Violating The False Claims Act

What are False Claims Act Penalties?

The False Claims Act of 1863, 31 U.S.C. §§ 3729-3733, also known as the “Abraham Lincoln Law,” is one of the federal government’s most powerful weapons against fraud. Although meant for both civil and criminal proceedings, the civil application of the Act is the primary means of federal action and is now most heavily used in the growing area of health care fraud, followed by procurement fraud and other types of fraud in a diversity of arenas.

The False Claims Act provides that any person who knowingly submits a false claim for payment to the government is liable for the government’s damages, as well as additional monetary penalties. False claims typically include unlawful requests for government money such as overbilling government funded programs, misrepresenting the amount of a product delivered, underrepresenting an obligation to pay the government, or billing government funded programs for services never rendered.

While the government itself is the real injured party in a False Claims Act suit, the person who discovers that fraudulent behavior, known as a whistleblower or relator, brings the suit on behalf of the government and may receive up to 30% of the government’s award if the suit is successful.

When the act was originally enacted in 1863 violators of the act were liable to pay double the government’s damages plus a $2000 penalty for each claim. In 2019 the Department of Justice recovered over $3 billion in fraud and False Claims Act cases. For someone considering filing a False Claims Act lawsuit, understanding how the penalties work will help to understand what the potential whistleblower portion of the payout would be.

Strengthening of False Claims Act Penalties

Since the 1980’s the penalties have been strengthened by Congress a number of times to encourage citizens, or whistleblowers, to bring lawsuits on behalf of the United States government by increasing the penalties and thus the amount of money the whistleblowers can receive. As amended in the 1980s the False Claims Act established a civil penalty of “not less than $5,000 and not more than $10,000″ per claim.

In 1990, the Federal Civil Penalties Inflation Adjustment Act (“FCPIAA”) was created to allow federal fines and penalties to be adjusted to match the rate of inflation. These inflation adjustments can be addressed every five years in order to make sure civil fines and penalties remain effective as forms of punitive action. As stated in the FCPIAA statute penalties “play an important role in deterring violations and furthering policy goals” and should be increased occasionally based on inflation in order to “maintain the deterrent effect of civil monetary penalties and promote compliance with the law.”

In 2020 the Department of Commerce set new civil penalty fines at between a minimum of $11,463 and a maximum of $23,331 for each false claim filed as well as treble the amount of the governments damages. This means that violators of the False Claims Act would have to pay damages in the amount of three times the amount of damages which the Government sustained as well as the additional monetary penalty fine for each act of fraud or false claim submitted.

Under the Federal Civil Penalties Inflation Adjustment Act of 1990 the set amount of monetary penalty for each act of fraud is regularly adjusted based on inflation and there is no limit on the total amount of penalties that can be levied against any single entity in a given calendar year. The enhanced penalties that are tallied for each fraudulent invoice submitted to the government must be levied regardless of the actual monetary amount of damage the fraud caused. The penalty is automatic and mandatory for each false claim.

Weighing the amount of penalties against the amount of damages

Because Section 3729(a) of the False Claims Acts states that courts must count each fraudulent invoice or bill submitted to the government as its own violation with a resulting penalty there have been and will continue to be situations where the penalties for violators far outweigh the actual damages to the government.

In these situations the False Claims Act penalties requirements are viewed as punitive rather than compensatory, although the exact point at which the damages-to-penalties ratios become excessive is not exactly laid out. Under the excessive fines clause of the eighth amendment, courts can limit the imposition of penalties if those penalties are determined to be an excessive violation of the defendant’s constitutional rights. The court will weigh the significance of the fraudulent act against the actual cost to the government in making this determination. It is at the discretion of the court.

For example, where one court has held that 265 different offenses of illegally using fraudulent food stamps resulting in $1,325,000 in penalties was not unjustly disproportionate to the $255,036 in treble damages it caused, another court has held that $1 million dollars in penalties was an excessive fee to demand of the employer where the actual loss for the false claims made by its employees were only $59,320.

The False Claims Act does require the penalties be imposed, it does not expressly lay out a rule for determining the dollar amount within the current set range. District courts have the discretion to determine the amount and may weigh various factors including the abusiveness of the conduct, the type of fraud committed, the level of knowledge of the defendant, the government expenses incurred investigating and litigating a violation, or the parties justifications on the amount of penalties.

Determining the number of violations that will result in penalties

When congress increased the reward for False Claims Act whistleblowers in the 1980s, it also made it easier to succeed in proving violations that would result in penalties. In order to give the act more teeth, congress eased the substantive and procedural burdens on plaintiffs by easing the burden of proof required to prove a false claim.

Because liability can be placed on each act which leads to a false claim it is possible for a single entity or individual to be held liable for multiple false claims. The way “claims” are defined allows penalties to be assessed in a manner that may bear little relation to the loss caused and the number of false claims penalties can easily exceed the damage caused. As industries grow larger, particularly the healthcare industry, determining the number of claims can be no small feat. The range of acts that may constitute false and fraudulent claims is exceptionally wide from what may seem like minor errors such coding errors and incomplete reports to blatant actions such as receiving bribes. Since evidence of intent is not required in civil False Claims Act cases, it is easy to see how penalties from inaccuracies such as coding errors may quickly rack up if each inaccurate code is treated as a separate violation. Examples include a case where a doctor submitted 3000 false claims, causing the Government $130,000 in actual damages and was liable for $19 million, or “a construction contractor who violated Department of Labor regulations in running an employee training program [and was] held liable for a multimillion dollar judgement”.

It is clear from the range of cases that the determination of what is a false claim is key to the determination of penalties. While the Statute does make penalties mandatory, courts also have leeway in deciding what constitutes a claim to which penalties apply. Since the amendments to the Act made in the 1980s fraudulent claims resulting in penalties have been defined as “progress reports on the status and success of a software system, a primary contractor’s false billing certifications for subcontractors, false certifications of compliance with Medicare, and false representations by a university to secure federal education subsidies.”

Challenges to the imposition of penalties Double Jeopardy

The Double Jeopardy clause of the Fifth Amendment prohibits any person from being prosecuted twice for the same crime. However, even where a False Claims defendant has already pleaded guilty in a criminal suit, a False Claims Act civil suit does not invoke the Double Jeopardy Clause because the FCA treble damages are compensatory and not punitive. Additionally where a reasonable relationship exists between the award and the corrective nature of the act, FCA suits that award multiple damages and civil penalties are non punitive.

Self Disclosure

In the 1990’s the Office of Inspector General launched an initiative meant to incentivize health care providers in particular to self-disclose potential violations to allow violators to cooperate with the OIG to “promote a higher level of ethical and lawful conduct.” The incentives provided come in the form of reduced penalties and those that self-disclose are likely to be treated more leniently on a case by case basis. For the most part, those that self disclose already have some type of comprehensive compliance programs in place.