. However, the budget law requires DOJ to issue new regulations by July 1, 2016 to increase those penalties. The law also requires that the penalties be automatically adjusted each year thereafter
On July 2, 2015, the Fourth Circuit affirmed a $237 million verdict against Tuomey Hospital following a retrial in the government’s long-running effort to pursue alleged violations of the Stark law. (See our previous posts on the case here and here). As we previously reported, in 2013 in U.S. ex rel. Gosselin v. Bunk, the Fourth Circuit acknowledged that FCA awards are subject to Eighth Amendment scrutiny, but it rejected the constitutional challenge in that case without providing any concrete standards against which the constitutionality of an award in any particular case could be measured. In the more recent Tuomey opinion, the Fourth Circuit again rejected Eighth Amendment and Due Process challenges to the constitutionality of the award. However, the opinion provides a roadmap for future challengers that suggests that constitutional challenges could find traction in cases in which there is a significant discrepancy between per-claim damages and penalties.
Posted by Jaime Jones and Brenna Jenny
Three industry advocacy groups recently filed an amicus brief urging the Supreme Court to provide clear measures of proportionality between misconduct and financial liability under the FCA. See Gosselin World Wide Moving, N.V. v. United States ex rel. Bunk, U.S., No. 13–13–99, amicus brief filed 6/23/14. The Pharmaceutical Research and Manufacturers of American (“PhRMA”), the American Hospital Association (“AHA”), and the U.S. Chamber of Commerce are seeking review of a Fourth Circuit decision upholding a $24 million fine against a government contractor. The penalty was premised on the contractor’s one-time filing of a single false statement in a $3.3 million contract, which the contractor performed with no evidence of economic loss to the government. The industry stakeholders expanded on the appellant’s own arguments, which the Fourth Circuit rejected as we reported here, that this fine violates the Eighth Amendment’s Excessive Fines Clause.
The Fourth Circuit adopted a rigid approach to the imposition of penalties under the FCA, applying a separate penalty to each claim for payment that was tainted by the earlier false statement made during the contracting stage. Despite being mechanical, this approach has created great industry uncertainty. As the amici pointed out, healthcare is one of several sectors disproportionately penalized under this approach, due to the small-value, high volume nature of the claims often submitted to the government.
As the brief details, this issue presents a two-fold circuit split: not only have some courts rejected the application of the Excessive Fines Clause to FCA penalties, but those that have acknowledged Eighth Amendment-based limitations on fines have not adhered to Supreme Court precedent requiring penalties to bear a relationship to the extent of the defendant’s “clearly individualized” acts of fraud, the degree of his culpability, and the harm caused to the government.
We will continue to monitor the important developments in this case and under the Eighth Amendment, and provide updates as appropriate.
In many FCA cases, the potential liability for civil penalties is vastly higher than potential damages, even after trebling. For that reason, defendants have asserted various challenges, including Constitutional challenges, to the applicability or imposition of civil penalties. In a February 6 opinion, U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, a district court in Florida rejected the argument that a relator who foregoes a claim for damages, and seeks only civil penalties under the FCA, lacks Article III standing. Relying primarily on the Supreme Court’s 2000 opinion in Vermont Agency of Natural Resources</em&ggt;, the district court concluded that the long tradition of qui tam actions – including those for recovery of civil penalties – dating back centuries, which was cited in Vermont Agency, supported the conclusion that qui tam suits seeking recovery of civil penalties only are properly understood to be “cases” or “controversies” within the meaning of Article III. The district court also cited in support the December 2013 opinion in U.S. ex rel. Bunk v. Gosselin World Wide Moving, N.V., in which the Fourth Circuit held that relators have standing to pursue qui tam claims for civil penalties, even in the absence of any claim for damages. As we previously reported, the Fourth Circuit in that case also rejected Constitutional challenge to imposition of civil penalties under the Eighth Amendment, holding that imposition of $24 million in civil penalties in the absence of any damages did not violate the Eighth Amendment’s prohibition against excessive fines.